How does Section 14 of the Israeli Severance Pay Law work for pension arrangements?

Section 14 of the Severance Pay Law 5723-1963 allows an employer and employee to agree that the employer's monthly pension contributions to a provident fund (keren pensia) will substitute for the statutory severance entitlement on termination. Under a standard Section 14 arrangement, the employer deposits 8.33% of salary monthly into the pension fund, and on termination that accumulated amount is released to the employee — who is then deemed to have received their full severance. The employer has no additional severance liability regardless of how long the employee worked, provided the arrangement was properly documented at the start of employment.

For foreign workers, Section 14 arrangements are particularly advantageous: the accumulated funds belong to the employee and are released immediately on employment end regardless of reason for termination, including resignation. Without Section 14, an employee who resigns before completing a full year may receive no severance. The arrangement must be in writing signed by both parties; a retroactive Section 14 agreement signed after dismissal is not valid. Employers in the caregiver sector are required by extension order to use a Section 14 structure. For more detail, see Employment Contracts in Israel for Foreign Workers and Expats.