Employment Laws and Policies in Israel

Employment Contracts in Israel

Employment law in Israel is governed by multiple sources: statutory laws, collective bargaining agreements (Collective Agreements), Extension Orders, case law, and the Covenant of Faith (good faith principle). This creates a complex, multi-layered legal framework with strong employee protections.

Key legislation:

• Hours of Work and Rest Law, 1951
• Annual Leave Law, 1951
• Severance Pay Law, 1963
• Equal Pay for Male and Female Employees Law, 1964
• Employment (Equal Opportunities) Law, 1988
• Notice of Dismissal to Employee Law, 2001
• Prevention of Sexual Harassment Law, 1998
• Employment of Employees by Manpower Contractors Law, 1996

Contract Requirements

Employment contracts should be in writing, though oral contracts are legally valid. Written contracts are strongly recommended to avoid disputes.

Contracts should include:

• Full names and addresses of employer and employee
• Job title and description of duties
• Place of work (office address or remote arrangement)
• Start date of employment
• Employment type (permanent, fixed-term, part-time)
• Trial/probation period (if applicable)
• Salary and payment details (gross salary, payment frequency, currency)
• Working hours and days
• Vacation (annual leave) entitlement
• Sick leave arrangements
• Notice periods
• Applicable collective agreements or extension orders
• Social benefits (pension, severance, education fund, etc.)
• Confidentiality and IP assignment clauses
• Non-compete provisions (if applicable, with limitations)

Language:

• Contracts can be in Hebrew, English, or both
• Hebrew is official language; courts favor Hebrew versions in disputes
• Best practice: bilingual contracts (Hebrew and English)

Types of Contracts

1. Permanent (Indefinite) Contracts

• Standard employment relationship
• No predetermined end date
• Full statutory protections and benefits
• Most common contract type

2. Fixed-Term Contracts

• Defined end date or completion of specific project
• Must be genuinely justified (project-based, seasonal, maternity replacement, etc.)
• Not permitted to avoid permanent employment obligations
• Renewal limitations:
  • General rule: Fixed-term contracts that exceed certain duration or are repeatedly renewed may be deemed permanent
  • After 9 months cumulative with same employer in similar role, employee may gain permanent status rights
  • Courts scrutinize repeated renewals to prevent abuse
• Automatic conversion risk: Repeated renewals without genuine justification → permanent employee

3. Part-Time Contracts

• Less than standard full-time hours (typically <42-43 hours/week)
• Pro-rata entitlements for leave, benefits, social payments
• Part-Time Employees Regulations, 2000: Prohibit discrimination against part-time workers
• Must receive proportional benefits (vacation, sick leave, etc.)

4. Temporary/Seasonal Contracts

• For specific seasons or temporary projects
• Similar considerations as fixed-term contracts
• Must be genuinely temporary in nature

5. Manpower/Agency Contracts

• Employees hired through manpower agencies
• Employment of Employees by Manpower Contractors Law, 1996 regulates
• Restrictions on use (cannot be for core business functions long-term)
• After certain period, may be deemed direct employee

Probation Period

• Typical duration: 3–6 months (most common: 3 months for standard roles, up to 6 months for senior positions)
• Can be extended by mutual agreement (often extended once by 1–3 months)
• Must be clearly stated in employment contract
• During probation:
  • Full salary and benefits apply
  • Shorter notice periods typically apply (often 1 day per month worked, or as agreed)
  • Employer can terminate more easily, but must still act in good faith
  • No severance pay if terminated during probation (under 1 year service generally)
• After probation:
  • Transition to permanent employment
  • Full notice period and severance protections apply

Note: Even during probation, employer must act reasonably and in good faith (covenant of faith principle). Discriminatory or bad-faith terminations can be challenged.

Collective Agreements and Extension Orders

Israel has extensive collective bargaining framework:

Collective Agreements:

• Negotiated between employers/employer organizations and labor unions (Histadrut is main union)
• Cover industries, sectors, or specific companies
• Set minimum terms: wages, working hours, benefits, procedures

Extension Orders (Tzavei Haarchava):

• Ministry of Labor extends collective agreements to entire sectors, even non-union workers
• Legally binding on all employers in covered sectors
• Examples: High-tech extension order, banking, construction, retail

Key implications:

• Employers must comply with applicable extension orders even if not party to collective agreement
• Extension orders often mandate:
  • Minimum wage adjustments (above statutory minimum)
  • Mandatory social benefits (pension, education fund, severance)
  • Vacation day formulas
  • Sick leave enhancements
  • Travel allowances, meal vouchers
  • Annual bonuses (e.g., recreation/convalescence pay)

High-Tech Extension Order (most relevant for tech companies):

• Covers software, R&D, engineering sectors
• Mandates pension, severance fund, education fund contributions
• Sets recreation pay, travel allowances
• Applies to most tech employees earning below certain threshold

An EOR ensures contracts comply with Israeli labor law, applicable collective agreements, and extension orders.

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Working Hours in Israel

Working time in Israel is regulated by the Hours of Work and Rest Law, 1951 and various amendments.

Standard Working Hours

Statutory maximum:

• 43 hours per week (general maximum)
• 45 hours per week for certain sectors (security guards, hospitality)
• 42 hours per week common in practice (many collective agreements)

Typical work week:

• 5-day week: Sunday–Thursday (Sunday is first day of work week in Israel)
• 9 working days in 2 weeks (some employers offer 9-day fortnight with alternating Fridays off)
• Working hours: Typically 8:00–9:00 AM to 5:00–6:00 PM

Distribution:

• Maximum 9 hours per day (for 6-day week)
• Maximum 10 hours per day (for 5-day week, with breaks)

Rest Periods and Breaks

Daily rest:

• Minimum 8 consecutive hours rest between work days (down from 12 hours in older law; reduced to 8 in practice)

Weekly rest:

• 36 consecutive hours per week, typically Friday afternoon through Saturday (Shabbat)
• Shabbat (Saturday) is official day of rest in Israel
• Some workplaces operate Friday, but shorter hours common (finish by 2-3 PM for Shabbat)

Meal and rest breaks:

• Minimum 30 minutes break during work day (if working >6 hours)
• Breaks typically unpaid unless contract or collective agreement specifies otherwise
• Additional short breaks (10-15 min) often provided by custom

Shabbat and Rest Day

• Shabbat (Friday sunset to Saturday sunset) is legally protected rest day
• Shabbat work prohibited except:
  • Essential services (hospitals, security, utilities)
  • Continuous process industries
  • Hospitality and entertainment (with permits)
• Shabbat premium: 150% pay (time and a half) if permitted to work
• Non-Jewish employees: Can substitute different rest day (e.g., Sunday for Christians, Friday for Muslims) by agreement

Overtime

Overtime regulations:

• Overtime = hours beyond standard work week (43 hours or as per contract/collective agreement)
• Daily overtime: First 2 hours above standard
• Weekly overtime: Beyond weekly limit

Overtime pay rates:

• First 2 hours (daily): 125% of regular hourly wage
• Beyond 2 hours or on rest day: 150% of regular hourly wage
• Shabbat/holidays: 150% minimum (often higher by collective agreement)

Overtime limitations:

• Generally limited to 16 hours per week
• Requires employee consent (cannot force overtime beyond reasonable limits)
• Employers must track and document overtime

“Comprehensive salary” (Global Salary):

• Common in Israel: Salary package includes base + built-in overtime component
• Must be clearly stated in contract
• Must meet minimum wage + overtime requirements when calculated
• Court scrutiny to ensure not used to evade overtime payment

Public Sector and Tech Sector Flexibility

• High-tech sector: Often more flexible hours, focus on deliverables
• Many tech companies offer flexible start/end times
• Hybrid and remote work increasingly common
• Some companies operate “unlimited vacation” policies (subject to legal minimum compliance)

Flexible Work Arrangements

Israel increasingly supports:

• Remote work (accelerated post-COVID, especially in tech)
• Hybrid models (2-3 office days, 2-3 remote)
• Flexible hours (flextime within core hours)
• Compressed work weeks (longer days, shorter week)
• Work-from-anywhere policies (especially in startups)

Work from home regulations (COVID era and beyond):

• Employers responsible for providing equipment
• Health and safety obligations extend to home office
• Expense reimbursement (internet, electricity) becoming standard

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Employee Leave in Israel

Israeli law provides comprehensive statutory leave entitlements, often enhanced by collective agreements and extension orders.

Annual Leave (Vacation Days – Yamei Hufsha)

Statutory minimum (Annual Leave Law, 1951):

• Leave accrues based on years of service:

Accrual schedule:

• Year 1: 12 working days
• Year 2: 14 working days
• Year 3: 16 working days
• Year 4: 18 working days
• Year 5+: 20 working days
• Year 6+: 21 working days
• Year 7+: 22 working days
• Year 8+: 23 working days
• Year 9+: 24 working days
• Year 10+: 24 working days (some agreements provide more)

Important notes:

• “Working days” excludes Shabbat and public holidays
• Accrues monthly (e.g., 1 day per month in Year 1)
• Must be taken within specific timeframe (typically within 12-18 months of accrual, or expires)
• Partial use: Can be split (minimum 7 consecutive days once per year typical)
• Payment upon termination: Unused accrued vacation paid out

Enhanced vacation (common in collective agreements/high-tech):

• Many employers offer more generous schedules
• High-tech sector often provides:
  • 15-18 days in Year 1
  • Faster accrual to 22-24+ days
  • Some companies offer 25+ days from start

Public Holidays (Chagim)

Israel observes 9 public holidays annually (Jewish holidays):

• Rosh Hashanah (2 days – Jewish New Year, September/October)
• Yom Kippur (1 day – Day of Atonement, September/October)
• Sukkot (2 days – Feast of Tabernacles, September/October)
• Simchat Torah (1 day – end of Sukkot, September/October)
• Passover/Pesach (2 days – first and last days, March/April)
• Independence Day/Yom Ha’atzmaut (1 day, April/May)
• Shavuot (1 day – Feast of Weeks, May/June)

Additional days off:

• Intermediate days (Chol Hamoed): During Passover and Sukkot, some workplaces provide partial or full days off (not legally required but common)
• Eve of holidays: Often shortened work day (finish early)

Total annual days off: ~9 official public holidays + Shabbat (52 Saturdays) = ~61+ days off per year

Entitlements:

• Public holidays are paid days off
• Separate from annual vacation entitlement
• If required to work on public holiday:
  • 150% pay minimum (time and a half)
  • Or compensatory day off + regular pay
• Non-Jewish employees: Can substitute different holidays (e.g., Christmas, Eid) by agreement

Sick Leave (Dmei Havra’ah)

Sick Leave Law (part of multiple laws and collective agreements):

Accrual:

• Sick leave accrues from day one of employment
• 1.5 days per month (18 days per year)
• Accumulates year over year (no expiry)
• Maximum accumulation: 90 days

Payment rates:

• Day 1: Unpaid (employee’s responsibility)
• Days 2-3: 50% of salary (employer pays)
• Day 4+: 100% of salary (employer pays)
• After exhausting accumulated sick days: can transition to National Insurance sick pay (lower rate)

Medical certificates:

• Required for sick leave >2 days
• Doctor’s certificate must be provided
• Employer can request certificate from day 1 in some cases (if pattern of absence)

Enhanced sick leave (common in collective agreements):

• Many employers/sectors pay 100% from day 1
• Some provide higher accrual rates
• Tech sector often more generous

Hospitalization:

• Extended sick leave provisions for hospitalization (additional days at full pay)

Maternity Leave (Chufshot Leida)

Duration:

• 26 weeks (approximately 6 months) maternity leave
• Mandatory post-birth leave: 6 weeks immediately after birth (mother must take)
• Optional pre-birth leave: Up to 6 weeks before due date (can start early)
• Remaining weeks can be distributed before/after birth as mother chooses

Eligibility:

• Available to all female employees (no minimum service requirement for leave itself)

Maternity Pay (Dmei Leida):

• Paid by National Insurance Institute (Bituach Leumi), not employer
• Eligibility for payment: Must have worked 10 out of 14 months before maternity leave (or 15 out of 22 months for irregular workers)
• Payment rate: Approximately average daily wage based on prior earnings, capped at maximum
• Duration: Up to 15 weeks of paid leave (26 weeks leave, 15 weeks paid)

Employer obligations:

• Provide unpaid time off (26 weeks)
• Keep position open (or equivalent suitable position)
• Cannot dismiss due to pregnancy or maternity
• Must continue social benefits during leave (pension contributions, etc.)

Return to work:

• Mother has right to return to same or equivalent position
• Can request reduced hours or flexible arrangements (subject to negotiation)

Many employers offer enhanced maternity:

• Top-up maternity pay to full salary for some/all of leave period
• Additional paid weeks beyond 15
• Flexible return-to-work arrangements

Paternity Leave (Chufshot Abot)

Statutory paternity leave:

• 6 days paid paternity leave (introduced 2018, expanded over time)
• Must be taken within 7 days of birth
• Paid by employer at full salary

Parental leave for fathers:

• Fathers can take unpaid parental leave (similar to mothers, if mother waives some of her leave)
• Can split maternity leave with mother (if mother returns to work, father can take remaining weeks unpaid)

Parental Leave (Unpaid)

• Parents (mothers and fathers) can take unpaid parental leave to care for children
• Typically by agreement with employer
• Position protection depends on length and agreement

Adoption Leave

• Adoptive parents entitled to leave similar to maternity leave
• Duration and pay depend on child’s age at adoption
• National Insurance provides adoption leave payments (similar to maternity)

Reserve Duty Leave (Miluim – Military Reserves)

Israel has mandatory military reserve duty:

• Most Israeli citizens (especially men up to age 40, women up to age 24) called for annual reserve duty
• Duration varies: typically 20-30 days per year (can be longer in emergencies/wartime)

Employer obligations:

• Must grant leave for reserve duty (legally mandatory)
• Cannot dismiss or penalize employee for reserves
• Salary during reserves:
  • Employer pays regular salary for up to 30 days per year (cumulative across multiple call-ups)
  • National Insurance supplements for longer duty periods
  • Some employers voluntarily pay beyond 30 days

Reserve duty protections:

• Position must be held open
• Cannot count as vacation or sick leave
• Seniority and benefits continue accruing

Note: Reserve duty is significant consideration in Israel; frequent call-ups especially during security situations

Bereavement Leave

Statutory bereavement leave:

• 7 days paid leave for death of immediate family member (spouse, child, parent, sibling)
• 30 days paid leave for death of spouse or child (Shiva period and mourning)
• Employer pays full salary

Shiva (Jewish mourning period):

• Seven-day mourning period observed
• Employee entitled to time off

Study Leave and Professional Development

• No statutory entitlement, but common in collective agreements
• Many employers provide:
  • Paid time off for exams
  • Support for professional courses
  • Study days
• High-tech sector often has education allowances and time off for learning

Other Leave

Marriage leave:

• Not statutory, but often provided by employers (typically 2-5 days)

Sabbatical leave:

• Not statutory
• Some long-tenured employees negotiate sabbaticals
• Rare in practice

Unpaid leave:

• Employees can request unpaid leave by agreement
• No statutory right, but employers often accommodate

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Employee Benefits in Israel

Israeli employment law mandates extensive social benefits, creating one of the world’s most comprehensive employee benefit structures.

Mandatory Statutory Benefits

1. National Insurance (Bituach Leumi)

National Insurance Institute (Bituach Leumi – ביטוח לאומי) is Israel’s social insurance system, funding pensions, unemployment, maternity, disability, and other benefits.

National Insurance Contribution Rates (2024):

For employees earning above minimum wage:

• Employee contribution: ~12% of gross salary (varies by income bracket)
  • 0.04% on income up to 60% of average wage
  • 12% on income from 60% to 100% of average wage
  • 2% on income above average wage
  • (Rates simplified; actual calculation complex with brackets)
• Employer contribution: ~7.6% of gross salary
  • 3.55% on income up to 60% of average wage
  • 7.6% on full salary above that

Average rates in practice:

• Employee: ~7-12% (depending on salary level)
• Employer: ~7.6%

What National Insurance covers:

• Old-age pension (similar to Social Security)
• Disability benefits
• Survivors’ benefits
• Maternity/paternity leave payments
• Unemployment benefits
• Work injury insurance
• Long-term care insurance
• Reserve duty salary supplements

2. Health Tax (Mas Briut)

Separate from National Insurance, funds universal healthcare system:

Health Tax Rates (2024):

• Employee contribution: ~5% of gross salary (with brackets and caps)
• Employer contribution: ~5% of gross salary

Combined (employee + employer): ~10% total

What Health Tax covers:

• Universal healthcare through HMOs (Kupot Holim): Clalit, Maccabi, Meuhedet, Leumit
• All residents entitled to healthcare coverage
• Employees choose HMO provider

3. Pension (Kitsat Pensiya) – Mandatory

Mandatory pension contributions required by law since 2008 (fully phased in 2017):

Pension contribution rates:

• Employee contribution: 6% of gross salary (mandatory)
• Employer contribution: 6.5% of gross salary
  • Includes: Pension savings (6%) + disability insurance premium (0.5%)
• Severance component: 6% employer contribution (counted toward severance obligation – see below)

Total pension contributions: ~18.5% of salary

Pension structure:

• Contributions go to pension funds (Keren Pensia) or provident funds (Keren Hishtalmut)
• Tax-deferred growth
• Withdrawals at retirement age (varies, typically 62-67)

Types of pension vehicles:

• Comprehensive pension fund (Keren Pensia Mekifah): Includes retirement, severance, disability insurance
• Provident fund (Keren Hishtalmut): Savings only, no insurance; shorter vesting
• Managers insurance (Bituach Menahalim): Combines insurance and savings

Employer typically chooses fund type; employee can sometimes choose specific fund.

4. Severance Pay Fund (Pitzuyim)

Severance Pay Law, 1963 mandates severance:

Severance obligation:

• 1 month’s salary per year of service
• Based on last drawn salary
• Accrues from day one, payable after 1 year of service (in most cases)

Funding mechanisms:

Option A: Severance Fund (Section 14):

• Employer deposits 8.33% of salary monthly into employee’s pension/severance fund
• Fully funds severance obligation over time
• Employee owns funds (employer cannot reclaim)
• Most common method

Option B: Employer Balance Sheet Reserve:

• Employer sets aside reserves on books
• Pays severance upon termination
• Higher risk for employee (depends on employer solvency)
• Less common

In practice:

• Severance component often included in pension contribution (6% pension deposit counted toward severance)
• Additional 2.33% may be deposited separately if not using comprehensive fund
• Total employer cost: ~6-8.33% for severance funding

Payment:

• Severance paid upon termination (resignation after 1 year, dismissal, redundancy)
• Tax benefits on severance payments (first portion tax-exempt)

5. Education Fund / Professional Development Fund (Keren Hishtalmut)

Not strictly mandatory by law, but required by many collective agreements and extension orders (especially high-tech).

Education fund contribution rates (typical):

• Employee contribution: 2.5% of gross salary
• Employer contribution: 7.5% of gross salary

Total: 10% of salary

Purpose:

• Long-term savings for education, professional development, or general savings
• Withdrawals after 6 years (tax-advantaged)
• Earlier withdrawal possible (with tax penalties or for specific purposes)

Note: Education fund separate from pension; both can be required simultaneously in high-tech sector

6. Recreation Pay / Convalescence Pay (Dmei Havra’ah)

Common benefit required by extension orders and collective agreements:

• Annual payment for vacation/recreation purposes
• Typically 5-10 days’ salary paid once per year (often in June or around vacation season)
• Intended to supplement vacation expenses

Not universal statutory, but mandatory in many sectors via extension orders.

7. Travel Allowance / Commuting Allowance (Dmei Nesia)

Required by some collective agreements and extension orders:

• Monthly allowance for commuting to work
• Typically ₪500-1,000 per month (varies)
• Can be public transport subsidy or cash allowance
• Tax treatment depends on structure

Not mandatory by law, but common in practice.

8. Minimum Wage

National Minimum Wage (2024):

• ₪5,571.75 per month (for full-time, 182 hours/month)
• Hourly: ₪30.61/hour
• Updated periodically by government

Minimum wage includes:

• Base salary only (not allowances or benefits)
• Employers must pay at least minimum wage before other benefits

Living wage considerations:

• Minimum wage considered low for high cost of living (especially Tel Aviv)
• Tech sector salaries far exceed minimum (average developer: ₪15,000-30,000+/month)

9. Notice Period Pay

Notice of Dismissal to Employee Law, 2001:

Employer dismissal notice periods:

• Up to 6 months service: No statutory notice (but good faith period expected, typically 1 day per month)
• 6 months – 1 year: 14 days
• 1 year – 2 years: 30 days (1 month)
• 2+ years: 1 month

Employee resignation notice:

• No statutory requirement
• Typically 1 month by custom/contract (30 days)
• Senior roles: often 2-3 months contractual notice

During notice period:

• Employee entitled to full salary and benefits
• Can request paid time off to seek new job (typically 1 day per week during notice)

Common Additional Benefits Provided by Employers

Israel’s competitive tech market drives generous benefits beyond statutory minimums:

Financial:

• Annual bonuses: Performance bonuses, profit sharing (1-3 months salary common)
• Sign-on bonuses (especially for competitive tech roles)
• Stock options / RSUs (very common in startups and tech companies)
• Relocation assistance (for immigrants/new arrivals)
• Loan assistance (home loans at preferential rates)

Health & Wellness:

• Enhanced private health insurance (beyond public HMOs: dental, vision, complementary medicine)
• Gym memberships or sports allowances
• Mental health support / therapy allowances
• Wellness programs, yoga classes
• Health screenings

Work-Life Balance:

• Additional vacation days (beyond statutory minimum)
• Flexible work arrangements (remote, hybrid, flextime)
• Sabbatical programs (after X years tenure)
• Birthday day off
• Volunteering days (paid time off for community service)

Family & Childcare:

• Enhanced maternity/paternity pay top-up (to full salary)
• Childcare subsidies or on-site daycare (especially in kibbutz companies)
• Summer camp allowances
• Family health insurance coverage

Professional Development:

• Education budgets (courses, certifications, conferences)
• Professional certifications (AWS, Azure, security certs)
• Conference attendance (domestic and international)
• Tuition reimbursement (degrees, MBAs)

Perks:

• Meal vouchers or cafeteria (lunch provided or subsidized)
• Free snacks, coffee (universal in tech offices)
• Team events and offsites (quarterly/annual trips, team building)
• Transportation (shuttle services, parking, EV charging)
• Tech equipment (laptops, monitors, home office setup)
• Cell phone plans or allowances
• Co-working space memberships (for remote workers)

Unique to Israel:

• Ulpan support (Hebrew language courses for new immigrants)
• Integration assistance (for new olim – immigrants)
• Holiday gift baskets (Rosh Hashanah, Passover)

An EOR ensures all mandatory statutory benefits are calculated accurately, and competitive market-standard benefits can be packaged to attract top talent.

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Payroll & Tax in Israel

Payroll Currency

• All salaries paid in New Israeli Shekels (ILS / ₪)

Payroll Cycle

• Most employers operate monthly payroll
• Payment typically on 9th of month (common payroll date in Israel) or last business day of month
• Payment by bank transfer (universal)
• Payslips (תלוש משכורת – “Tlush Maskoret”) must be provided (electronic or paper)

Personal Income Tax

Israel uses a progressive income tax system with tax brackets and credits.

Income Tax Rates (2024 tax year):

Annual Income (NIS)	Monthly Income (NIS)	Tax Rate	Marginal Rate
Up to ₪83,880	Up to ₪6,990	10%	10%
₪83,881 – ₪120,720	₪6,991 – ₪10,060	14%	14%
₪120,721 – ₪193,800	₪10,061 – ₪16,150	20%	20%
₪193,801 – ₪269,280	₪16,151 – ₪22,440	31%	31%
₪269,281 – ₪560,280	₪22,441 – ₪46,690	35%	35%
₪560,281 – ₪721,560	₪46,691 – ₪60,130	47%	47%
Above ₪721,560	Above ₪60,130	50%	50%

Tax credits (Nikuim – נקודות זיכוי):

• Standard tax credit points: 2.25 points for standard employee
• Value per point: ₪2,832/year (₪236/month) in 2024
• Total standard credit: ~₪530/month

Additional tax credit points for:

• Women (additional 0.5 points)
• New immigrants (Olim Hadashim – tax benefits for 3.5-10 years depending on status)
• Residents of development towns
• Parents (per child)
• Single parents
• Reserve duty participants
• Higher education students

Example calculation (Single person, ₪20,000/month = ₪240,000/year):

• First ₪83,880 @ 10% = ₪8,388
• Next ₪36,840 @ 14% = ₪5,158
• Next ₪73,080 @ 20% = ₪14,616
• Next ₪46,200 @ 31% = ₪14,322
• Gross tax: ₪42,484
• Less standard credit (₪530 × 12): -₪6,360
• Net annual tax: ₪36,124 (~15% effective rate)
• Monthly tax: ~₪3,010

National Insurance and Health Tax

See detailed rates in Benefits section above.

Summary (2024):

• National Insurance (employee): ~7-12% (income-dependent)
• National Insurance (employer): ~7.6%
• Health Tax (employee): ~5%
• Health Tax (employer): ~5%

Total employee deductions (income tax + NI + health): ~30-40% (varies by salary)
Total employer costs (NI + health + pension + severance): ~30-35% on top of gross salary

Employer Payroll Responsibilities

Israeli employers must:

Monthly obligations:

• Calculate and withhold Income Tax based on tax brackets and credits
• Calculate and withhold Employee National Insurance contributions
• Calculate and pay Employer National Insurance contributions
• Calculate and withhold Employee Health Tax
• Calculate and pay Employer Health Tax
• Deduct and deposit Employee pension contributions (6%)
• Pay Employer pension contributions (6.5%)
• Deposit Severance fund contributions (8.33% or integrated with pension)
• Contribute to Education fund (7.5%) if applicable
• Pay Recreation pay accrual
• Remit all taxes to Israel Tax Authority by 15th of following month
• Submit monthly payroll reports electronically (Form 102 system)
• Issue payslips to employees

Annual obligations:

• Submit Form 126 (Annual Employer Report) by March 31
• Issue Form 106 (Annual Employee Tax Certificate) to employees by March 31
• File annual tax reconciliation

Ongoing:

• Maintain payroll records for 7 years
• Register new employees with Tax Authority and National Insurance
• Manage employee tax files (Tik Mas – תיק מס)
• Process tax forms and exemptions
• Handle benefit deductions (union dues, meal vouchers, etc.)
• Coordinate with pension funds and insurance providers

Payroll Software and Integration

• Israeli payroll highly complex due to:
  • Multiple tax brackets and credits
  • National Insurance and Health Tax calculations
  • Pension, severance, education fund contributions
  • Extension orders and collective agreements
  • Recreation pay, travel allowances, etc.

Common payroll systems:

• Hilan (חילן – most popular)
• Malam (מל”ם)
• Rav Meshotet (רב משותת)
• International systems adapted for Israel (ADP, Workday with Israel modules)

Tax Authority integration:

• Electronic filing mandatory (Form 102 monthly submissions)
• Real-time reporting of payroll data
• Digital payslips increasingly common

An EOR manages all payroll calculations, tax withholdings, National Insurance remittances, pension contributions, Tax Authority filings, and compliance reporting for Israel.

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Employment Laws & Compliance in Israel

Key Compliance Areas

1. Written Employment Contracts

• Strongly recommended (oral contracts valid but risky)
• Should detail all terms, salary components, benefits
• Bilingual (Hebrew + English) best practice

2. Employment Equality and Discrimination

Equal Opportunities Law, 1988 and other laws prohibit discrimination based on:

• Gender (Equal Pay Law, 1964; strong equal pay enforcement)
• Sexual orientation
• Personal status (marital status, parenthood)
• Race, religion, nationality, country of origin
• Political affiliation
• Age
• Military service / reserve duty status
• Parenthood (cannot discriminate against parents or pregnant women)
• Pregnancy and fertility treatments

Discrimination prohibited in:

• Recruitment and hiring (job ads must be gender-neutral)
• Pay and conditions
• Training and promotion
• Dismissal

Sexual harassment:

• Prevention of Sexual Harassment Law, 1998 comprehensive protections
• Mandatory workplace policies and training
• Employer liability for harassment
• Appointed harassment prevention officers required (in larger companies)

3. Collective Agreements and Extension Orders

• Must comply with applicable extension orders (by sector)
• High-tech extension order common (mandatory benefits)
• Regular review of extension order updates

4. Minimum Wage and Salary Components

• Must pay at least minimum wage
• Accurate calculation of salary components (base vs. allowances)
• “Comprehensive salary” must comply when broken down

5. Working Time and Overtime

• Respect 43-hour weekly maximum (or as per collective agreement)
• Proper overtime compensation (125%/150%)
• Accurate time tracking
• Shabbat and holiday work restrictions

6. Leave Entitlements and Benefits

• Provide vacation days per service years
• Sick leave accrual and payment
• Maternity/paternity leave
• Reserve duty leave and payment
• Public holiday observance

7. Mandatory Social Benefits

• National Insurance and Health Tax remittances
• Pension contributions (employee + employer)
• Severance fund deposits
• Education fund (if applicable)
• Recreation pay
• Accurate and timely deposits to funds

8. Health and Safety

• Workplace safety standards
• Risk assessments (especially for manufacturing, construction)
• Accident reporting to National Insurance
• Ergonomic standards (especially for office workers)

9. Data Protection and Privacy

Protection of Privacy Law, 1981 and Privacy Regulations (Data Security), 2017:

• Employee data must be protected
• Privacy notices required
• Employee consent for certain data processing
• Data security measures (especially for personal data)
• Breach notification requirements

Employment-specific:

• Background checks (must be relevant and proportionate)
• Employee monitoring (email, computer – must inform employees)
• Medical information (strict confidentiality)
• Reference checks (data protection applies)

10. Labor Courts and Dispute Resolution

Israel has specialized Labor Courts:

• Regional Labor Courts (first instance)
• National Labor Court (appeals)
• Handle employment disputes, wrongful termination, discrimination, collective agreements
• Employee-friendly jurisdiction (courts favor workers in ambiguous cases)

Termination & Notice Periods

Notice Period Requirements

See statutory notice periods in Benefits section above.

Summary:

• Employer to employee:
  • 6 months-1 year: 14 days
  • 1-2 years: 30 days
  • 2+ years: 30 days (1 month)
• Employee to employer:
  • Typically 30 days (1 month) by custom/contract
  • Senior roles: often 60-90 days contractual

During notice:

• Full salary and benefits
• Employee entitled to paid time off for job search (typically 1 day/week)

Payment in lieu of notice:

• Employer can pay salary instead of requiring work
• Must compensate for all notice period components (base + benefits)

Wrongful Dismissal and Termination Protections

Israeli labor law strongly protects employees:

Grounds for lawful dismissal:

• Serious misconduct (theft, violence, insubordination, breach of trust)
• Poor performance (after warnings and opportunity to improve)
• Redundancy (genuine organizational needs)
• Incompatibility (fundamental mismatch, role no longer needed)
• Business closure or relocation

Unlawful/Protected dismissals:

• Pregnancy and maternity (dismissal during pregnancy or maternity leave presumed unlawful unless proven otherwise)
• Reserve duty (cannot dismiss due to military service)
• Discrimination (based on protected characteristics)
• Retaliation (for whistleblowing, complaints, asserting rights)
• Bad faith (covenant of faith principle – dismissals lacking good faith can be challenged)

Fair Procedures

Employers should follow fair process before dismissal:

For misconduct:

1. Investigation: Gather facts
2. Notice of hearing: Inform employee in writing of allegations
3. Hearing: Allow employee to respond, bring representative
4. Decision: Make reasoned decision based on evidence
5. Notice of termination: Provide in writing with reasons

For performance:

1. Feedback and warnings: Verbal, then written warnings
2. Improvement plan: Provide opportunity and support to improve
3. Follow-up: Monitor and document progress
4. Decision: Terminate only after reasonable improvement period

Failure to follow fair process:

• Can result in wrongful dismissal claim
• Labor Courts scrutinize employer’s conduct closely
• Damages can be significant

Severance Pay Upon Termination

Severance Pay Law, 1963:

• Employee entitled to 1 month’s salary per year of service (as accrued in severance fund)

When severance payable:

• Employer dismissal (with or without cause, except gross misconduct with proof)
• Employee resignation after 1+ years service (in most cases, especially if constructive dismissal)
• Redundancy
• Business closure

When severance NOT payable:

• Employee resignation before 1 year (no accrual yet in practice)
• Gross misconduct (proven serious breach allowing summary dismissal without severance)
• Voluntary resignation without cause in first year

Calculation:

• Based on last drawn monthly salary (gross, including regular components)
• If severance fund maintained: pay from fund
• If not: employer pays lump sum

Tax treatment:

• Severance payments partially tax-exempt (first ₪13,770 per year of service tax-free in 2024)
• Excess taxed as income

Constructive Dismissal

Employee resignation due to employer breach can be treated as dismissal:

• Fundamental breach by employer (non-payment, demotion, hostile work environment, material breach of contract)
• Employee forced to resign
• Entitled to severance and potential damages

Common constructive dismissal scenarios:

• Unilateral significant salary reduction
• Demotion without consent
• Hostile work environment, harassment
• Non-payment of salary or benefits

Wrongful Dismissal Remedies

Labor Courts can award:

• Reinstatement: Rare, but possible if dismissal unlawful
• Compensation: Damages for wrongful dismissal
  • Severance pay (if not already paid from fund)
  • Notice period pay
  • Damage to dignity and feelings
  • Loss of earnings
  • Prior notice compensation (if not given proper notice)
• Typical awards: 3-12 months’ salary (varies widely based on circumstances)

Procedural requirements:

• Employee must file claim in Labor Court within 1 year of termination
• Burden on employer to prove dismissal lawful and fair

Redundancy (Piturim)

Genuine redundancy occurs when:

• Business or department closes
• Reorganization eliminates position
• Economic necessity (proven financial distress)
• Technological change makes role obsolete

Fair redundancy process:

• Selection criteria: Objective, fair (avoid discrimination)
  • Common: Last in, first out (LIFO), skills, performance
• Consultation: Notify and consult with affected employees
• Notice: Provide statutory notice period
• Severance: Pay severance from fund or lump sum
• Consideration of alternatives: Offer redeployment, reduced hours if possible

Mass redundancy:

• If dismissing significant portion of workforce, additional procedures may apply
• Consultation with employees and possibly Works Council (if exists)
• Advance notice to Employment Service

Immigration and Work Permits

Israeli citizens and permanent residents:

• Unlimited right to work in Israel

Non-Israeli citizens:

• Require work permit (visa) to work legally

Work visa types:

1. B1 Work Visa (Employee Visa)

• For foreign nationals employed by Israeli company
• Employer must sponsor
• Requires:
  • Proof of employment (contract, job offer)
  • Proof company cannot find suitable Israeli candidate (often waived for specialized roles, especially tech)
  • Employer pays minimum salary threshold
• Duration: Typically 1 year, renewable up to 5 years total (can be extended in some cases)
• Processing: 1-3 months
• Application: Through Population and Immigration Authority (PIBA)

2. A1 Visa (Temporary Resident – Experts and Specialists)

• For highly skilled professionals in fields Israel lacks
• Commonly for tech experts, senior management, specialized engineers
• Easier approval for roles in high demand (cybersecurity, AI, semiconductors)
• Duration: 1-2 years, renewable

3. Intra-Company Transfer

• For employees of multinational companies transferring to Israeli branch/subsidiary
• Minimum period with company abroad (typically 1 year)
• Senior management or specialized knowledge

4. Freelancer / Self-Employed Visa (B2/B5)

• For independent contractors, freelancers
• Must demonstrate client base, income
• Renewable annually

5. Immigrant Visas (Aliyah – עלייה)

• Law of Return: Jews and eligible family members can immigrate and receive automatic citizenship/residency
• New immigrants (Olim Hadashim) receive significant tax benefits and integration assistance
• Immediate work authorization

Employer obligations for foreign workers:

• Sponsor work visa application
• Prove role requires foreign expertise (or exemption applies for tech)
• Pay minimum salary (often ₪10,000-15,000+ per month depending on role)
• Ensure worker covered by National Insurance and health insurance
• Cannot employ foreign nationals without valid work permits (penalties for illegal employment)

Family members:

• Spouse and children of work visa holders can apply for dependent visas
• Spouse may apply for work permit

Tech sector considerations:

• Israel actively recruits foreign tech talent
• Streamlined visa processes for high-tech professionals
• Many incentives and support for tech immigrants

An EOR with Israeli entity can sponsor and employ foreign workers on your behalf.