What Severance Pay Rules Must Employers Follow in Uruguay?

Which Employees Qualify for Severance Pay?

• Employees dismissed without just cause after completing a probationary period or short initial service.
• Employees on open-ended contracts whose employment is terminated unilaterally by the employer without serious misconduct.
• Employees whose fixed-term or task-based contracts are ended early by the employer without a legally valid reason.
• Employees who experience an indirect dismissal due to the employer’s serious breach of obligations, as recognized by courts.
• Employees affected by certain collective redundancies, closures, or restructuring where no just cause is proven.
• Employees who are not excluded by specific rules, such as some domestic workers or those validly dismissed for gross misconduct.

What Are the Legal Timelines for Paying Severance?

In Uruguay, severance is expected to be paid promptly at the time of termination, together with final salary and accrued benefits. In practice, your company should aim to settle all amounts on the employee’s last working day or within a few days of the dismissal notice. Courts look at whether payment was made without undue delay, and late payment can trigger interest and indexation. If there is a dispute about the amount, you should still pay the undisputed portion immediately while documenting the disagreement. Using a clear written breakdown of severance, notice, and accrued benefits helps you evidence compliance.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Uruguay, you risk financial, legal, and reputational consequences. Employees can file claims before labor courts, which generally interpret dismissal protections in favor of workers. Underpayment or late payment can lead to additional sums on top of the original severance owed.

• Courts can order payment of outstanding severance, salaries, and accrued benefits with monetary correction.
• Interest and inflation adjustments may apply from the date the amounts should have been paid.
• You may face additional compensation if the dismissal is found abusive or discriminatory.
• Legal costs and attorney fees can be awarded against your company in litigation.
• Non-compliance can damage your reputation with unions, regulators, and future hires.

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 Uruguayan severance rules. In most EOR models, the EOR is the legal employer on paper and is responsible for calculating and paying statutory severance. However, your company usually bears the economic risk through the commercial agreement with the EOR, including reimbursement of severance and related costs. If the structure is challenged, courts may look at who exercised real control over the employee and could find joint or shared liability. You should ensure your EOR contract clearly allocates dismissal decision-making, documentation, and funding responsibilities.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance in Uruguay means tracking service time, salary components, and the legal grounds for every termination. Playroll helps your team standardize this by mapping local rules into clear workflows, so you know when severance is due, how it is calculated, and what documentation to keep. That reduces the risk of ad hoc decisions that can later be challenged in court.

With Playroll, you can centralize approvals for dismissals, generate compliant termination summaries, and coordinate timely payments through local payroll channels. Our approach is to keep you ahead of issues: flagging potential risks like repeated fixed-term renewals, misclassified cause-based terminations, or delayed final payments before they turn into costly disputes.