Question 1

How is statutory severance pay (פיצויי פיטורים) calculated in Israel?

Accepted Answer

Under the Severance Pay Law 1963, an employee dismissed after at least one full year of continuous service is entitled to severance pay equal to one month's gross base salary for every year of service, plus pro-rated pay for partial years.

Question 2

What is the Section 14 Arrangement (סעיף 14 לחוק פיצויי פיטורים)?

Accepted Answer

Section 14 is a statutory arrangement where the employer deposits 8.33% of monthly salary into a severance fund in lieu of severance pay upon dismissal. The employee is entitled to these funds upon resignation or dismissal, and the employer is shielded from paying retroactive top-ups on previous lower salary levels.

Question 3

What happens if the employer deposited only 6% for severance under Section 14?

Accepted Answer

If the employer deposited only 6% (the statutory minimum under the mandatory pension extension order), the employer must pay a severance top-up of 28% of the final monthly salary for each year of service if the employee is dismissed.

Question 4

What is the statutory tax exemption ceiling for severance pay?

Accepted Answer

Under Section 9(7a) of the Israeli Income Tax Ordinance, severance pay is exempt from income tax up to ₪13,750 (2025 ceiling) per year of service. Any amount exceeding this threshold is taxed as regular marginal income.

Question 5

Does an employee who resigns voluntarily receive severance pay?

Accepted Answer

Under a standard Section 14 arrangement, the employee retains all accumulated severance funds even upon voluntary resignation. Without Section 14, resigning employees generally do not receive severance unless resigning for specific statutory reasons (e.g., after childbirth, severe illness, or relocating to a development area).

Israel Severance Pay (Pitzuim) Calculator

Employment Tenure & Compensation Data

Statutory Severance Breakdown & Tax Ledger