Severance Pay in Israel — Your Complete Legal Guide
Israeli law entitles most employees to severance pay upon termination of employment — one of the most significant financial protections in the Israeli labor market. Under the Severance Pay Law, 1963, employees who have worked for at least one year are entitled to compensation equivalent to one month’s salary for each year of service.
Understanding severance pay entitlements is essential for both employees who may face dismissal and employers who must plan for this legal obligation. NETO — Licensed Manpower Contractor #1565 — manages all severance and pension-related contributions on behalf of the employers and workers we serve.
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Severance Pay Law, 1963 – Key Points
- Entitlement requires at least 1 year of continuous employment
- Amount: one month’s last salary per year of service (or 8.33% monthly)
- Section 14 arrangement: monthly deposits fully replace severance obligation
- Applies to dismissal; resignation may entitle to partial severance in special cases
- Severance must be paid within 15 days of termination
Overview of the Severance Pay Law
The Severance Pay Law, 1963 grants dismissed employees with at least one year of continuous employment the right to severance pay. Severance pay amounts to one month’s last salary for each year of service.
Section 14 Arrangement
Under Section 14 of the Severance Pay Law, an employer and employee can agree that monthly contributions to the pension fund (at 8.33% of salary) will fully replace the employer’s severance pay obligation. If this arrangement is in place, the fund accumulated over the years of employment is transferred to the employee upon termination — regardless of the reason for termination. This is the most common arrangement today.
Calculation Method
If Section 14 is not in place, severance pay = last monthly salary × number of years of service. If the fund is insufficient, the employer must top it up. The maximum computation period is the entire length of employment.
Resignation and Partial Severance
Employees who resign are generally not entitled to severance. However, Israeli case law recognizes constructive dismissal — if working conditions deteriorated to an extent that forced the employee to resign, they may be entitled to full severance.
Automate Severance Deposits with NETO
NETO automatically manages Section 14 contributions and ensures all severance obligations are met on time.
FAQ – Severance Pay
Any employee who was dismissed after completing at least one year of continuous employment is entitled to severance pay. The amount is one month’s last salary per year of service.
Section 14 is an arrangement under which the employer deposits 8.33% of the employee’s salary each month into a severance fund. Upon termination (for any reason), the accumulated fund is transferred to the employee and fully replaces the employer’s statutory severance obligation. This is the standard arrangement in most employment contracts today.
Generally, no. A resigning employee is not entitled to severance. However, if the resignation was due to the employer’s significant breach of the employment agreement (constructive dismissal), the employee may be entitled to full severance as if they were dismissed.
⚠️ Disclaimer: General knowledge only, not legal advice.
Summary: Severance Pay Law in Israel
The Severance Pay Law provides critical financial protection to employees in Israel. For employers, compliance with severance obligations — whether through direct payment or comprehensive pension contributions — is mandatory and legally enforced. Failing to meet these obligations can result in penalties and legal liability.
Proper pension contributions throughout the employment period are the most effective way to meet severance obligations while also protecting the employee’s future.
Freelancers: Are Your Pension & Severance Rights Protected?
When you work through NETO’s EOR model, you receive full pension contributions including severance components — just like a permanent employee. No more uncertainty about your financial future.
