Severance Pay Is a Legal Right, Not a Goodwill Gesture
In Israel, severance pay is mandated by the Severance Pay Law (1963). After one year of continuous employment, you are legally entitled to פיצויים (Pitsuyim) — one month's salary for every year of employment (and proportionally for partial years). This is not discretionary. An employer who dismisses you after three years owes you three months' salary in severance.
When Are You Entitled?
Severance entitlement depends on the circumstances of your departure:
- Dismissed by employer: Full entitlement from one year onwards.
- Resigned: Generally no entitlement — but there are exceptions if you resigned due to employer misconduct, a significant pay cut, relocation to an unreasonable distance, or a hostile work environment. These cases often end up in labor court.
- Mutual agreement: Terms are negotiated; employees often receive full severance as part of the settlement.
- Employer bankruptcy: Bituach Leumi has a special fund (pitsuyim guarantee) that pays severance when employers cannot.
Note the one-year threshold: employment contracts sometimes use a probation period of 6-12 months during which the employer can dismiss without severance. Make sure you know your probation terms.
Section 14: The Modern Accumulation Method
Most employment contracts signed since 2008 use "Section 14" of the Severance Pay Law, which changes how severance is accumulated:
- Your employer contributes 8.33% of your monthly gross into your pension fund, earmarked as the severance component.
- Whatever is in that portion of your pension is yours when you leave — whether you resign or are dismissed.
- The employer has no further severance obligation once Section 14 applies. The pension-held amount is the settlement.
This arrangement benefits employees in several ways: the severance accumulates investment returns over your working life, it's protected from employer insolvency, and you can access it at retirement even if you switch jobs frequently. The downside is that if severance accumulated at 8.33% per year turns out to be less than one month's final salary per year of service, the employee has no top-up claim — so in long tenures with significant salary growth, Section 14 can be slightly less favorable.
Notice Period (Hatraa)
Both you and your employer must give notice before ending employment. The minimum notice periods under Israeli law are:
- During the first year of employment: one day per month worked (so after 6 months: 6 days; after 12 months: 12 days)
- After one year: one month
- After two years: one month (the minimum stays at one month for most employees)
Many employment contracts — especially in the tech sector — specify longer notice periods (two to three months). This is standard and legally enforceable. During the notice period you continue to receive your full salary and benefits.
Your employer can choose to waive the notice period and pay you a payment in lieu of notice (equivalent to your monthly salary). You are not obligated to physically work the notice period if your employer prefers to release you immediately.
Checking Your Pension Severance Component
If your contract uses Section 14, check your pension fund's online portal to see the severance component separately from your regular pension savings. It should be labeled "pitsuyim" or "takbulot maasik — pitsuyim." If you've been working for several years, this number can be significant — a 10-year track record at a decent salary can mean 100,000+ NIS sitting in your pension earmarked for you.