Severance Pay (Pitzuim): A Complete Guide to Rights and Calculation

The Essence

Severance pay (pitzuim) is a lump-sum payment that an employer is obligated to provide to a dismissed employee who has worked for at least one full year. The purpose of this compensation is to provide financial support during the period of searching for new employment. The basic amount of the compensation is one month's salary for each year of employment.

Who is Eligible?

Eligibility for pitzuim depends on your length of service and the circumstances of your employment termination.

Primary Condition: You have worked for at least one full year for the same employer (or at the same workplace) and were dismissed at the employer's initiative.
Continuity of Service: Seniority is not interrupted during annual leave, reserve duty (miluim), sick days, or unpaid leave of up to 14 days per year.
Dismissal Before Year-End: If you are dismissed shortly before the end of the first year (e.g., after 11 months), a court may recognize your right to pitzuim unless the employer can prove the objectivity of the reasons for dismissal.
Change of Employers: If you worked at the same location (e.g., for a cleaning company) and the contractors changed, your seniority is preserved.

Resignation with Entitlement to Pitzuim

In a number of cases, you retain the right to compensation even if you resign:

Deterioration of Working Conditions: A significant and unjustified reduction in salary, a change in position, or relocation of the workplace to a considerable distance. It is necessary to provide prior notice to the employer and give them an opportunity to rectify the situation.
Health Condition: Your health or the health of a family member prevents you from continuing to work (a medical certificate is required).
Childcare: Resignation within 9 months after childbirth or adoption for the purpose of caring for the child.
Relocation: Due to relocation to specific localities (development areas, agricultural settlements) or following a spouse who is relocating for work.
Retirement: Upon reaching retirement age.
Enlistment for Service: In the army (IDF), police, or alternative national service.

Who is NOT Eligible?

The right to pitzuim may be partially or fully revoked by a decision of the Labor Court in exceptional cases, such as:

Dismissal for serious disciplinary offenses (theft, fraud, workplace violence).
Commission of a criminal offense directly related to work.

Your Rights

The amount of pitzuim is calculated based on your final salary and length of service.

Calculation Formula: (Last gross monthly salary) x (Number of years of service)

The calculation salary includes:

Base salary (שכר יסוד).
Permanent allowances (for seniority, cost of living, professional).
Average annual commissions.

The calculation salary does NOT include:

Reimbursement of expenses (travel, phone).
Overtime pay.
Convalescence pay (dmei avraa).
Premiums and bonuses, if they are not a guaranteed part of the salary.

Impact of Pension Contributions (Section 14)

Since 2008, employers have been required to deposit a portion of the pitzuim into your pension fund. This directly affects the payment upon dismissal.

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Amount of monthly contributions	What does the employer pay upon dismissal?	What happens to the money in the fund?
8.33% (full rate)	Nothing. The employer has fully met their obligations.	The entire accumulated amount (including fund profits) belongs to you. You receive it through the pension fund.
6% (partial rate)	Pays the difference (2.33%). Calculation: `(2.33% x Salary x Number of months)`.	The accumulated amount belongs to you. The employer pays the remainder directly to you or into the fund.
0% (no contributions)	Pays the full amount of pitzuim. Calculation: `(Salary x Number of years)`.	The employer is also obligated to compensate for their share of pension contributions for the entire period.

Important: Funds accumulated in the pension fund under Section 14 remain yours even if you resign.

Step-by-Step Guide

Undergo the dismissal procedure. The employer is obligated to conduct a hearing (shimu'a) to explain the reasons for dismissal and give you an opportunity to respond. Afterward, you must be given a written notice of dismissal (hoda'a mukdemet) stating your last day of work.
Receive the final calculation and documents. On your last day of work, or within 15 days thereafter, the employer is obligated to provide you with:
- Form 161 (Tofes 161): The main document for the tax authority regarding all payments.
- Letter of Release (Michtav Shichrur): Authorization for the pension fund to release the accumulated pitzuim to you.
- Certificate of Employment Period (Ishur Tkufat Ha'asaka): For the Employment Service.
Complete your part of Form 161. In Part B, you must choose what to do with the funds:
- Withdraw immediately: Receive the money in your bank account (part of the amount may be subject to tax).
- Apply for pension continuity (Retzef Kitzba): Leave the money in the pension fund to increase your future pension. This defers tax payment.
- Apply for severance pay continuity (Retzef Pitzuim): "Freeze" the funds to combine them with seniority at a future employer.
Contact your pension fund. Submit the received documents (Form 161 and the letter of release) to the fund to access the accumulated funds.
Take action in case of a dispute. If the employer does not pay, fails to provide documents, or you disagree with the amount, immediately contact the Labor Law Enforcement Division or file a claim with the Regional Labor Court.

Document Checklist

Ensure you receive a complete set of documents from your employer upon dismissal.

Form 161 (Tofes 161) — Notice of termination of employment. A key document for the tax authority and pension fund.
Letter of Release of Funds (Michtav Shichrur Ksafim) — Official authorization from the employer for your pension fund to release the accumulated funds to you. The fund will not release the money without it.
Certificate of Employment Period (Ishur Tkufat Ha'asaka) — Official confirmation of the start and end dates of your employment. Required for the Employment Service.
Form 106 (Tofes 106) — Annual statement of your salary and taxes for the last year.

Pitfalls

Payment Deadline: The employer is obligated to pay the pitzuim on the last day of work or no later than 15 days thereafter. A delay of more than 15 days incurs significant penalties payable to you (pitzuei halanat pitzuim).
Tax Ceiling: Pitzuim is tax-exempt if the amount does not exceed 13,750 shekels for each year of employment (ceiling for 2024). Any amount above this is taxable. You can request the tax authority to spread the tax payment over several years (prisat mas) to reduce it.
DO NOT WITHDRAW MONEY FROM YOUR PENSION UNNECESSARILY! Withdrawing the pitzuim component from the pension fund can reduce your future pension by more than 30% and deprive you of tax benefits. This money is part of your pension future.
Prohibition on Signing a Waiver of Rights: The employer does not have the right to require you to sign a waiver of future claims (ktav vitur) in exchange for the pitzuim payment. Such a demand is illegal.
Protection from Seizure: As long as the money is in the pension fund, creditors cannot seize it. After a letter of release (michtav shichrur) is issued, the funds may be subject to seizure.

Contacts and Links

In case of a violation of your rights or disputes with your employer, you can contact the following authorities:

Labor Law Enforcement Division of the Ministry of Labor (Regulation and Enforcement Administration).
Regional Labor Court (Beit HaDin LaAvoda).

Current contact information and addresses can be found on the official websites of the respective authorities.

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