The salary components that are taken into account when calculating severance pay are prescribed by the Severance Pay Regulations (Calculation of Severance Pay and Resignation Deemed to Constitute Dismissal).
Under Regulation 1, the components included in the calculation are:
basic salary;
seniority allowance;
cost-of-living allowance;
family allowance; and
departmental or professional allowance.
n addition, Regulation 9 provides that where an employee’s remuneration is paid, in whole or in part, for the performance of a specific task, as a share of revenue, or is primarily based on the quantity of output produced, the employee’s last salary for severance pay purposes is deemed to be the average remuneration earned during the twelve months preceding the termination of employment.
Based on Regulation 9, Israeli courts have held that personal sales commissions form part of an employee’s salary for the purpose of calculating severance pay.
By contrast, bonuses or performance incentives paid solely for achieving specified targets—where earning the payment requires performance beyond the employee’s ordinary duties—are generally not regarded as salary for severance pay purposes and are therefore excluded from the calculation.
