Calculate your Israeli severance pay (Pitzuei Pita) for 2025. One month salary per year of service for dismissed employees. Based on last 3-month average salary. Source: Israeli labor law.
Enter your average monthly salary and years of employment to calculate your Israeli severance pay (Pitzuei Pita) entitlement under the Severance Pay Law.
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How Israeli severance pay is calculated
Israeli severance pay (Pitzuei Pita) follows a straightforward formula set by the Severance Pay Law 5723-1963. An employee who has been dismissed after at least one year of service is entitled to one month of their final salary for every year (or fraction of a year) worked for the same employer. The salary used is typically the average of the last three months of employment, including base pay and regular allowances but excluding exceptional one-off payments. Longer tenure means a proportionally larger payout: five years of service at a monthly salary of 12,000 ILS produces a severance entitlement of 60,000 ILS.
The 2008 pension reform and Section 14 arrangement
Since the 2008 mandatory pension reform, Israeli employers allocate 8.33% of each employee’s monthly gross salary to a pension or provident fund as the employer severance component. Under the Section 14 arrangement (Hesder Sif 14), this accumulated fund balance satisfies the statutory severance obligation when the employee leaves. In most modern employment contracts, the Section 14 arrangement is in place, meaning the severance is built up over time inside the pension fund and does not represent a large lump-sum liability for the employer at termination. If the fund balance falls short of the statutory entitlement (for example, due to investment losses), the employer must bridge the gap.
What is and is not included in this calculation
This calculator covers the statutory minimum severance entitlement only: one month average salary per year of service. It does not account for any additional contractual severance terms that may exceed the statutory minimum, nor does it model the tax-exempt ceiling or the tax treatment of amounts above the ceiling. Employees should verify whether a Section 14 arrangement is in place, confirm the current pension fund balance, and consult a labor law adviser or tax accountant before relying on these figures in a dispute or settlement negotiation.
Frequently asked questions
Who is entitled to severance pay in Israel?
Under the Severance Pay Law 5723-1963, an employee who has worked for the same employer for at least one year and is dismissed by the employer is entitled to severance pay. The key condition is dismissal by the employer. Employees who resign voluntarily generally do not receive statutory severance pay, with limited exceptions such as resignation due to a significant deterioration in working conditions, moving to a different city following a spouse, or health reasons. Part-time employees are entitled to severance on the same pro-rata basis as full-time employees.
How is Israeli severance pay calculated?
The statutory formula is one month of the employee last salary per full year of service. The relevant salary figure is typically the average of the last three months of employment, including all regular salary components but excluding one-off bonuses. Years of service are counted from the first day of employment to the last. Partial years are counted proportionally: six months counts as half a year, for example. The calculation multiplies the monthly average salary by the number of years (and fractions) to arrive at the total severance entitlement.
What changed with the 2008 Israeli pension reform regarding severance?
Since the 2008 comprehensive pension reform came into force, employers in Israel are required to allocate 8.33% of the employee monthly salary into a pension fund or provident fund as the employer severance component. When an employee is dismissed, the accumulated severance component in the pension fund is typically released to the employee in full satisfaction of the statutory severance entitlement. This is sometimes called the arrangement under Section 14 of the Severance Pay Law. If the fund balance covers the full statutory entitlement, the employer pays nothing extra. If it falls short (for example, due to poor fund performance), the employer must top up the difference.
Is Israeli severance pay taxable?
Severance pay received by a dismissed employee is generally exempt from income tax in Israel up to certain limits set by the Income Tax Ordinance. The exempt ceiling is recalculated each year by the Israel Tax Authority. Amounts above the exempt ceiling are subject to income tax, but a concessional tax rate may apply under specific conditions. Severance pay released from a pension fund under the Section 14 arrangement is treated differently and in most cases is fully tax-exempt, subject to the statutory cap. Employees should consult the Israel Tax Authority (Mas Hachnasa) or a tax adviser to confirm the tax treatment for their specific situation.