TFR (severance) calculator

How it works

Each year the employer sets aside as TFR about the annual salary divided by 13.5. Over time the amount is revalued (fixed 1.5% + 75% of inflation).

Important

It's a simplified gross estimate: it excludes the yearly ISTAT revaluation and the separate taxation on TFR when paid out.

Why you divide by 13.5

The number is not arbitrary: it comes from Italian law 297 of 1982, which sets the annual accrual at the qualifying pay divided by 13.5. That is a little under one salary in thirteen, and in practice works out at about 7.4% of annual pay. From that share a 0.50% contribution to the social security institute is then deducted, which is why the amount actually set aside is slightly lower than the round figure.

Severance pay is therefore neither a bonus nor a gift: it is deferred pay, that is a part of the salary already earned which the employer holds back and returns at the end of the relationship. That is why it is always due, however the job ends: resignation, dismissal, expiry of the contract, retirement.

Revaluation, and why it counts for little when prices run

The accrued fund is revalued each year by a fixed 1.5% plus 75% of inflation. In years of low inflation that is a generous rule, because the fixed one and a half per cent is worth more than the rise in prices. In years of high inflation it is the opposite, and the formula loses purchasing power by construction: with prices at 6%, revaluation reaches a full 6% only by chance, and usually stays below.

On top of that, a substitute tax is charged on the revaluation every year and taken from the fund. It is why the figure on the payslip grows less than the theoretical sum would suggest.

With the employer or in a pension fund

This is the choice every new employee has to make within six months, and that almost nobody explains to them. Leaving the fund with the employer gives modest but certain revaluation and a safe lump sum at the end. Moving it to a pension fund means accepting market risk, but brings three advantages the employer-held fund does not have: lower taxation at the end, deductibility of any voluntary contributions and, in industry-wide funds, the employer's additional contribution, which is only obtained by joining.

The choice is not permanent in one direction only: from employer-held severance you can move to a fund at any time, whereas the reverse cannot be done. That is why sitting still costs something to anyone who is undecided.

Advances and taxation

Severance pay can be requested early, but not at will: the law provides an advance of up to 70% after eight years of service with the same employer, for listed reasons such as extraordinary medical expenses, buying a first home for oneself or one's children, and statutory leave. Collective agreements may be more generous, but not stricter.

The final payment is subject to separate taxation, not to the income tax of the year: the rate is worked out on the average income of recent years, precisely to avoid a sum accrued over twenty years being taxed as if it had all been earned at once. It is also why the net figure is higher than you would expect by applying your current rate.

Nearby tools

For monthly take-home there is Gross to net salary; to see what money set aside today will be worth tomorrow, Inflation calculator and Compound interest. For a long-term target Savings goal.