How is severance pay calculated in Israel?

If no Section 14 arrangement is in place, Section 12 sets severance pay as the last monthly salary multiplied by the number of years of service. For example, an employee dismissed after 5 years at a last salary of 12,000 ILS is entitled to 60,000 ILS. If an existing fund is insufficient, the employer must top it up. The maximum computation period is the entire length of employment.

Severance Pay in IsraelThe Severance Pay Law, 5723-1963 · eligibility, calculation & Section 14, explained for 2026

Q: What is the Section 14 arrangement?

Under Section 14 of the Severance Pay Law, payments to a pension or severance fund replace the severance obligation where set by a collective agreement or approved by the Minister of Labor. In practice the employer deposits 8.33% of the employee's salary each month into the 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 Israeli employment contracts today.

Q: Is a resigning employee entitled to severance pay?

Generally, no. A resigning employee is not entitled to statutory severance. However, under Section 11, if the resignation was caused by a material deterioration in working conditions or by circumstances in which the employee cannot be expected to continue (constructive dismissal), the employee may be entitled to full severance as if they were dismissed. Where a Section 14 arrangement is in place, the accumulated fund is released to the employee regardless of the reason for termination.

Q: When must severance pay be paid?

Severance pay is due when the employment relationship ends. If it remains unpaid, delayed-severance compensation begins to accrue after 15 days under the Wage Protection Law. Failing to meet severance obligations can result in penalties and legal liability for the employer.

Q: How does NETO handle severance obligations?

NETO, a licensed manpower contractor (license #1565) operating since 2016, automatically manages Section 14 contributions and all severance and pension-related deposits for the employers and workers it serves. The client company pays a simple 5% commission on the invoice (pre-VAT); the worker never pays the commission.

Who is entitled to severance pay, how much is it, and when must it be paid? One month's last salary per year of service, the 8.33% Section 14 arrangement, and what happens when an employee resigns · this guide covers the Severance Pay Law in plain English, with worked examples in shekels.

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Employee reviewing severance pay entitlement under Israel's Severance Pay Law, 1963

1 month's salaryPer year of service · by law

8.33%Monthly Section 14 deposit

AI check · faithful to the source · unofficial translationThe section texts below are an unofficial English translation of the Severance Pay Law, 5723-1963, checked against the official Hebrew text on Nevo. The legally binding version is the Hebrew original published in the official records · this translation is for understanding only, not a certified or authoritative text.

Faithful translation Official Hebrew text · Nevo Hebrew page (binding)

AI summary · the Severance Pay Law in briefClick to read the page summary

The Severance Pay Law, 5723-1963 entitles an employee who worked one continuous year for one employer and was dismissed to one month's last salary for each year of service (Sections 1 and 12), roughly 8.33% of pay per year. The Law also defines when a resignation counts as a dismissal (ill health, parenthood, relocation, a material deterioration in conditions, and more), the Section 14 arrangement under which ongoing deposits to a fund replace the severance obligation, and the cases where entitlement can be reduced or denied. Below, each topic pairs a faithful English translation of the statutory text with a plain-language explanation and a worked example.

Official Hebrew text · Nevo Hebrew page (binding) Employee rights in Israel Pension contributions

Qualifying period · one continuous year with an employer (Section 1).
Amount · one month's salary per year for a salaried employee (Section 12) · about 8.33%.
Resignation as dismissal · health, parenthood, relocation, worse conditions, and more.
Section 14 · ongoing fund deposits in lieu of severance at termination.
Statutory text · translated section by section, clearly marked as unofficial.
Informational only · the binding text is the Hebrew original in the official records.

Quick summary · the law in five points

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, 5723-1963, employees who have worked for at least one year are entitled to compensation equivalent to one month's salary for each year of service (Sections 1 and 12).

Entitlement: requires at least 1 year of continuous employment (Section 1).
Amount: one month's last salary per year of service (Section 12); the 8.33% arrangement mirrors this monthly.
Section 14: ongoing deposits to a fund fully replace the severance obligation (Section 14).
Scope: applies to dismissal (Section 1); resignation may entitle to severance in special cases (Section 11).
Deadline: severance is due when employment ends; if unpaid, delay compensation accrues after 15 days under the Wage Protection Law.

Table of contents

Overview of the Severance Pay Law
Who is entitled (Section 1)
When resignation counts as dismissal
How much: the amount (Section 12)
The Section 14 arrangement
Death, deposits & protected funds
When severance can be reduced or denied
Test your knowledge
For employers: automating severance
Frequently asked questions
Related guides

The law at a glance

Overview of the Severance Pay Law

The Severance Pay Law, 5723-1963 grants dismissed employees with at least one year of continuous employment the right to severance pay (Section 1), amounting to one month's last salary for each year of service (Section 12). Understanding severance entitlements is essential both for employees who may face dismissal and for employers who must plan for this legal obligation · it sits at the heart of Israeli labor law, alongside employee rights such as pension contributions, working hours, and leave.

1yr

Minimum serviceContinuous employment required for entitlement (Section 1)

1mo

Per year of serviceOne month's last salary per year worked (Section 12)

8.33%

Section 14 depositMonthly rate under the arrangement authorized by Section 14

Days before delay accruesDelay compensation begins if unpaid (Wage Protection Law)

Why it matters: 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. Severance is only one part of what an Israeli employee costs · see the full picture in employer cost in Israel and our Israel payroll guide.

Who qualifies

Who is entitled to severance pay

Entitlement is built on three things: one continuous year of service, the interruptions that do not break that continuity, and protection against dismissal timed to avoid paying. Each is set out in a section below · the statutory text first, then a plain explanation.

Section 1 · Entitlement to severance pay
(a) A person who has been employed continuously for one year · or, in the case of a seasonal employee, for two seasons in two consecutive years · by one employer or at one place of employment, and is dismissed, is entitled to receive severance pay from the employer who dismissed them. "Season", for the purposes of this Law, means three consecutive months in a year during which the employee worked at least 60 days.

(b) An employee who moved from one workplace to another with the same employer, and where the employers at the current workplace changed, is entitled to severance pay from the previous employer for the period of employment with them, as if dismissed on the day of the change of employers; where the new employer has assumed, by a written undertaking to the employee, responsibility for the severance pay the employee was entitled to receive from the previous employer, the previous employer is exempt and the employee's period of service with the previous employer is treated as if it were at the current workplace.

Explanation · not part of the statute

Anyone who worked one continuous year (or, for a seasonal worker, two seasons across two consecutive years) for the same employer or at the same workplace and was dismissed is entitled to severance. Subsection (b) keeps the right alive when the employer at a workplace changes: the outgoing employer pays for its own period, unless the incoming employer took over the liability in writing.

Example: a receptionist employed for 14 continuous months who is then let go qualifies · the one-year threshold was crossed. Someone dismissed at 10 months does not qualify under Section 1.

Section 2 · Continuity of employment
For the purposes of Section 1, employment is regarded as continuous even where it was interrupted on account of –

military service and partial service under the Discharged Soldiers (Return to Work) Law, 5709-1949, and reserve service under the Reserve Service Law, 5768-2008;

the weekly rest day or a holiday on which no work is done, whether by law, custom or agreement, and May 1st;

annual leave;

paid leave or furlough granted to the employee by law or with the employer's consent;

unpaid leave or furlough granted to the employee by law or with the employer's consent;

a strike or lockout;

an accident or illness;

days of family mourning on which, for reasons of religion or custom, the employee did not work;

a temporary interruption without severing the employment relationship, or an interruption severing it that does not exceed six months;

training for labor service under the Emergency Labor Service Law, 5727-1967.

Explanation · not part of the statute

These interruptions do not reset the clock on seniority. Reserve duty, the weekly rest and holidays, paid or unpaid leave, a strike or lockout, accident or illness, mourning days, and a short break of up to six months all leave the year of service intact.

Section 3 · When dismissal does not prejudice the right
Dismissal shortly before the end of the first year of employment shall be regarded · unless the contrary is proved · as having been made with the intention of evading the obligation to pay severance pay, and such dismissal does not prejudice the right to severance pay.

Explanation · not part of the statute

A dismissal just before the first year closes is presumed to be an attempt to dodge severance · so it does not defeat the entitlement. The burden is on the employer to prove the timing was for another reason.

Example: an employee dismissed at 11.5 months, with no other explanation, is generally still treated as entitled to severance.

Resignation treated as dismissal

When a resignation counts as a dismissal

A resignation usually ends the right to statutory severance. The Law lists specific situations where it does not · here are the main ones, each with the statutory wording and a short explanation. See also the termination process in Israel.

Section 6 · Resignation on account of ill health
Where an employee resigned on account of their own state of health or that of a family member, and, in light of the medical findings, the working conditions and the other circumstances of the matter, there was sufficient cause for the resignation · the resignation is regarded, for the purposes of severance pay, as a dismissal. In this section, "family member" means a family member prescribed by regulations approved by the Knesset Labor Committee.

Explanation · not part of the statute

Resigning because of your own or a family member's health, where the medical findings and working conditions gave sufficient cause, is treated as a dismissal for severance purposes. "Family member" is defined in regulations.

Section 7 · Resignation of a parent
(a) Where a female employee resigned within nine months of giving birth in order to care for her child · her resignation is regarded, for the purposes of this Law, as a dismissal; and the same applies to a female employee for whom one of the following is met: (1) she received a child under 13 for adoption and, within nine months of receiving the child, resigned to care for the child; (2) she received a child into her custody as an intended parent under the Surrogacy Agreements Law, 5756-1996, and within nine months resigned to care for the child; (3) she received a child up to age ten into her home as a foster parent under the Foster Care for Children Law, 5776-2016, and within nine months resigned to care for the child, provided the foster-care supervisor confirmed the resignation was required for the child's welfare.

(b) The provisions of subsection (a) apply, with the necessary changes, to a male employee, provided one of the following is met regarding him (broadly: his partner was an employee or self-employed and did not stop working to care for the child, or the child is in his sole care).

Explanation · not part of the statute

A parent who resigns within nine months to care for their child · whether after birth, adoption, receiving a child as an intended parent (surrogacy) or as a foster parent · is treated as dismissed. It applies to fathers too, under the conditions in subsection (b).

Example: a mother who resigns seven months after giving birth to care for the baby is entitled to severance as if dismissed.

Section 8 · Resignation on account of relocation
For the purposes of this Law, the resignation of an employee on account of relocating their place of residence shall be regarded as a dismissal –

upon their marriage · to the locality in Israel where their spouse resided, under conditions prescribed by regulations approved by the Knesset Labor Committee;

to an agricultural locality from a non-agricultural one, or to a locality in a development area from one outside it, under conditions prescribed by regulations approved by the Knesset Labor Committee;

for other reasons prescribed by regulations, approved by the Knesset Labor Committee, as reasons justifying the relocation of the employee's residence.

Explanation · not part of the statute

Resigning because you moved home counts as a dismissal in the defined cases · moving to a spouse's locality on marriage, moving to an agricultural locality or a development area, and other reasons set in regulations.

Section 11 · Other resignations treated as dismissal
(a) Where an employee resigned on account of a material deterioration in their working conditions, or on account of other circumstances in employment relations affecting that employee such that they cannot be required to continue their employment · the resignation is regarded, for the purposes of this Law, as a dismissal.

(b) Where a seasonal employee resigned after working at least three consecutive seasons at the same workplace because continuous work at that workplace was not assured · they are regarded as dismissed.

(c) An employee who resigned shortly before, and because of, enlistment to regular service, civilian service or national-civilian service (subject to the minimum periods stated) is regarded as dismissed.

(e) Where an employee resigned after reaching retirement age, as defined in the Retirement Age Law, 5764-2004, the resignation is regarded, for the purposes of this Law, as a dismissal; amounts paid to the employee from a provident fund on account of the employer's payments and intended to serve as, or replace, severance pay may be credited against it.

Explanation · not part of the statute

This is the central "resignation as dismissal" section. The best-known limb is subsection (a): a material deterioration in working conditions, or circumstances in which the employee cannot reasonably be expected to continue · known as constructive dismissal. It also covers seasonal workers not assured continuous work, enlistment to service, and resignation after retirement age.

Example: an employee whose pay is unilaterally cut and role stripped, who then resigns, may claim full severance under Section 11(a) as if dismissed.

The amount

How much: one month per year of service

Section 12 fixes the rate; Section 13B sets a floor. The formula in plain terms is last monthly salary × number of years of service. If a Section 14 arrangement is not in place, this is what the employer owes at termination.

Section 12 · Rate of severance pay
(a) The rate of severance pay is: one month's wage for each year of employment for an employee paid on a monthly basis (a "salaried employee") with an employer or at one place of employment, and two weeks' wage for each year of employment for an employee paid otherwise (a "wage employee"); a part of a year following a full year of employment entitles the employee to proportionate severance pay, and for a seasonal employee a part of a year entitles them to proportionate severance pay even if the periods of employment do not add up to a full year. For this purpose, "salaried employee" means an employee the main part of whose remuneration is paid on the basis of a month or a longer period; "wage employee" means an employee who is not a salaried employee.

(b) The Minister of Labor may, after consulting the Minister of Finance and with the approval of the Knesset Labor Committee, increase by regulations the rate of severance pay for a wage employee.

Explanation · not part of the statute

A salaried (monthly) employee gets one month's wage per year of service; a wage employee gets two weeks per year. A part-year after the first year is paid pro rata. "One month per year" is roughly 8.33% of annual pay.

Section 13B · Minimum-wage floor for the calculation
Notwithstanding the provisions of Section 13, the wage taken into account for the purpose of calculating severance pay shall not be less than the minimum wage, as defined in Section 1 of the Minimum Wage Law, 5747-1987, according to the scope of the position.

Explanation · not part of the statute

The wage used to compute severance cannot drop below the minimum wage for the position's scope · a floor that protects low-paid and part-time workers.

Example 1 · dismissal after 5 years, no Section 14

Dana worked at the same company for 5 full years. Her last monthly salary was 12,000 ILS. She was dismissed, and no Section 14 arrangement was ever signed.

Severance = last salary × years of service (Section 12)
12,000 ILS × 5 years = 60,000 ILS
This is due when her employment ends; if left unpaid, delay compensation accrues after 15 days under the Wage Protection Law (its own statute, not the Severance Pay Law).

The standard arrangement today

The Section 14 arrangement: 8.33% every month

Section 14 is the legal basis for the common arrangement in which ongoing fund deposits replace the lump-sum severance obligation. The statutory text is short; the practice built on it is everywhere.

Section 14 · Severance pay and provident-fund payments
A payment to a provident fund, a pension fund or a similar fund shall not be in lieu of severance pay, unless so provided by the collective agreement applicable to the employer and the employee and to the extent so provided, or unless such payment was approved by the Minister of Labor and to the extent approved.

Explanation · not part of the statute

Fund deposits replace severance only where a collective agreement provides for it or the Minister of Labor approved it. In practice, under the general approval, the employer deposits 8.33% of salary each month (one twelfth, mirroring Section 12's one-month-per-year rate). When the arrangement applies, the accumulated fund passes to the employee at the end of employment regardless of the reason · including resignation.

How it works

The employer deposits 8.33% of the employee's salary each month into a severance fund, alongside the regular pension contributions.

What it replaces

The monthly deposits fully replace the statutory severance obligation · no additional payment is due at termination when the arrangement is properly in place.

Why employees benefit

The accumulated fund is released to the employee on termination for any reason · including resignation · a major advantage over the default rules.

Example 2 · Section 14 deposits over 4 years

Yoav earns 10,000 ILS per month and signed a Section 14 arrangement on day one. His employer deposits 8.33% of his salary into the severance fund every month.

Monthly deposit = 10,000 ILS × 8.33% = 833 ILS
Over 4 years (48 months): 48 × 833 ILS = 39,984 ILS in deposits
For comparison, full statutory severance would be 10,000 ILS × 4 years = 40,000 ILS · the 8.33% monthly rate is designed to mirror one month's salary per year.

Whatever has accumulated in the fund (deposits plus the fund's performance over the years) is transferred to Yoav when he leaves · whether he is dismissed or resigns.

Death, deposits & protected funds

Death of a party, deposit deadlines & protected money

The Law also handles what happens when an employer or employee dies, by when severance money must be deposited, and how deposited funds are protected from creditors.

Section 4 · Death or insolvency of the employer
An employee whose employment ceased on account of the death or bankruptcy of the employer · and, in the case of a corporation, its winding-up or striking-off · is entitled to severance pay as if dismissed.

Explanation · not part of the statute

If the job ends because the employer died, went bankrupt, or the company was wound up or struck off, the employee is entitled to severance as if dismissed · no dismissal letter needed.

Section 5 · Death of the employee
(a) Where an employee has died, the employer shall pay severance pay to their survivors as if the employer had dismissed them. "Survivors" for this purpose means the employee's spouse at the time of death, including a common-law partner living with them, and a child of the employee who is a dependent for the purposes of benefits under Chapter 3 of the National Insurance Law; and, in the absence of such a spouse or children · children and parents whose main livelihood was on the deceased, and siblings who lived in the deceased's home for at least twelve months before the death and whose entire livelihood was on the deceased.

(c) Severance pay paid to the survivors of a deceased employee is not regarded as part of the estate.

Explanation · not part of the statute

If the employee dies, the employer pays severance to their survivors as if it had dismissed them. That money is not part of the estate.

Section 25 · Deposit deadline
Amounts required to be deposited pursuant to a deposit order shall be deposited within 42 days after payment of the wage for that period of employment; the Minister of Labor, or a person authorized by them, may extend that period by a period not exceeding three months.

Explanation · not part of the statute

Where a deposit order applies, the amounts must be deposited within 42 days of paying the wage for that period, extendable by up to three months by the Minister.

Sections 26 & 27 · Protected funds and priority
26(a). Amounts paid in lieu of severance pay under Section 14, or deposited under Sections 20 or 21, or paid to a provident fund for the payment of severance pay or for an annuity, are not recoverable, transferable, chargeable or attachable (subject to the conditions in the section), and are not part of the employer's assets in the event of death, bankruptcy or winding-up, to the extent that employees' claims under this Law have not been settled.

27. For the purpose of collecting debts which must be settled before all others under the Bankruptcy Ordinance, 1936, or the Companies Ordinance, severance pay is treated as wages to be settled first, provided that severance pay and wages together so settled do not exceed 150% of the maximum amount of preferred wages under those Ordinances.

Explanation · not part of the statute

Money set aside for severance (including Section 14 deposits) is ring-fenced · it cannot be clawed back, assigned or seized, and it sits outside the employer's assets in insolvency. In bankruptcy or winding-up, severance ranks as preferred wages, up to 150% of the preferred-wage ceiling.

When it can be reduced or denied

When severance can be reduced or denied

Entitlement is not absolute. A collective agreement or a labor court can justify dismissal without severance, or with only part of it · and settlements over severance must meet strict form requirements.

Section 16 · Dismissal without severance under a collective agreement
An employee shall not be entitled to severance pay, or shall be entitled only to partial severance pay, as the case may be, if dismissed under circumstances which · under the collective agreement applicable to the employer and the employee, or, absent such an agreement, under the collective agreement applicable to the largest number of employees in that industry · justify dismissal without severance pay or with partial severance pay only.

Explanation · not part of the statute

A collective agreement can define misconduct that justifies dismissal with reduced severance or none. This is the usual route to denial · it depends on the applicable agreement.

Section 17 · Denial by a labor court
In an industry that has no collective agreement, the Regional Labor Court may determine that an employee's dismissal was under circumstances justifying dismissal without severance pay, or with partial severance pay as it determines; in ruling on this matter the Regional Labor Court shall be guided by the rules of the collective agreement applicable to the largest number of employees.

Explanation · not part of the statute

Where no collective agreement exists, the Regional Labor Court decides whether the circumstances justified full or partial denial · guided by the most widely applicable collective agreement.

Sections 28 & 29 · Wage-inclusive severance and settlements
28. An agreement between an employer and an employee expressly stating that severance pay is included in the wage, and approved by the Minister of Labor, replaces the provisions of this Law on severance · provided no collective agreement applicable to them requires payment of severance pay.

29. A compromise regarding severance pay, and a release acknowledgment, shall have no effect unless made in writing and unless it is expressly stated therein that they relate to severance pay.

Explanation · not part of the statute

Building severance into the wage only works if the Minister approved it and no collective agreement requires separate payment. Any waiver or settlement of severance must be in writing and expressly about severance · to prevent accidental waiver.

Example 3 · same employee, three different endings

Noa has worked for 3 full years at a last monthly salary of 15,000 ILS. Here is what she receives under each scenario:

Scenario	Severance entitlement	Calculation	Amount
Dismissed · no Section 14 (Sections 1, 12)	Full statutory severance	15,000 ILS × 3 years	45,000 ILS
Resigned · no Section 14, ordinary resignation	Generally none	·	0 ILS
Resigned · constructive dismissal (Section 11)	Full severance, as if dismissed	15,000 ILS × 3 years	45,000 ILS
Any exit · Section 14 in place	Accumulated fund released	15,000 ILS × 8.33% = 1,249.50 ILS/mo × 36 months in deposits	44,982 ILS + fund performance

Note: proper pension contributions throughout the employment period are the most effective way to meet severance obligations while also protecting the employee's future. Severance appears on the final payslip alongside other rights · see the Wage Protection Law for payslip and pay-date rules and the Hours of Work and Rest Law for the rest of the labor-law picture.

Test your knowledge

Check what you know · the Severance Pay Law

Five quick questions on the essentials. Pick an answer for each · you get instant feedback and the relevant section.

1 After how much continuous service does the right to severance generally arise?

2 What is the rate for a salaried (monthly) employee under Section 12?

3 In which case does a resignation count as a dismissal for severance?

4 What does Section 14 establish?

5 Under Section 13B, the wage used for the calculation cannot fall below…

This quiz is for learning only and is not legal advice. In any specific case, check the statutory text and consult a professional.

For employers

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FAQ

Frequently asked questions

Who is entitled to severance pay in Israel?

Under Section 1 of the Severance Pay Law, 5723-1963, 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 12).

How is severance pay calculated?

If no Section 14 arrangement is in place, Section 12 sets it as last monthly salary × years of service. For example, 5 years at a last salary of 12,000 ILS = 60,000 ILS. If an existing fund is insufficient, the employer must top it up. The maximum computation period is the entire length of employment.

What is the Section 14 arrangement?

Under Section 14, payments to a pension or severance fund replace the severance obligation where set by a collective agreement or approved by the Minister of Labor. In practice the employer deposits 8.33% of the employee's salary each month into the fund. Upon termination · for any reason · the accumulated fund is transferred to the employee and fully replaces the statutory severance obligation. It is the standard arrangement in most employment contracts today.

Is a resigning employee entitled to severance?

Generally, no. However, under Section 11, if the resignation was caused by a material deterioration in working conditions or by circumstances in which the employee cannot be expected to continue (constructive dismissal), the employee may be entitled to full severance as if dismissed. With a Section 14 arrangement, the accumulated fund is released regardless of the reason for leaving.

When must severance pay be paid?

Severance is due when the employment relationship ends. If it remains unpaid, delayed-severance compensation begins to accrue after 15 days under the Wage Protection Law. Failing to meet severance obligations can result in penalties and legal liability · the termination process and final payslip rules apply alongside it.

How does NETO handle severance obligations?

NETO · Licensed Manpower Contractor #1565, operating since 2016 · automatically manages Section 14 contributions and all severance and pension-related deposits on behalf of the employers and workers we serve. The client company pays a simple 5% commission on the invoice (pre-VAT); the worker never pays the commission.

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