What Severance Pay Rules Must Employers Follow in Nicaragua?

Which Employees Qualify for Severance Pay?

• Employees dismissed without just cause after completing at least one month of continuous service with your company.
• Employees whose fixed-term contracts are ended early by the employer without a legally valid reason.
• Employees who resign for employer breach that qualifies as constructive dismissal under the Labor Code.
• Employees affected by economic or organizational redundancies where you cannot prove a just cause for dismissal.
• Employees who are not on probation or whose probationary period has effectively converted into an indefinite-term relationship.
• Employees with longer service who may also be entitled to additional seniority-based compensation and accrued benefits on termination.

What Are the Legal Timelines for Paying Severance?

In Nicaragua, you are expected to pay severance and all final dues immediately upon termination or within a very short, reasonable period, typically aligned with the last working day. Labor authorities and courts interpret delays strictly, especially where the dismissal is employer-initiated. If there is a dispute over the amount, you should still pay the undisputed portion right away and document your calculations. Any settlement or release agreement should be signed only after payment is made and clearly itemized. To reduce risk, your company should treat severance as payable in a single lump sum, not in installments, unless a court-approved or union-negotiated plan says otherwise.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Nicaragua, you risk financial, administrative, and reputational consequences. Labor inspectors and courts tend to favor employees in disputes, and non-compliance can quickly become more expensive than paying correctly from the start.

• You may be ordered to pay the full severance plus interest and monetary adjustments for late payment.
• Courts can award additional compensation for unjustified dismissal or moral damages in serious cases.
• Labor authorities may impose fines or sanctions for breaching the Labor Code or ignoring inspection orders.
• Persistent non-compliance can trigger audits, increased scrutiny, and potential suspension of operations in extreme cases.
• Disputes can escalate into collective conflicts, damaging your employer brand and union relationships.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to follow Nicaragua’s severance rules, but it can shift day-to-day compliance work to the EOR. In most EOR models, the EOR is the legal employer on paper and is responsible for calculating and paying severance under the Labor Code. However, your company usually bears the economic cost through your service fees or a pass-through of termination expenses. If the EOR mishandles a termination, employees and authorities may still look to your business as the real decision-maker. Clear contracts, approval workflows, and documented termination reasons are essential so liability is properly allocated and defensible.

Be 100 Percent Compliant in Offering Severance with Playroll

With Playroll, your team gets a structured process for handling Nicaraguan terminations, from checking just-cause grounds to calculating statutory severance and accrued benefits. We help you align notice, documentation, and timing so that payments are made promptly and in line with the Labor Code. That reduces the risk of claims for unfair dismissal, wage arrears, or penalties for late payment.

Playroll’s Employer of Record model centralizes contracts, payroll, and termination records, giving you a single source of truth for each Nicaraguan employee. Your managers stay focused on performance and workforce planning while our experts track legal updates, market practice, and negotiation norms. When you do need to end an employment relationship, we guide you through each step so your company stays compliant and protects its reputation.