TFR Italy 2026: Calculation, Employer Obligations & New Rules

TFR (Trattamento di Fine Rapporto) is Italy’s mandatory severance indemnity. It is not a bonus, not an optional benefit, and not negotiable. Every employer in Italy, whether a local company, a multinational subsidiary, or an Employer of Record, must accrue a portion of each employee’s salary throughout the employment relationship and pay it out when the contract ends, regardless of the reason for termination.

For international employers hiring in Italy, TFR is one of the most misunderstood elements of Italian employment costs. It adds approximately 6.91% to annual salary costs on top of Italy’s already high employer social security contributions (typically 25 to 35% of gross salary). Because TFR accrues over years and must be revalued annually for inflation, it creates a growing financial liability that many foreign companies fail to budget for properly.

The 2026 Budget Law (Legge n. 199/2025) has introduced significant changes to TFR rules, including automatic enrolment of new private-sector hires into supplementary pension funds from 1 July 2026 and an expanded obligation to transfer TFR to the INPS Treasury Fund. This guide explains what TFR is, how it is calculated, what changed in 2026, and how employers can manage TFR compliance.

TFR is a form of deferred compensation established by Article 2120 of the Italian Civil Code and reformed by Law 297/1982. It applies to all employees in the private and (with some differences) public sector. The employer sets aside a portion of each employee’s annual salary into a reserve, revalues that reserve each year, and pays the accumulated total to the employee when the employment relationship ends.

TFR is paid out upon any termination of the employment contract, including resignation, dismissal (with or without cause), mutual agreement, retirement, expiry of a fixed-term contract, or death of the employee (in which case it is paid to heirs). The reason for termination does not affect the employee’s entitlement to TFR. This is a fundamental point: TFR is not conditional on good performance or length of service beyond accrual.

The TFR calculation has two components: the annual accrual and the annual revaluation.

Annual Accrual

Each year, the employer sets aside an amount equal to the employee’s annual gross salary (including regular bonuses and benefits in kind, but excluding expense reimbursements and occasional payments) divided by 13.5. This works out to approximately 7.41% of gross salary. However, 0.5% of the accrual is paid to the INPS Guarantee Fund, so the effective accrual retained is approximately 6.91% of gross salary.

For partial years (new hires or terminations mid-year), the accrual is calculated proportionally. Fractions of a month equal to or greater than 15 days count as a full month.

Annual Revaluation

At 31 December each year, the total TFR accrued as of the previous year-end is revalued using the following formula:

Revaluation rate = 1.5% (fixed) + (75% × ISTAT annual inflation rate)

For example, if ISTAT inflation for the year was 2.0%, the revaluation rate would be 1.5% + (75% × 2.0%) = 1.5% + 1.5% = 3.0%. This revaluation is applied to the total TFR reserve from previous years (not the current year’s accrual). The revaluation component is subject to a 17% substitute tax, paid by the employer in two instalments (advance by 16 December, balance by 16 February).

Worked Example

After 10 years of employment at €40,000 gross, total TFR (including revaluations) would typically exceed €30,000 to €33,000 depending on inflation. This is the amount the employer must pay upon termination.

Employees must choose where their TFR accruals are directed. This decision has different implications for both the employee and employer.

Option A: Retained in the Company

For companies with fewer than 50 employees, TFR may be retained as a book reserve in the company’s accounts. The employer revalues it annually and pays it out at termination. Under Italian GAAP, this can be a simple accrual. Under IFRS, an actuarial valuation is required. Retaining TFR effectively gives the employer access to low-cost internal financing, but it creates a growing balance-sheet liability.

Option B: INPS Treasury Fund (Fondo di Tesoreria)

Companies with 50 or more employees must transfer TFR accruals (for employees who have not opted for a pension fund) to the INPS Treasury Fund. From 1 January 2026, this obligation has been extended to companies that have crossed the 50-employee threshold in subsequent years after initial setup, with a transitional phase starting at 60 employees. The sums deposited are not invested by INPS but are revalued automatically. Upon termination, the employer submits a claim and INPS pays within 30 days.

Option C: Supplementary Pension Fund (Previdenza Complementare)

Employees may choose to direct their TFR to a supplementary pension fund, typically the fund specified by their national collective bargaining agreement (CCNL). If no active choice is made within six months of hiring, TFR is automatically directed to the CCNL pension fund under the existing silent consent (silenzio-assenso) mechanism. Once directed to a pension fund, the choice is irreversible. The pension fund invests the TFR and pays it out upon retirement (not at termination), with more favourable tax treatment (15% maximum, reducing to 9% after 35 years).

The 2026 Budget Law introduced three major changes to TFR rules, all designed to push more TFR into supplementary pension schemes and reduce the burden on the public pension system.

For TFR already accrued as of 31 December 2025, nothing changes. The new rules apply only to TFR accruing from 1 January 2026 onwards (for the INPS Treasury expansion) and from 1 July 2026 (for automatic pension enrolment).

TFR is just one component of Italy’s substantial employer-side costs. Here is how it fits into the total picture:

Total employer costs in Italy typically range from 40 to 55% above gross salary, depending on the sector, CCNL, and company size. TFR accounts for roughly 6 to 7 percentage points of this, but because it compounds over time and includes inflation revaluation, the actual payout at termination is higher than a simple 6.91% projection would suggest.

Under Article 2120 of the Civil Code, employees may request a partial advance on their accrued TFR while still employed. This is subject to strict conditions:

Public-sector employees do not currently have the right to TFR advances. For TFR held in pension funds, different rules apply: the employee must typically have been in the fund for at least 8 years and may access up to 75% for medical expenses or home purchase, or 30% for other needs after 8 years.

TFR is taxed separately from ordinary income, using a special regime designed to prevent the lump-sum payment from pushing the employee into a higher tax bracket.

The pension fund route typically offers more favourable long-term taxation (9 to 15%) compared to the company/INPS route (average IRPEF, which for most employees is 23 to 35%). This is one of the key reasons the government is encouraging pension fund allocation through the 2026 reforms.

Employers must manage several ongoing obligations related to TFR:

Failure to accrue, revalue, or pay TFR correctly exposes the employer to employee claims, INPS enforcement action, and interest on late payments. In insolvency, unpaid TFR is covered by the INPS Guarantee Fund, but only up to the legally correct amount.

When hiring through an Employer of Record in Italy, the EOR is the legal employer and assumes full responsibility for TFR accrual, revaluation, Treasury Fund transfers, pension fund contributions, and final payment at termination. This is one of the most important reasons to use an experienced EOR rather than engaging contractors or attempting informal employment arrangements.

A good EOR will handle TFR calculation on each monthly payslip, correct identification of the salary base (per the applicable CCNL), INPS Guarantee Fund payments, annual revaluation and substitute tax, INPS Treasury Fund transfers (if the EOR entity has 50+ employees), new hire pension enrolment under the 2026 rules, and accurate TFR payout upon termination with correct separate taxation.

When evaluating EOR providers for Italy, ask specifically how they calculate the TFR base (which salary components are included), whether they handle the 17% revaluation tax, and how they manage the new automatic pension enrolment for hires from July 2026.