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Direct answers
- What is TFR (Trattamento di Fine Rapporto)?
- TFR is Italy's unique mandatory severance pay system. Unlike Anglo-Saxon redundancy pay, TFR accrues throughout the entire working relationship regardless of contract duration and is paid to the employee when they leave — whether they resign, are made redundant, retire, or the contract expires. It is essentially deferred compensation, not a dismissal bonus.
- How is TFR calculated each year?
- The annual TFR accrual is calculated by dividing the total annual gross compensation by 13.5. So an employee earning €20,000 gross per year accrues €20,000 / 13.5 = €1,481.48 of TFR that year. The denominator of 13.5 is fixed by law (Article 2120 of the Italian Civil Code) and does not change.
- Is TFR held by the employer or paid into a fund?
- For companies with more than 50 employees, TFR is mandatorily transferred to INPS's treasury fund (Fondo di Tesoreria). Smaller companies (under 50 employees, which includes most HoReCa businesses) retain TFR on their balance sheet and pay it out directly when the employee leaves. Employees at all companies can choose to divert future TFR accruals to a supplementary pension fund (fondo pensione).
- Does TFR grow over time?
- Yes — accumulated TFR is revalued each year by a fixed statutory rate of 1.5% plus 75% of the ISTAT consumer price index (inflation). This revaluation applies to the stock of TFR held by the employer. If inflation rises, the TFR payable on exit also increases. For TFR in the INPS Fondo di Tesoreria, the same revaluation applies.
- Can an employee request TFR early?
- Yes, under Article 2120 of the Civil Code, an employee with at least 8 years of service at the same employer can request up to 70% of their accrued TFR as an advance (anticipo TFR) for specific purposes: buying a primary home, medical expenses, or (in some CCNLs) maternity/paternity leave. The advance can only be requested once.
- How is TFR taxed when paid out?
- TFR is taxed under a special separata tassazione regime, not at the employee's normal IRPEF rate. The tax authority calculates a hypothetical average tax rate based on a 5-year income average. This typically results in a more favorable tax rate than applying standard IRPEF brackets to a lump sum. The employer withholds an estimated tax at payout; the Agenzia delle Entrate can later adjust within 3 years.
Quick answers
Frequently Asked Questions
What is TFR (Trattamento di Fine Rapporto)?
TFR is Italy's unique mandatory severance pay system. Unlike Anglo-Saxon redundancy pay, TFR accrues throughout the entire working relationship regardless of contract duration and is paid to the employee when they leave — whether they resign, are made redundant, retire, or the contract expires. It is essentially deferred compensation, not a dismissal bonus.
How is TFR calculated each year?
The annual TFR accrual is calculated by dividing the total annual gross compensation by 13.5. So an employee earning €20,000 gross per year accrues €20,000 / 13.5 = €1,481.48 of TFR that year. The denominator of 13.5 is fixed by law (Article 2120 of the Italian Civil Code) and does not change.
Is TFR held by the employer or paid into a fund?
For companies with more than 50 employees, TFR is mandatorily transferred to INPS's treasury fund (Fondo di Tesoreria). Smaller companies (under 50 employees, which includes most HoReCa businesses) retain TFR on their balance sheet and pay it out directly when the employee leaves. Employees at all companies can choose to divert future TFR accruals to a supplementary pension fund (fondo pensione).
Does TFR grow over time?
Yes — accumulated TFR is revalued each year by a fixed statutory rate of 1.5% plus 75% of the ISTAT consumer price index (inflation). This revaluation applies to the stock of TFR held by the employer. If inflation rises, the TFR payable on exit also increases. For TFR in the INPS Fondo di Tesoreria, the same revaluation applies.
Can an employee request TFR early?
Yes, under Article 2120 of the Civil Code, an employee with at least 8 years of service at the same employer can request up to 70% of their accrued TFR as an advance (anticipo TFR) for specific purposes: buying a primary home, medical expenses, or (in some CCNLs) maternity/paternity leave. The advance can only be requested once.
How is TFR taxed when paid out?
TFR is taxed under a special separata tassazione regime, not at the employee's normal IRPEF rate. The tax authority calculates a hypothetical average tax rate based on a 5-year income average. This typically results in a more favorable tax rate than applying standard IRPEF brackets to a lump sum. The employer withholds an estimated tax at payout; the Agenzia delle Entrate can later adjust within 3 years.