What Severance Pay Rules Must Employers Follow in Israel?

Which Employees Qualify for Severance Pay?

Employees in Israel qualify for severance pay if they meet the following criteria:

• They are dismissed by the employer, except for certain cases of serious misconduct.
• They resign due to specific justified reasons, for example, a significant change in work conditions, health issues, or relocation for a spouse’s job.
• They retire, become disabled, or pass away, in which case payment is made to their heirs.
• They work under a Section 14 arrangement, where monthly contributions are made toward severance during employment.

What Are the Legal Timelines for Paying Severance?

Employers in Israel must pay severance pay promptly after termination. Typically, payment should be made no later than the final payroll cycle following the employee’s departure. If the employer uses a Section 14 arrangement, the severance funds have already been accumulated monthly, and the employer’s main obligation is to release the funds to the employee through the pension or severance plan provider. In cases without Section 14, payment should be made immediately upon termination or within a few days thereafter to ensure full compliance with labor law requirements.

What Penalties Apply if Severance Is Not Paid Correctly?

Failing to pay severance in Israel exposes employers to legal and financial risks, including:

• Labor court claims filed by employees for unpaid severance.
• Interest and indexation penalties on overdue payments.
• Compensation orders or fines issued by the Ministry of Labor for non-compliance.
• Damage to employer reputation and potential exposure in audits or disputes.

Ensuring timely, accurate severance payments is essential to maintain compliance and avoid litigation.

Does Outsourcing Employment via an EOR Change Severance Liability?

Yes, when employment in Israel is managed through an Employer of Record (EOR) such as Playroll, the EOR becomes the legal employer of record and is responsible for handling all statutory employment obligations, including severance pay. This means the EOR ensures compliance with Israel’s Severance Pay Law, makes the appropriate monthly contributions under Section 14, and releases the funds correctly upon termination. The client company remains operationally involved but does not bear the direct legal liability for severance compliance.

Be 100% Compliant in Offering Severance with Playroll

Severance pay laws in Israel can be complex, particularly with the nuances of Section 14 contributions, calculation rules, and statutory timelines. Playroll ensures that every employment relationship you manage in Israel meets full legal compliance, from setting up the correct severance arrangements to processing final payments accurately and on time.

With Playroll, you can confidently employ in Israel without worrying about compliance gaps. Our platform automates severance tracking, aligns with Israeli labor regulations, and provides end-to-end visibility across your workforce. Partner with Playroll to simplify your international employment management and guarantee that every employee receives what they’re legally entitled to, with no confusion, no risk, and no missed obligations.