Advance severance payments to garment workers in El Salvador
In El Salvador’s garment sector, employers frequently pay workers an additional month’s salary per year, labeled as an advance severance payment. Employers are not required by Salvadoran law to provide these payments in advance. However, employers see this practice as a way to reduce the risk of being unable to pay the legally required severance that would normally follow termination without cause. This risk is especially high in cases of mass layoffs or unexpected factory closures, which happen frequently in El Salvador.
According to Article 58 of the Salvadoran Labor Code, when an employer terminates an employment relationship without cause, the employer must pay the worker severance (indemnización). Workers are entitled to one month’s salary for each year of employment. The law does not prohibit advancing severance payments. In addition, Article 38, No. 11 of the Salvadoran Constitution states that employers are obligated to pay severance in accordance with the law to workers who they terminate without cause.
Despite the constructive intent behind these payments, the inclusion of advance severance payments in worker paychecks has caused confusion and questions about their efficacy since the practice is not predicated on existing law or regulation. This issue brief offers recommendations to help companies correctly implement the practice of providing advance severance payments to garment workers in El Salvador.