What Severance Pay Rules Must Employers Follow in Paraguay?

Which Employees Qualify for Severance Pay?

• Employees dismissed without just cause after completing the statutory probation period and holding an indefinite-term contract.
• Employees whose fixed-term contracts are ended early by the employer without a legally valid reason.
• Employees who resign for employer fault where courts or authorities treat the situation as constructive dismissal.
• Employees terminated during protected situations, such as pregnancy or union activity, where dismissal is found to be unjustified.
• Employees affected by economic or organizational redundancies where the employer cannot prove a legally recognized just cause.
• Employees with continuous service whose employment ends due to unilateral employer decision not grounded in serious misconduct.

What Are the Legal Timelines for Paying Severance?

In Paraguay, severance must be paid promptly once the employment relationship ends, and in practice employers aim to settle all amounts on or shortly after the final working day. The Labor Code requires immediate payment of all outstanding wages, accrued vacation, proportional bonuses, and any severance owed at termination. Labor authorities and courts expect no undue delay, and late payment can trigger interest and potential claims. To stay safe, your company should target payment within a few business days of termination and document the breakdown clearly. When a dispute exists over the amount, it is prudent to pay the undisputed portion immediately while negotiating or litigating the balance.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Paraguay, you risk labor claims, financial surcharges, and reputational damage. Labor inspectors and courts tend to favor employees where records are incomplete or payments are delayed, so non-compliance can become costly quickly.

• Employees can file claims for unpaid severance, salary differences, and interest before labor courts.
• Courts may award monetary compensation, including legal costs and potential penalties, on top of the original severance.
• Labor authorities can impose administrative fines for breaches of the Labor Code and poor record-keeping.
• Persistent non-compliance can lead to inspections, blacklisting risks, and damage to your employer brand.
• Disputes over terminations can consume management time and delay future restructuring plans.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as the solution described at https://www.playroll.com/employer-of-record does not remove the need to follow Paraguayan severance rules. In a compliant EOR model, the EOR is the legal employer on paper and is responsible for calculating and paying severance under the Labor Code. However, your company typically funds those costs through the EOR and may be held jointly or indirectly responsible if the structure is seen as abusive. Courts can look through the arrangement if the client company effectively controls the work relationship. You should ensure your EOR contract clearly allocates severance responsibilities and that the provider follows local practice.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance in Paraguay means tracking service time, salary components, and the legal grounds for every termination. Playroll helps your team structure compliant contracts, monitor key dates, and model severance exposure before you make a termination decision. You get clear documentation and locally aligned workflows so that final pay, benefits, and severance are processed accurately and on time.

With Playroll as your global employment partner, you can rely on in-country expertise while keeping strategic control over your workforce decisions. Our platform standardizes approvals, stores evidence of just cause where applicable, and coordinates with local counsel and payroll providers. That way, your company reduces the risk of disputes, surprise liabilities, and penalties when ending employment in Paraguay.