What TFR is and why it accrues every month
TFR (trattamento di fine rapporto) is deferred remuneration: each year, the company sets aside a portion of the worker's salary and pays it when the employment relationship ends. It works as an internal mandatory savings fund, not as a severance payment.
It accrues in all cases: dismissal, resignation, end of contract or retirement. What changes depending on the reason for leaving is something else; the right to receive it does not depend on who terminates the relationship.
How it is calculated: the annual 6.91% contribution
Each year, the equivalent of 1/13.5 of the annual gross salary is accrued, that is, 6.91% of everything earned, including bonuses and overtime. On that amount, the company applies a revaluation so that the fund does not lose purchasing power: a fixed 1.5% plus 75% of the CPI published by ISTAT.
That calculation, annual contribution plus revaluation, forms the balance paid at the end of the relationship. That is why the real labour cost in Italy is not just gross plus contributions: TFR adds nearly an additional 7% per year, and those who budget without taking it into account get a surprise every time someone leaves.
When it is paid and how it is taxed
Payment comes with the final settlement, whatever the reason for leaving. In practice, it is paid with the last payslip or within a few weeks, depending on what the collective agreement establishes.
The Italian tax authority treats it as employment income, but with its own mechanism: the average personal income tax rate of the last five years is applied, not the marginal rate of the current year. The part corresponding to the revaluation is taxed separately, with a fixed withholding of 17%.
Three possible destinations: company, pension fund or INPS
In the first six months of the contract, the worker decides what to do with their TFR. The default option, if they say nothing, is to keep it in the company, which finances it internally and returns it at the end.
They can also allocate it to a pension fund (fondo pensione). That route has tax advantages: contributions are deducted from personal income tax up to about €5,165 per year and returns are taxed less. When the company has more than 50 employees, the part not going to a fund is transferred to the Fondo di Tesoreria managed by INPS, which is responsible for guaranteeing future payment.
The advance: when it can be requested
The worker can receive part of the TFR before leaving. The general rule allows requesting up to 70% of the accrued balance after eight years in the same company, and only once per employment relationship.
There are two exceptions that bypass the seniority requirement: serious medical expenses and the purchase of a first home for the employee or their children. In these cases, the advance can be requested at any time, with the same 70% limit.
What to review before hiring in Italy
TFR is not optional or negotiable downwards: it is a worker's right and a structural cost of hiring in Italy. Budgeting for it from day one avoids surprises when the first departure comes.
Key points
- Real cost per employee: gross + contributions + TFR (around 7% per year)
- Applicable CCNL collective agreement: sets minimum wages and TFR payment deadlines
- Decision on the worker's destination in the first six months
- Treasury obligation if the workforce exceeds 50 employees
