Difference Between Compensation and Indemnity

Compensation is the value attributed to the employee for the expiry of the fixed-term employment contract and the uncertain-term employment contract, due to the termination (through the letter of non-renewal of the contract) operated by the company.

Since the termination of the employment contract operated by the worker does not confer the right to compensation.

In cases where the termination of the employment contract is operated by the company, the worker is entitled to compensation in the amount of:

• 21 days of basic pay, if the contract lasts one year.
• 15 basic pay days for each full year of the contract’s duration, in addition to the first year.
• 1, 75 days of basic remuneration for each month of contract duration up to one year.

In uncertain term contracts of more than five years, the worker is entitled to compensation in the amount of 10 days of basic remuneration for each full year, after the first five years.

In the case indicated in the previous paragraph, the employee is also entitled to a compensation of 1 day of basic remuneration for each month of the contract’s duration up to one year.

For example: if the worker is hired under a fixed-term employment contract lasting 1 year, with the termination of the said contract made by the company, the worker is entitled to compensation in the amount of 21 days of basic remuneration. If the aforementioned fixed-term employment contract lasts 2 years, the employee is entitled to compensation in the amount of 21 days of basic remuneration for the first year, plus 15 days of basic remuneration for the second year. In the event that the contract lasts 2 years and 6 months, the employee is entitled to compensation in the amount of 21 days of basic remuneration for the first year, plus 15 days of basic remuneration for the second year, and 1, 75 days of basic remuneration for each month.

In turn, indemnity is the amount that is attributed to the worker dismissed without just cause.

In the case of an employment contract for an indefinite period, the amount of indemnity is equal and 40 days of remuneration for each year of full service or fraction of seniority.

Whether there is a fixed-term employment contract or an uncertain-term employment contract, the indemnity is equal to the maturing wages (that is, it is equal to the future wages until the date on which the employment contract is renewed).