TFR in Italy: Severance Pay for Employers and Founders Abroad

TFR is the allowance an employee accrues over the whole of a subordinate employment (rapporto di lavoro subordinato, the relationship between an employee and an employer) and receives when it ends. Art. 2120 of the Civil Code gives the right on every termination, whatever its cause: resignation, dismissal, retirement or the end of a fixed term.

English calls it severance pay or severance indemnity, and that is only a gloss. Because TFR is owed on every ending, including a resignation, it is not a dismissal payment. It is deferred pay that the employer sets aside year by year.

Compensation for an unlawful dismissal is a separate regime. This guide does not cover it and gives no figure for it. After this section the page says "TFR".

The right attaches to employment. A self-employed contractor accrues no TFR, and neither does a director who has no employment contract (Art. 2120 c.c.).

A foreign founder who owns an Italian company and holds office as director, with no employment contract, therefore accrues nothing on that office. Two questions sit outside this page: whether a director can also hold an employment contract that accrues TFR, and the separate end-of-office allowance. We have not answered them here, and they go to our contact page before any appointment is drafted.

For each year of service the quota equals the pay due for that year divided by 13.5, and never more (Art. 2120 c.c.). INPS reads this month by month: 7.41% (1/13.5) of the month's pay that counts for TFR, less the 0.50% contribution of Art. 3, last paragraph, L. 297/1982 for workers who owe it (Circolare INPS 12 of 5 February 2026, section 3).

The balance accrued at 31 December, without the current year's quota, is then revalued at 1.5% fixed plus 75% of the rise in the ISTAT consumer-price index.

• Yearly quota: pay for the year divided by 13.5.
• Monthly quota: 7.41% of the month's pay that counts for TFR, less 0.50% where it applies.
• Yearly revaluation: 1.5% plus 75% of the consumer-price rise, on the balance at 31 December.

Searchers look for a TFR calculator. We found no official one among the sources read, so the page shows the formula and offers no tool. It gives no worked example, because the revaluation coefficient of a given year was not read.

The accrued TFR sits in one of three places, and the place depends on conditions, not on a preference we can recommend.

With the company: the accrual stays on its books as a liability. This is the position of a company outside the Treasury Fund scope (decree of 30 January 2007, Art. 1).

With the INPS Treasury Fund: the company pays the accruing TFR to INPS each month once it meets the size test explained in the next section (Circolare INPS 12/2026).

With a pension fund: if the worker is enrolled in a supplementary pension scheme, the TFR goes there (Art. 8 D.Lgs. 252/2005).

From 1 July 2026 the automatic-enrolment rules of Art. 8 D.Lgs. 252/2005 apply (L. 199/2025 Art. 1(202) and (205)). A first hire in the private sector, household workers excluded, joins a supplementary pension scheme automatically unless they opt out (Normattiva). COVIP, the pension-fund supervisor, adapts its instructions for the start.

The fund that receives the TFR is the collective fund named by the applicable national, local or company agreement. Where several exist, it is the one most of the company's workers have joined, unless a company agreement says otherwise. With no agreement, the residual fund of Ministerial Decree 85/2020 takes the whole TFR.

The worker has sixty days from first hire to refuse. They may send the whole accruing TFR to another fund of their choice, or keep it with the employer under Art. 2120 c.c., and they can later revoke that choice in favour of a fund.

If the worker stays silent, the employer notifies the fund and starts paying from the month after the sixty days expire, with arrears from the hiring date included.

A substitute income tax of 17% applies to the income from each year's revaluation of TFR funds (Art. 11(3) D.Lgs. 47/2000). The employer applies it as withholding agent and the tax reduces the fund. It applies to revaluations from 1 January 2015 under L. 190/2014 Art. 1(625).

The balance is due by 16 February of the following year. An advance of 90% of the previous year's revaluations is due by 16 December, and payment follows the F24 system (Art. 11(4)).

The 17% does not apply to the part of the TFR sent to a pension fund (Agenzia delle Entrate). Art. 11 D.Lgs. 47/2000 is marked in force to 31 December 2026. The Guarantee Fund contribution is covered in its own section below.

The payout is taxed separately from the year's other income. The TFR is income net of the revaluations already taxed at 17%. The rate is the one for the year the right arose, applied to the amount divided by the years of service and multiplied by twelve. The tax offices then re-settle the tax at the average rate of the previous five years (Art. 19(1) TUIR).

Advances are taxed at the same rate, subject to final adjustment on payout. When the TFR is paid on the employee's death under Art. 2122 c.c., those entitled owe the tax in proportion to what each receives (Art. 19(4) and (5) TUIR).

Above EUR 1,000,000 the excess is added to overall income, according to the Agenzia delle Entrate page; we cite no statute for the ceiling. Art. 19 TUIR is in force to 31 December 2026. The company withholds the tax, and this section states the rule, not what an employee should do.

After eight years' service with the same employer, an employee may ask once for an advance (anticipazione) of up to 70% of the TFR they would receive if employment ended on the date of the request (Art. 2120 c.c.).

The advance is allowed only for specified needs, among them extraordinary medical expenses and the purchase of a first home evidenced by a notarial deed. The employer must satisfy requests each year within 10% of those entitled, and the advance is deducted from the final TFR. Any further cap, and any variation by collective agreement, was not read.

The INPS Guarantee Fund takes the employer's place in paying the TFR (L. 297/1982 Art. 2, read at the Gazzetta Ufficiale).

The fund is financed by an employer contribution of 0.20% of pay, or 0.40% for industrial executives, as INPS states it in 2026. It is reduced in proportion to the TFR sent to pension funds or the Treasury Fund, and the employer is also relieved of 0.28 points of other contributions (Circolare INPS 12/2026, section 5). How and when the fund pays the employee was not read.

Every labour, social-security and welfare formality for employees, when the employer does not handle it itself or through its own staff, may be taken on only by enrolled consulenti del lavoro, lawyers and dottori commercialisti (L. 12/1979 Art. 1). A provider qualified in another EU state under the free provision of services is exempt from Italian enrolment.

We are not one of those professionals. For payroll services in Italy we coordinate an enrolled professional who runs the formalities, and we never run payroll or TFR ourselves or use a protected title for our staff. The professional's name is given per engagement.

A company may also use its own staff for the formalities. Which route fits a given company is a decision for our contact page, not for this guide.

Normattiva marks Art. 19 TUIR and Art. 11 D.Lgs. 47/2000 in force to 31 December 2026. D.Lgs. 117/2026, in force since 4 July 2026, is the consolidated income-tax act that takes over the TFR tax articles from 1 January 2027, and it carries a chapter on the separate taxation of the TFR (Normattiva).

Whether it takes over each article, and with what wording, was not read. We print no successor article number and we do not say the rules are unchanged. This page needs a re-read before the new year. The Treasury Fund thresholds are not affected, as they run to 2032 under L. 199/2025.

• payroll services in Italy: payroll run by an enrolled consultant that we coordinate, never by us. Questions on your case go through our contact page.
• Corporate Tax Filing and Bookkeeping in Italy: the company's yearly accounts and returns.
• the detailed tax advisory page: the tax rules that sit around a hire.