What Severance Pay Rules Must Employers Follow in Italy?

Which Employees Qualify for Severance Pay?

• Employees hired under standard open-ended contracts (subordinate employment) generally accrue TFR from the start of employment.
• Fixed-term employees also accrue TFR for the duration of their contract, payable when the contract ends.
• Part-time employees qualify for TFR on a pro-rated basis according to their working hours and pay.
• Executives (dirigenti) are entitled to TFR, often alongside additional severance negotiated in individual or collective agreements.
• Apprentices and other subordinate workers typically accrue TFR unless a specific statutory exception applies.
• Employees who resign usually keep their accrued TFR, except in limited cases of very short or invalid employment relationships.

What Are the Legal Timelines for Paying Severance?

In Italy, TFR is accrued annually and normally paid in a lump sum when the employment relationship ends, regardless of the reason for termination. In practice, your company should aim to pay TFR and any additional severance within the same timeframe as the final paycheck, usually within days or a few weeks of the termination date. Collective bargaining agreements or company policies may set more precise deadlines, which you must follow if they are more favorable to the employee. Delays can trigger statutory interest and monetary revaluation on the outstanding TFR. To stay compliant, align internal payroll cutoffs so that all termination amounts are calculated and paid promptly after the end of employment.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay TFR or contractual severance correctly in Italy, you risk both financial and legal consequences. Employees can claim unpaid amounts before labor courts, and judges may award interest, monetary revaluation, and legal costs on top of the principal. Non-compliance can also damage your company’s reputation with unions, works councils, and regulators, increasing the likelihood of audits and disputes.

• Courts can order payment of all outstanding TFR plus statutory revaluation and interest.
• You may be liable for legal fees and court costs if the employee’s claim succeeds.
• Labor inspectors can intervene where there is systematic or serious non-compliance.
• Collective disputes with unions can lead to negotiations, settlements, or strikes.
• Persistent breaches can impact your ability to manage workforce changes smoothly.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the underlying requirement to provide TFR and any applicable severance under Italian law. In an EOR model, the EOR is typically the legal employer on paper and is responsible for calculating, accruing, and paying TFR in line with the Civil Code and collective agreements. However, your company, as the client, usually bears the economic cost and may share liability if you instruct unlawful terminations or underfund severance obligations. Italian courts can look through formal structures to identify the real employer in cases of abuse or sham arrangements. You should therefore treat severance compliance as a shared responsibility and ensure your EOR’s processes match local legal standards.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing TFR and severance in Italy means tracking annual accruals, revaluation indices, collective agreement rules, and evolving case law on dismissals. Playroll helps your team by embedding local Italian requirements into every employment setup, from contract drafting to termination workflows. You get clear visibility into projected TFR costs, notice periods, and any additional severance that may arise from individual or collective agreements.

With Playroll, you can centralize your Italian workforce data while relying on local expertise to handle calculations, payslips, and final settlements. Our platform and partners help ensure that TFR is correctly accrued, funded, and paid on time, whether you employ directly or via an Employer of Record. That means fewer disputes, cleaner audits, and a smoother offboarding experience for your employees in Italy.