Israel Payroll and Benefits Guide

What global businesses need to know about payroll in Israel

On the eastern coast of the Mediterranean Sea, Israel is an economically prosperous country of just under ten million people. Its levels of earnings, approach to social security and strong trade links make Israel comparable to many western European countries.

With relatively few natural resources, its economy is largely service-driven (nearly 70% of GDP). In recent years, it has become a global hub for technology start-ups: many of the biggest tech players in the world have opened research and development centers in Israel, including Intel, IBM, Google, Microsoft, Apple and Facebook. More than half of Israel’s exports, including diamonds, energy, pharmaceuticals and machinery, go to either the United States or the European Union.

Israel’s approach to payroll and employment regulations is similar in look and feel to most of Europe, but there are some specifics to bear in mind. This guide covers the basics around employment law and running payroll in Israel.

Getting Started 

If starting a limited liability company, you’ll need to work with an Israeli lawyer who can help guide you through the relevant legal proceedings. In particular, they will help you draft and register the company application, the director’s declaration of competency, and the signed Articles of Association.

Once this is completed, you’ll then be able to apply to the Registrar of the Ministry of Justice, and then register for tax and VAT, from which your social security registration will be completed automatically. You should expect to pay around ILS 4500 (approx. £970; $1240; €1130) in registration fees in total, and the process should be completed in around two weeks.

A local bank account is not required to register your business. However, if you do choose to open one, the banks require proof of registry with the proper authorities prior to opening the account.

Employment Considerations

Generally, contracts with employees should set out the terms of employment, but contracts do not necessarily have to be in writing.

The standard working week in Israel is 42 hours, although there are variations in how many days are worked each week (five or six), and how many hours are worked each day (between seven and nine). Overtime is limited to 16 hours per week, and should not result in employees working more than 12 hours in total on any single day. Overtime is paid at 125% of salary for the first two hours each day, and 150% beyond that. Collective bargaining can result in higher rates being agreed.

Probation periods are required by law, but the length of them are up for negotiation in contracts or through collective bargaining. Notice periods start at one day during the first six months of employment, and then increase by 2.5 days for each subsequent month within the first year. The standard notice period after at least one year of service is 30 days.

Compensation, Bonuses and Severance

The minimum wage in Israel is steadily climbing year-on-year. The new rate introduced in April 2024 is ILS 5700 per month (approx. £1220; $1570; €1430). This will rise again to ILS 5800 in April 2025, and again to ILS 6000 in December 2025. Most professions make more than this so be careful when negotiating. While there are no laws about wage growth, workers will expect to make more as the years roll on. 

There is no requirement to pay a 13th-month bonus in Israel, but there is a requirement to give employees with at least one year’s service a recreation payment. This is usually made in the summer (between July and September): the amount determined by the Government changes each year, and varies according to length of service.

Severance pay is one month’s salary per year of service, as long as they have completed at least one year, and is covered by the payments employers make into the severance fund (see below).

Tax and Social Security

Income tax in Israel is levied progressively, with seven different bandings applicable. The lowest banding of 10% applies to the first ILS 84,120 earned each year (approx. £18,100; $23,200; €21,200), after which the next rate of 14% kicks in, followed by rates of 20%, 31%, 35% and 47%. The highest rate of 50% applies to all earnings above ILS 721,560 per year (approx. £155,000; $199,000; €182,000). Corporation tax in Israel runs at 23%, and the VAT rate is 17%.

There are four main types of social security contribution in Israel:

  • Social security (on the first ILS 7522 earned each year): 3.55% employer, 0.4% employee
  • Social security (on the next ISL 41,508 earned each year): 7.6% employer, 7% employee:
  • Health insurance (on the first ILS 7522 earned each year): 3.1% employee
  • Health insurance (on the next ISL 41,508 earned each year): 5% employee
  • Pension fund: 6.5% employer, 6% employee
  • Severance pay fund: 8.33% employer

Holidays and Leave

Paid leave entitlement in Israel starts at 12 working days per year, rising to 17 after five years’ service, and 23 after nine years’ service. There are ten days of national holiday in Israel each year, although for the religious holidays (which constitute the majority of them), the afternoon before the holiday itself is also given as paid time off.

Maternity leave entitlement is up to 26 weeks, starting seven weeks before the due date. Social security covers pay during this time, but only for the first 15 weeks. Paternity leave is five days, the first three of which are taken from paid leave entitlement, and the last two of which are taken from sick leave entitlement. Further paternity leave can be taken from the mother’s maternity leave allocation.

Sick leave is accrued at the rate of 1.5 days per month worked, up to a maximum of 90 days. Sick pay for the second and third days of sickness is 50% of salary: 37.5% paid by the employer and 12.5% by social security. From the fourth day onwards, employees receive full salary, with 75% paid by the employer and 25% by social security.

Employees are also entitled to seven days paid leave in the case of a family bereavement, and should also be paid by their employers while on mandatory military service.

In Summary

As with any country, Israel has its own fair share of country-specific payroll regulations, as well as its own cultural characteristics (such as the half-days off before all nationally-observed Jewish holidays). For this reason and others, we would always recommend working with people with local expertise, such as legal professionals and a global payroll partner, to make for a smooth international expansion.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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