Severance indemnity: what is the Severance Pay
Severance indemnity: what is the Severance Pay
Severance Pay Definition

Whether you are at the beginning of your professional career or you already have more experience, it is essential to understand what Severance Pay is.

We know how difficult it is to clarify certain aspects of employment contracts: in our business we deal with them every day, helping many workers like you to read and understand the conditions of their contract.

This is why today we want to help you understand what TFR is, when you can request it and how it is calculated.

What does severance pay mean?

As you have already understood, TFR is an acronym, but there are many names with which this amount recognized to the worker is called: liquidation, severance, or (in full) Severance Pay.

To get to the heart of the matter, the TFR is an economic recognition reserved only for employees at the end of the employment relationship, in any way it ends. Whether in the event of dismissal, whether you resign or you reach retirement, the TFR is guaranteed to the employee.

You can consider it, in essence, deferred compensation for your work performance, which is calculated over the years.

The company pays it for you, and there are two ways to mature it over time. In fact, at the time of signing the contract, the employer asks you which method you prefer for the retention of the TFR. The answer must be given within 6 months from the date of the contract and you can choose between:

  • let the company keep your severance pay for you until the end of the employment relationship;
  • pay the amount of the liquidation periodically into a supplementary pension fund, such as a pension fund.

A third alternative was introduced in March 2015. It consisted of the possibility of receiving one’s share of severance pay directly in the payslip each month but was revoked in June 2018.

When the TFR is due

Now you know how your severance pay is established, but who is it and when can you apply for it?

As we said, the Severance Pay is reserved only for employees.

Obviously, the severance pay is not due in all cases, you must have matured at least 6 months of work before requesting the payment. After this period you can make a written request by filling out the Qu.I.R. One condition: you must not have bound the value of your severance pay as a guarantee for one or more loans.

However, there is a case where you can request to have part of the accrued sum immediately. The advance of the severance pay, in fact, is required by law in special cases, governed by Article 2120 of the Civil Code:

  • when the amount does not exceed 70% of the total payments accrued;
  • when you have worked for the same employer for at least 8 years;
  • when you have not already used the advance (you can in fact request it only once);
  • when the motivation is related to extraordinary health costs, the purchase of a first home or renovation, leave for optional maternity leave, and training.

How TFR is calculated

Here we are: how should you calculate your severance pay? It is not easy to count, but let’s try to clarify the various steps together.

In general, Severance Pay is calculated based on the gross annual salary. This total must be divided by a fixed coefficient of 13.5. This sum must then be revalued based on a fixed rate of 1.5% and 75% on the ISTAT increase of the previous year.

To make it easier, you can brush up on some math and use this formula:

[(Gross annual salary: 13.5) x 2.25%] [1.5% + 0.75% (1% x 75%)]

Thanks to this calculation you will know how much your annual revaluation is, which you will have to add to the annual severance pay and to that of previous years.

Be careful though: the amount of these calculations is not fully perceived, there are in fact taxes to be applied in the liquidation phase. There is talk of separate taxation, therefore to be paid at the end of the employment relationship.

You must also remember that, if you signed the employment contract before 2000, the TFR accrued up to December of that year will be fully taxed by the employer, while from 2001 onwards the tax will be applied by the State for the tax calculation.

The severance pay is a certainty that all employees must be aware of. It can be a great help at the end of a career, at the time of the end of a working relationship, and also in crucial situations where this contribution makes a difference.

If you are looking around to look for a new job opportunity, look at the announcements published on our site or upload your CV here so as not to miss any of the open positions of your interest.

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