CTS in Peru: the severance deposit explained for employers

Few items on a Peruvian payroll puzzle foreign finance teams as much as CTS. It is not severance pay in the usual sense, it is not a pension contribution, and it is not a bonus. CTS, short for Compensación por Tiempo de Servicios, is a severance fund that the employer deposits twice a year into a bank account in the employee’s name. Its purpose is to give the employee savings to fall back on when employment ends, whatever the reason for the exit.

For a CFO, CTS matters for three reasons: it is a meaningful share of the annual cost of each employee, it creates two fixed cash-outflow dates each year, and errors in its base are among the most common payroll findings in Peru. This article explains how it works and where the risks lie. It is part of our guide to mandatory employee benefits in Peru.

Legal framework

• Supreme Decree 001-97-TR, the consolidated text of the CTS Law (Legislative Decree 650), defines the benefit, its base, its deposit dates and its protection.
• Supreme Decree 004-97-TR is its implementing regulation.
• Law 32322 (published in May 2025) temporarily allows employees to withdraw 100% of their deposits until 31 December 2026.
• Supreme Decree 019-2006-TR, the regulations of the labor inspection law, classifies failure to deposit CTS as a serious infringement.

CTS applies to private-sector employees whose average working day is at least four hours. Part-time employees below that threshold do not accrue it. Companies under the special micro-enterprise regime do not owe CTS, and small enterprises owe a reduced amount; groups relying on those regimes should confirm their status, since the legal framework for micro and small enterprises is being reformed.

The deposit calendar

If the last day of the deadline is not a business day, the deadline moves to the next business day. After each deposit, the employer must give the employee a statement of the deposit within five business days.

The employee chooses the depositary institution. Onboarding in Peru should therefore include collecting the employee’s choice of bank and account, a step that global onboarding workflows often omit.

How each deposit is calculated

Each deposit equals one-twelfth of the computable remuneration for every full month worked in the six-month period. Days are computed in thirtieths.

The computable remuneration is broad. It includes:

• the basic salary;
• all amounts the employee regularly receives, in cash or in kind, as consideration for work, provided they are freely available to the employee;
• the value of the employee’s main meals where provided; and
• one-sixth of the gratificación (the statutory July or December bonus) received during the period.

Variable amounts count as regular if received in at least three months of each six-month period; in that case their average is included. Certain items are excluded by law, such as occasional extraordinary bonuses, profit sharing, working conditions and some family-event payments. The line between what is and is not included is explained in our article on computable pay in Peru.

Worked example (hypothetical figures)

Assume an employee with a fixed monthly salary of S/ 9,000 and no variable pay, who worked the whole period from November to April and received a December gratificación of S/ 9,000.

• Computable remuneration: S/ 9,000 + (S/ 9,000 ÷ 6) = S/ 10,500
• May deposit: S/ 10,500 × 6/12 = S/ 5,250

Now assume a second employee who joined on 1 August with the same salary. For the May-to-October period, they completed three full months (August, September and October). They did not receive the July gratificación, because they were not yet employed during the first half of the year.

• Computable remuneration: S/ 9,000
• November deposit: S/ 9,000 × 3/12 = S/ 2,250

For a full-time employee with fixed pay who works the whole year, the two deposits together are close to one month’s salary plus one-sixth of the two gratificaciones. That is the order of magnitude a budget should reflect.

CTS and the annual cost of an employee

A useful rule of thumb for foreign headquarters: a Peruvian employee on the general regime costs, before other items, 12 monthly salaries, 2 gratificaciones, the extraordinary bonus attached to the gratificaciones, and roughly one additional month through CTS, plus the employer’s health contribution to EsSalud, Peru’s public health insurance system. A fuller breakdown appears in our article on gratificaciones, Peru’s July and December bonuses.

When budgeting in USD, keep in mind that CTS is calculated on remuneration in soles for most local employees and paid on two fixed dates. Exchange-rate variation between the budget rate and the rate on the deposit date affects the reported cost.

The temporary withdrawal law: handle with care

As a general rule, CTS deposits are protected: they cannot be seized except for family support obligations, and the employee may freely dispose only of the amount exceeding four gross monthly salaries.

Law 32322 introduced an exception: until 31 December 2026, employees may freely withdraw 100% of their CTS deposits, on a one-time basis. The law also allows employees with a terminal illness or cancer, evidenced to the employer, to withdraw all their CTS at any time. From 1 January 2027, the general protection rules return.

For employers, the practical consequence is that employees may ask HR for documents or certificates related to their withdrawals. HR should respond with factual information and avoid advising employees on whether to withdraw.

Illustrative scenario

Common mistakes

• Using the group’s definition of “base salary.” Peruvian computable remuneration is wider than most global definitions.
• Forgetting the one-sixth of the gratificación in the base.
• Ignoring regular variable pay such as commissions or recurring allowances.
• Missing the employee’s choice of bank at onboarding, which delays the first deposit.
• Paying CTS with salary instead of depositing it.
• Assuming the withdrawal law suspends deposits. It does not.

Consequences of non-compliance

Failure to deposit CTS is classified as a serious infringement under the labor inspection regulations. Fines imposed by SUNAFIL, Peru’s national labor inspection authority, are expressed in UIT (the tax reference unit, S/ 5,500 in 2026) and scaled by company size and number of employees affected. Beyond fines, underpaid deposits remain owed to the employee and typically surface in exit settlements, claims and due diligence reviews. On termination, the employer must also issue, within 48 hours, the certificate the employee needs to withdraw the funds; that step is part of the final settlement on termination.

Checklist for each deposit cycle

• Confirm each employee’s depositary bank and account.
• Identify all pay components received in the period and apply the regularity test.
• Add one-sixth of the gratificación received in the period.
• Compute full months and days worked, including joiners and leavers.
• Deposit within the first 15 calendar days of May or November.
• Deliver the deposit statement within five business days.
• Add both deadlines to the company’s annual employment compliance calendar.

Where monthly payroll is outsourced, for example to a provider such as Lynch Payroll, the provider executes the calculation, but the company still decides which pay components exist and how they are classified. That decision is where most CTS errors originate.

Preventive recommendations

As a preventive criterion, we recommend a one-time mapping of every pay component used in Peru against the statutory definition of computable remuneration, signed off by legal and finance, and reviewed whenever a new incentive plan is introduced. Our statutory benefits review covers that mapping, the recalculation of past deposits where needed and the documentation to support the company’s position.

Bottom line

CTS is predictable once its logic is understood: two deposits a year, a broad base and a fund that belongs to the employee. Most errors come from importing foreign definitions of pay. A clean mapping of pay components and a fixed calendar are the two controls that keep it right.