# Pitzuim and Section 14 vs TFR: Severance in Israel and Italy

> Israeli severance pay and Section 14 pension deposits vs Italian TFR, paid on every exit at about 6.91% of pay. How to budget an Italian hire.

Every Israeli CFO knows the **Section 14** question from due diligence: are severance deposits made at 8.33% under Section 14, or is there a gap liability? Italy has its own answer to severance, **TFR** (trattamento di fine rapporto), and it is simpler in one way and stricter in another: it accrues on all pay, is paid on every exit including resignation, and cannot be contracted away. Overview on [Italy vs Israel](/italy-vs-israel.html).

## Israel: Severance Pay Law and Section 14

Under the Severance Pay Law, 5723-1963, an employee dismissed after at least one year of service is entitled to **one month's last salary for each year of service**, pro rata for part years. Certain resignations are treated as dismissal (for example relocation, health, worsening of conditions, or after the birth of a child), but an ordinary resignation does not trigger statutory severance. <!-- review: link English text of Severance Pay Law on gov.il or Knesset -->

**Section 14** of the law allows the employer to replace the end-of-service payment with monthly deposits into a pension fund or provident fund, under a general approval issued by the Minister. When the deposits cover the full **8.33%** of salary (one-twelfth) and the arrangement is agreed in writing, the deposits replace severance entirely and belong to the employee whatever the reason for leaving. Under mandatory pension (pensia hova), the minimum severance component is **6%**, so an employer that deposits only 6% keeps a top-up liability of 2.33% if the employee is dismissed. 

In practice, most Israeli tech companies use full Section 14 at 8.33% so that severance cost is predictable and fully funded month by month.

## Italy: TFR under art. 2120 of the Civil Code

- **Who:** every employee, permanent or fixed-term, from the first day. No one-year qualifying period.
- **How much:** each year, annual pay divided by **13.5**, about 7.41%, minus a 0.50% contribution paid to INPS, so the net accrual is usually quoted as about **6.91%** of pay. "Pay" includes the 13th and 14th month and other regular items.
- **Revaluation:** each 31 December, the accumulated fund is revalued at **1.5% plus 75% of ISTAT inflation**.
- **When paid:** at the end of employment, for **any** reason, including resignation.
- **Where it sits:** the employee chooses within six months whether to leave TFR with the employer or move future accruals to a supplementary pension fund (Legislative Decree 252/2005). In companies with 50 or more employees, TFR kept by the employer is transferred to an INPS treasury fund.

Example: a RAL of €60,000 accrues about €4,444 gross a year, about €4,146 after the 0.50% contribution, before revaluation.

## Side by side

| Topic | Israel | Italy |
|---|---|---|
| Legal basis | Severance Pay Law 1963 | Civil Code art. 2120 |
| Qualifying period | 1 year | None |
| Paid on resignation | Only with Section 14 release or qualifying reasons | Always |
| Rate | 8.33% (one month per year) | ≈6.91% net of all regular pay |
| Funding | Pension/provident fund under Section 14 | Employer, INPS fund or pension fund |
| Can be replaced by contract | Yes, Section 14 | No |
| Extra on dismissal | Notice, possible hearing compensation | Notice, NASpI ticket, possible indemnity |

## Not the same thing as Israeli severance top-up

Some Israeli finance teams try to map TFR onto the 6% vs 8.33% gap. That is the wrong model. TFR is not a dismissal payment; it is deferred salary. Dismissal costs in Italy are separate: **notice** under the CCNL, the **NASpI ticket** (about €649.73 per year of service, up to about €1,949 in 2026), and, if the dismissal is unjustified, the **Jobs Act indemnity** of 6 to 36 months' pay (3 to 18 for small employers). See [shimua and advance notice vs Italian dismissal rules](/articles/israel-shimua-advance-notice-vs-italian-dismissal-rules.html).

## Collective dismissals

In Israel, layoffs are mainly governed by the hearing duty, notice and severance, plus collective agreements where there is a union. In Italy, five or more dismissals in 120 days in a company with more than 15 employees require the collective procedure of Law 223/1991, with union consultation and selection criteria. Without a union agreement the NASpI ticket is tripled.

## Tax treatment

Israeli severance has a tax exemption up to a ceiling per year of service, with the option to continue the funds as pension. TFR is subject to **separate taxation** (tassazione separata) in Italy, at an average rate based on the employee's past income rather than the year's marginal rate. The employer withholds it on payment.

## Due diligence

If you plan an exit, investors will ask about Italian employees too. The questions change: Is TFR accrued and correctly revalued? Has the employee's pension fund choice been documented? Are there pending dismissal claims? With an EOR, these sit with the Italian employer, and the TFR balance appears on every payslip.

## Common questions from Israeli CFOs

**Can the employee get TFR before leaving?** After eight years of service, an advance of up to 70% for specific reasons such as medical expenses or buying a first home, within limits on the number of requests.

**Does TFR count variable pay?** Regular, non-occasional pay counts, including the 13th and 14th month. One-off bonuses and expense refunds generally do not, and the CCNL can define exclusions.

## What this means if you hire through an EOR

The EOR accrues TFR monthly in payroll, includes it in the employer cost you are invoiced, and pays it (or the pension fund pays it) when employment ends. There is no Section 14 decision to make and no gap liability: you budget about 7% of pay on top of salary and INPS. Run the numbers in the [cost calculator](/calculator.html), read about [Italian employment contracts](/italy-employment-contracts.html) or [contact us](/contact.html). Other countries: [Italy vs your country](/italy-vs-your-country.html).

## Related guides for Israeli companies

- [Bituach Leumi and pensia hova vs INPS](/articles/israel-bituach-leumi-pension-vs-inps-employer-cost.html)
- [Shimua and advance notice vs Italian dismissal rules](/articles/israel-shimua-advance-notice-vs-italian-dismissal-rules.html)
- [Notice of employment terms vs the Italian contract](/articles/israel-notice-of-employment-terms-vs-italian-contract-ccnl.html)

*General information, not legal advice.*

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Source: https://hiringitaly.com/articles/israel-severance-section-14-vs-italy-tfr.html · 2026-11-10