Trattamento di fine rapporto, universally shortened to TFR, is a statutory severance entitlement accrued by every Italian employee. It is paid out whenever employment ends, whether through resignation, dismissal, retirement or the end of a fixed term, with no distinction between them.
It is not a redundancy payment in the sense used elsewhere in Europe. It is deferred salary, set aside year by year, and the employee is entitled to it regardless of how the job ends.
How much accrues
The annual accrual is gross salary divided by 13.5, which works out at roughly 6.91%. A small levy is deducted for the state guarantee fund, taking the effective rate slightly below that.
The accumulated balance is revalued annually at a fixed 1.5% plus 75% of the increase in the consumer price index. In a low inflation year that is a modest return; in a high inflation year it tracks prices reasonably well without matching them.
Crucially, the accrual is on top of the salary rather than deducted from it. An Italian package quoted at 35,000 euros gross carries an additional 2,418 euros of annual entitlement that never appears in the take-home figure, which is why the Italian position in the engineering comparison understates the package slightly.
How it is taxed
TFR is subject to tassazione separata, separate taxation, rather than being added to income in the year of payment. The rate applied is broadly the average tax rate of the five years preceding the payout, which for most employees is considerably below their marginal rate.
The design is sensible. Adding a decade of accrual to a single year's income would push the whole amount into the top bracket, which is exactly what happens to severance payments in several other European systems.
The portion representing revaluation is taxed separately again, at a flat substitute rate on the growth. The tax authority may also adjust the assessment afterwards if the average rate calculation produces an anomalous result.
The choice most people make by default
Since the 2007 reform, employees choose whether to leave the TFR accruing with the employer or transfer it into a supplementary pension fund, either a sector fund or an open one. Failing to choose within six months of starting a job results in automatic transfer to the sector pension fund under the silenzio-assenso rule.
The pension fund route is usually better on the numbers. The tax rate on payout falls to 9% after thirty five years of membership against a separate taxation rate typically in the low twenties, and in most sectors the collective agreement obliges the employer to add a contribution of its own once the employee joins the fund, which is free money that stays on the table otherwise.
The argument for leaving it with the employer is liquidity and certainty: it is accessible when the job ends, at any age, which matters to anyone who expects to need capital before retirement.
Taking money out early
Employees with at least eight years of service may request an advance of up to 70% of the accrued balance, once, for defined purposes: purchase of a first home for the employee or a child, substantial medical expenses, or certain periods of leave. Employers may grant more generous terms and collective agreements sometimes require it.
Firms with fewer than fifty employees hold the TFR on their own balance sheet, which historically made it a cheap source of working capital for Italian small business and is one reason the system has proved so difficult to reform. Larger firms transfer it to the state fund managed by INPS.
What it means when comparing an Italian offer
Italian gross salaries look low against northern European ones, and the deduction rate at 37.8% on 60,000 euros is heavy. Both facts are covered in the ordinary take-home arithmetic. The TFR is not.
Adding 6.91% of gross as deferred pay closes part of the gap, and for anyone joining a pension fund with an employer contribution attached, rather more of it. Anyone weighing an Italian offer against a foreign one should count it, alongside the impatriati regime where it applies, which is set out in the guide to the impatriati regime.
Work out the salary side with the Italy Salary Calculator, built on 2026 rates, then add 6.91% of gross for the annual TFR accrual.