Rol No. 54,883-2024, decided on April 28, 2026 by the Fourth Chamber of the Supreme Court, established a rule that directly affects the calculation of termination indemnities: when an employer pays overtime on a permanent and sustained basis, that overtime pay is included in the last monthly remuneration for indemnity purposes, even though art. 172 of the Labor Code generally excludes "overtime payments." What determines the exclusion is not the name of the benefit, but whether the payment is habitual or sporadic. If your company maintains regular overtime schedules, the indemnity liability could be higher than your records show.
What happened
M.S. worked for CBC King Market SpA. with a base salary of $450,000 per month. Throughout the employment relationship, he received overtime regularly and continuously, reaching total compensation of $1,237,500 per month. At the end of the contract, the court of first instance set the last monthly remuneration at $1,237,500, including overtime pay in the indemnity calculation base. CBC King Market SpA. filed an appeal for nullity. The Santiago Court of Appeals upheld the appeal in September 2024 and reduced the base to $450,000, excluding overtime pay on the grounds that art. 172 excludes "overtime payments." The worker filed a petition for unification of case law. The Fourth Chamber upheld the petition on April 28, 2026 and invalidated the judgment of the Court of Appeals. The decision rule: art. 172 excludes occasional or sporadic benefits, not those paid regularly and permanently. During the employment relationship, M.S. accumulated 1,800 overtime hours paid by his employer. That level of systematic payment strips overtime of its occasional character. Automatically excluding it because of its legal label violates art. 172 of the Labor Code. Justice Jessica González Troncoso was in favor of rejecting the petition, considering that the contrasting judgment was not suitable for the purposes of the unification petition for admissibility reasons.
What this may mean for your company
Art. 172 of the Labor Code excludes three categories from the last monthly remuneration: the legal family allowance, overtime payments, and sporadic or annual benefits. For years, many employers read that exclusion automatically: all overtime payments were left out of the indemnity base, regardless of how often they were paid. This ruling breaks that reading. The distinction established by the Supreme Court is functional, not nominal. What matters is not what the benefit is called on the payslip or in the contract, but whether the worker received it regularly, month after month, as part of his or her real income. When that happens, overtime pay ceases to be an "overtime payment" within the meaning of art. 172 and becomes part of the base. The economic impact can be material. In the case decided, the gap between base salary and total remuneration was $787,500 per month: a difference that, multiplied by years of service, can triple the indemnity amount. If workers in your workforce receive habitual overtime pay in similar amounts, current accounting provisions could be understated. That said, the ruling does not eliminate the exclusion of overtime: it preserves it for genuinely occasional payments. If your company pays overtime only for specific projects, seasonal peaks, or short-term contingencies, that overtime pay remains sporadic and does not enter the base. The habitual/sporadic distinction is the key. And there is a gray area: the ruling does not define a numerical threshold of consecutive months that transforms the occasional into the permanent. Intermediate cases remain open to dispute.
What you can do
If your company has workers who receive overtime regularly, the basis for calculating potential indemnities has changed. Three concrete actions:
- Take inventory of your workforce's variable compensation, identifying which workers receive overtime pay on a recurring basis, how many consecutive months they have been receiving it, and what the gap is between base salary and total monthly remuneration.
- Project the indemnity liability using the corrected base, incorporating habitual overtime pay into the calculation of severance for years of service and prior notice. Adjust accounting provisions if applicable.
- Review current overtime agreements and clauses. If overtime has been structured as permanent by contract or sustained practice, assess whether that setup exposes your company to a higher liability and whether it is advisable to reformulate the terms.
If you need to assess the impact of this ruling on your workforce compensation structure or review current overtime agreements, schedule a meeting with our team: https://calendar.app.google/f13cTubrP12uveuBA This content is informational and does not constitute legal advice for a specific case. Source: Rol No. 54,883-2024, Fourth Chamber of the Supreme Court, April 28, 2026.