Israeli Severance Pay / Pitzuyim (פיצויים)

Pitzuyim (פיצויים — 'compensation' or 'severance') is the Israeli legal entitlement to severance pay upon termination of employment — one of the most significant labor law provisions in Israel. Historical and current framework: (1) Pre-2008 law (individual entitlement): an employer who terminates an employee is required to pay 1 full month's salary for each year of employment. An employee with 10 years of service terminated (not resigned) is owed 10 months' salary. Historically, this was paid directly from employer funds upon termination; (2) The 2008 Tzav Pitzuyim (Severance Pay Order) reform: required employers to fund severance into the employee's pension account at 8.33% of monthly salary (1/12 per month = 1 month/year), paid monthly instead of as a lump sum at termination. This is now co-deposited into the employee's Keren Pensia (pension fund) together with the employer's regular pension contribution (6.5%). The 2008 reform converted Israeli severance from a balance-sheet liability to a cash-funded concurrent obligation; (3) '14b Arrangement' vs. full arrangement: (a) Full arrangement (סידור מלא): the employer fully funds severance into the pension at 8.33%/month, and the employee waives any additional severance claim upon termination. This is the standard for most new employees post-2008; (b) 14b arrangement (הסדר 14ב): partial arrangement where the employer funds only part of severance into the pension — the remaining amount is an ongoing employer liability. This applies to employees hired before 2008 who did not transition to the full arrangement; (4) Voluntary resignation and severance: under most circumstances, an employee who voluntarily resigns is not entitled to severance from the employer — however, they do keep the severance-component funds already deposited in their pension account (as those funds legally belong to the employee after 1+ years of employment in most cases); (5) The pension-severance interplay: the 8.33% severance contribution combined with 6.5% pension contribution means the employer total pension/severance outlay is ~14.83% of gross salary per month. This is a major labor cost component for Israeli employers, significantly higher than the US (where no mandatory severance applies).

An Israeli engineer with 8 years at a startup earns ₪25,000/month. Monthly employer contributions: (a) Pension: 6.5% = ₪1,625; (b) Severance: 8.33% = ₪2,083; total employer retirement/severance cost = ₪3,708/month. After 8 years, the engineer has ₪200K+ accumulated in their pension fund, of which ~₪100K is the severance-component. If the company terminates them, they keep all accumulated severance funds (no top-up needed since the full arrangement was in place). If they resign, they keep the funds accumulated to date — Israeli pension severance funds follow the employee, not the employer.