Calculating severance pay: calculator, determining wage and Section 14

Who is entitled to severance pay?

A person who worked for one year continuously for one employer or in one workplace and was dismissed is entitled to severance pay. For a seasonal employee, the condition is two seasons in two consecutive years (section 1(a) of the Severance Pay Law, 5723-1963). A dismissal shortly before the end of the first year is presumed to be intended to avoid paying severance pay, unless proved otherwise. It does not affect the right (section 3).

A person who resigned is also entitled to severance pay in situations that the Law treats as dismissal. One is a resignation because of a material deterioration in working conditions. Another is a resignation because of other circumstances in the employment relationship in which the employee cannot be required to continue working (section 11(a)). Others are a resignation because of the health of the employee or of a family member (section 6), and a resignation within nine months of giving birth in order to care for the child (section 7). The last is a resignation because of moving home under the conditions set in regulations (section 8). Details: Resignation deemed dismissal.

The formula, and what exactly counts in the wage

The basic formula: last monthly wage × number of years of employment = severance pay. A hypothetical example: an employee has 9 years of seniority and a wage of NIS 11,000. They are entitled to NIS 99,000 (section 12, as of 4 October 2026). A partial year of employment is calculated proportionally.

But disputes usually concern the definition of the “last wage”. Under the regulations, it includes the basic wage, seniority increment, cost-of-living increment and family increment. A departmental or professional increment counts as part of the basic wage. This is under regulation 1 of the Severance Pay Regulations (Calculation of Severance Pay and Resignation Deemed Dismissal), 5724-1964 (תקנות פיצויי פיטורים (חישוב הפיצויים, והתפטרות שרואים אותה כפיטורים), התשכ״ד-1964). Part of the wage may be paid for performing work, as a share of the turnover or by the quantity of output. For that part, the last wage is the average of the 12 months before the dismissal (regulation 9). In any case, the wage taken into account may not be lower than the minimum wage for the job scope (section 13B of the Law).

The calculator above multiplies the wage you entered, and does not check which components were included in it. The components are checked against the payslips.

A hypothetical example: a calculation with Section 14, under sections 12 and 14 of the Law as worded on 4 October 2026. A monthly-salaried employee worked for 6 years and 3 months, and their last wage was NIS 12,000. From the start of employment, a Section 14 arrangement replacing 72% of the severance pay applied to them. Deposits were made on the full wage. Under section 12: 12,000 × 6.25 = NIS 75,000. The part the arrangement replaces: 72% × 75,000 = NIS 54,000. The difference: NIS 21,000. If the deposits were made on a lower wage, the arrangement applies only to the wage from which deposits were made. The right for the wage above it is preserved (paragraph (3) of the general approval).

Seniority for severance pay: which breaks count?

Continuity is preserved even when there was a break in work (section 2 of the Severance Pay Law). This covers breaks because of reserve duty, annual leave, and paid or unpaid leave given under law or with the employer’s consent. It also covers a strike or a lockout, and an accident or illness. And it covers a temporary break in which the employment relationship was not cut off, or a break in which it was cut off that does not exceed six months.

But continuity is one thing, and the amount is another. Some breaks count for continuity, but are not included in calculating the amount (regulation 10 of the Severance Pay Calculation Regulations):

A hypothetical example: a monthly-salaried employee worked for 6 years, and in one of the years went on 60 days of unpaid leave. 46 days are deducted from the amount: the part beyond 14 days in that year (regulation 10(3)). With a determining wage of NIS 10,000: 10,000 × (6 − 46/365) = NIS 58,740 (section 12(a)). Reserve duty in the same period would not have been deducted (section 13).

An hourly employee or a part-time position: how is it calculated?

Take an employee who is not a “monthly-salaried employee”, for example an employee paid by the hour. For the period of work from 1 August 1983, they are entitled to one month’s wage for each year of employment. This is under section 12(a) of the Law and regulation 1 of the Severance Pay Regulations (Rates of Severance Pay for an Hourly or Daily-Paid Employee). The number of hours may have changed. The National Labor Court held that the calculation is then by the job scope in each period, and not by the average of the last 12 months only (Labor Appeal (ע״ע) (National) 44824-03-16, 4 June 2017). A monthly-salaried employee may have moved between full-time and part-time work. Then each period is calculated by their wage on the eve of the dismissal, in proportion to the part-time fraction in that period (regulation 7).

Section 14: when the pension replaces severance pay

A payment to a fund replaces severance pay only in two cases, and only to the extent set (section 14 of the Severance Pay Law). The collective agreement that applies to the employer and the employee set this. Or an approval of the Minister of Labor set it. A general approval was issued under the section (paragraph 1(a) of the general approval). Under it, employer payments to a pension fund at a rate of at least 12% of the wage from which deposits were made replace only 72% of the severance pay. This applies without an additional 2⅓% to complete severance pay. With the completion, or with a payment of at least 14⅓%, they replace 100%. The Extension Order for Comprehensive Pension Insurance in the Economy also deals with this. The employer’s severance payments under the order replace severance pay under section 14 only for the wage, the components, the periods and the rates for which they were deposited. They do not reduce the right to severance pay for wages, components, periods or rates for which no deposits were made. This is section 7 of the Extension Order (Consolidated Version) for Mandatory Pension, Yalkut HaPirsumim 6302, 27 September 2011.

The arrangement applies only to the wage from which the payments were made, and to the period for which they were made. It does not reduce the right to severance pay for wages above that (the opening paragraph and paragraph (3) of the general approval). The top-up to full severance pay is due only when there is a right to severance pay. Examples are dismissal, or a resignation that the Law treats as dismissal (sections 1(a) and 6 to 11). It is also due in other cases in the Law (for example sections 4, 5 and 9).

The general approval requires a written agreement between the employer and the employee (paragraph (2)). It must be made no later than three months from the start of the payments. It also includes the employer’s advance waiver of the return of the money, except for the exceptions in the approval. The arrangement applies only to the wage from which the payments were made, and to the period for which they were made. It does not reduce the right to severance pay for wages above that (the opening paragraph and paragraph (3)).

Tax on severance pay: what the calculator does not calculate

The calculator shows gross amounts and does not calculate tax. A grant received because of retirement, including severance pay, is exempt from tax up to a limit (section 9(7a)(a)(1) of the Income Tax Ordinance). The limit is one month’s salary for each year of employment, based on the last salary. There is also a cap for each year of employment: NIS 13,750 as of 1 January 2026. The amount is not adjusted to the CPI in the years 2025–2027 (sections 9(7a)(a)(2) and 120B(e)(1) of the Ordinance).

For the taxable part, you can ask to spread it in equal annual parts over the years of employment (section 8(c)(3) of the Ordinance). The limit is the six tax years ending in the year in which the grant was received. The Israel Tax Authority may allow division over a different period, including future years. Some employees, on retirement, notify the Tax Authority that they choose to leave the money in the fund. Within a year, they start working for another employer that makes severance deposits for them. They are not considered to have received the amounts they left, up to the cap in the section (“severance continuity”, retzef pitzuyim, section 9(7a)(a)(4) of the Ordinance).

You claim the exemption using Form 161. The employer fills in Part A, and the employee chooses in Part B what to do with the money (Form 161, page 1). This is a legal explanation only, not tax advice.

What is a dismissed employee entitled to beyond severance pay?

Severance pay is only one of several components due at the end of employment. Check that you have also received all of these:

• Advance notice: according to seniority, up to a full month; if it was not given, monetary compensation is due instead
• Unused vacation days: payment for unused leave (vacation redemption). It equals the vacation pay that would have been paid had you gone on vacation on the day you stopped working (section 13 of the Annual Leave Law, 5711-1951). A claim under the Law is time-barred within three years (section 31)
• Recuperation pay: for those who completed the first year of employment, according to the number of days in the extension order. The proportional part for part of a year is also due
• Compensation for unlawful dismissal: if a proper pre-dismissal hearing was not held before the dismissal

A common trap: employers present an “end-of-employment agreement” with one global amount, without a breakdown. Once you have signed, it is very hard to reopen. Demand a breakdown of every component before you sign.

When does an unlawful dismissal entitle you to compensation above severance pay?

A dismissal in certain circumstances is improper, and it may entitle the employee to increased compensation beyond the regular severance pay:

• Dismissal during pregnancy or maternity leave: during pregnancy (after 6 months of work), only with a permit from the Minister of Labor. During the birth and parenting period, completely prohibited (section 9 of the Women’s Employment Law, 5714-1954 (חוק עבודת נשים, התשי״ד-1954))
• Dismissal because of workers’ committee activity: prohibited under section 33J of the Collective Agreements Law, 5717-1957 (חוק הסכמים קיבוציים, התשי״ז-1957). The court may award exemplary damages (section 33K)
• Dismissal without a hearing: the employer must summon the employee to a pre-dismissal hearing before making the decision. A dismissal without a hearing may give a right to additional compensation
• Dismissal because of age, gender, religion or sexual orientation: may be considered prohibited discrimination

The Labor Court can order compensation for distress, increased compensation, and in extreme cases the cancellation of the dismissal and reinstatement. See also: Unlawful dismissal.

“Mandatory pension”: the real mechanism, and why the name matters

In conversations about the end of employment, the expression “Mandatory Pension Law” comes up again and again. There is no such law. The duty of pension insurance in Israel comes from the Extension Order for Comprehensive Pension Insurance in the Economy. This order was issued under the Collective Agreements Law, 5717-1957. It applied to all employees in the economy an arrangement set in a general collective agreement. This is not semantic pedantry. When you look for the limits of the right (who is insured, from when, on what wage base), you read the text of the order and not a statute book.

In practical terms, at the end of employment you check two things. At what rate were deposits made to the severance component, and from which wage? A Section 14 arrangement applies only to the wage from which deposits were made, and to the period for which they were made. This is under the opening paragraph and paragraph (3) of the general approval. The rates in the extension order, and how to check that the deposits reached the fund: Mandatory pension contributions.

Frequently asked questions

I resigned. Am I entitled to severance pay?

As a rule, severance pay is paid to a person who was dismissed (section 1(a) of the Severance Pay Law). The Law treats a resignation as a dismissal in certain situations. One is a resignation because of a material deterioration in working conditions (section 11(a)). Others are a resignation because of health (section 6), and a resignation within nine months of giving birth in order to care for the child (section 7). Details: Resignation deemed dismissal.

The employer won’t release the money in the fund. What do you do?

Severance pay not paid within 15 days of the date it was due is considered delayed (section 20(b) of the Wage Protection Law). The money may be in the fund, but the employer does not give the fund the notice required to release it. Then send the employer a written demand. If there is no response, sue in the Regional Labor Court. The steps, the documents and the deadlines: Severance pay not paid or not released from the fund.

How soon must severance pay be paid?

The due date for payment is, as a rule, the day the employment relationship ended (section 20(a)(1) of the Wage Protection Law). Severance pay not paid within 15 days of that date is considered delayed (section 20(b)). If it was paid between the 16th and the 30th day, linkage differentials are added. If it was paid after the 30th day, 20% per month is also added.

Section 14 applies to me. Am I entitled to anything more?

Possibly. A Section 14 arrangement replaces severance pay only to the extent set in the collective agreement or in the Minister’s approval. This is under section 14 of the Severance Pay Law. When the deposit replaces only 72% of the severance pay, the employer must top up the rest. The arrangement applies only to the wage from which deposits were made and to the period for which they were made. This is under section 7 of the Extension Order for Comprehensive Pension Insurance in the Economy and paragraph (3) of the general approval. This is checked against the payslips and the fund reports.

I went on unpaid leave. Does that affect my severance pay?

Unpaid leave given under law or with the employer’s consent does not break continuity (section 2(5) of the Severance Pay Law). For calculating the amount, days beyond 14 days per year of employment are not counted. The exception is a period for which the employee is entitled to maternity allowance (regulation 10(3)).

Does reserve duty count toward seniority for severance pay?

Yes. Reserve duty does not break the continuity of employment (section 2(1)). The Law does not allow it to be deducted from the period by which the amount is calculated (section 13).

How do you calculate severance pay for an hourly employee?

For a period of work from 1 August 1983, one month’s wage for each year of employment. This is under regulation 1 of the Severance Pay Regulations (Rates of Severance Pay for an Hourly or Daily-Paid Employee). When the hours changed, the calculation is by the job scope in each period (Labor Appeal (National) 44824-03-16). For each period, it is the average monthly hours in that period times the last hourly wage.

How much tax do you pay on severance pay?

A retirement grant, including severance pay, is exempt from tax up to one month’s salary for each year of employment, based on the last salary. The cap is NIS 13,750 for each year of employment in the years 2024–2027 (sections 9(7a)(a) and 120B(e)(1) of the Income Tax Ordinance). For the taxable part, you can ask for it to be spread over several years (section 8(c)(3)).