How is severance pay calculated in Israel?

The core formula is simple: multiply one month's final salary by the number of years worked. An employee dismissed after at least one year of continuous service is entitled to severance, and periods beyond a whole year are counted proportionally, so five years and six months yields five and a half months of pay. The wage used is the last monthly salary, which captures pay rises over the employment. For this purpose salary means the base wage together with fixed, regular components like seniority pay and cost-of-living allowances. Variable items such as overtime, bonuses, and reimbursements for travel or expenses are excluded from the calculation base.

In modern Israeli employment the calculation is usually pre-funded rather than paid as a lump sum at the end. Most employers operate under Section 14 of the Severance Pay Law, contributing a set percentage of salary each month, commonly 8.33%, into a pension or severance fund. When that arrangement is in place and fully funded, those accumulated contributions are the employee's severance, and the employer owes no top-up even if the fund is worth slightly less than the classic formula. Resignation generally does not trigger severance, though the law recognises exceptions, and further scenarios are set out in the guide to Israeli employment law for expats.

From the full guide: Employment Law in Israel for Foreign Companies and Expats: A Practical Guide

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