Payroll & Employment Guide Israel

Employers and employees define their working relationship through employment contracts, whether indefinite or fixed-term. While the law doesn’t require a written contract, employers must provide a written notice outlining the terms of employment within 30 days of the employee’s start date.

Notice periods: For employees with less than six months of service, the minimum statutory notice is at least 15 days. For those employed more than six months, the minimum notice is generally 30 days.

Termination of employment: Mutual Termination Agreement (MTA), dismissal

Employee benefits in Israel combine mandatory social protections with common perks and regulated leave policies, ensuring a balanced work environment that supports employee welfare and legal compliance.

• Mandatory benefits: National insurance (Bituach Leumi)
• Common perks: Education funds, travel allowances, and bonuses
• Leave policies: Annual paid leave, sick leave, maternity leave
• Travel expenses: Reimbursement for transport, accommodation, and meals during business travel.
• Meal allowances: Daily allowances for business meals, within approved limits.
• Office supplies: Costs of equipment or materials required for job performance (often requiring prior approval).
• Training and professional development: Employer-covered costs for workshops, conferences, or skill-building programmes.

Israel has a tax system that applies to both individuals and businesses, with employers playing a central role in tax collection and social security contributions. Employers are responsible for withholding income tax from employees’ salaries according to progressive tax brackets.

Personal income tax rate:

• Up to ILS 84,120 - 10%;
• ILS 84,121 - ILS 120,720 - 14%;
• ILS 120,721 - ILS 193,800 - 20%;
• ILS 193,801 - ILS 269,280 - 31%;
• ILS 269,281 - ILS 560,280 - 35%;
• ILS 560,281 - ILS 721,560 - 47%;
• Over ILS 721,560 - 47% (50% including surtax).

VAT: 17%

Employer contribution rates: Employers in Israel are responsible for several mandatory contributions on top of gross salaries:

• National insurance (up to ILS 7,522): 4.51%
• National insurance (above ILS 7,522): 7.6%
• Pension contribution: 6.5% (minimum) + 6% for severance
• Health tax: Included within National Insurance
• Severance pay: 6%
• Convalescence pay: Variable, depending on employee seniority

Employers may also provide enhanced benefits under collective bargaining agreements (CBAs), including additional contributions to retirement plans, continued maternity or sick pay, and investments in employee learning or wellness programmes.

Tax allowances: One-time performance bonuses

Additional tax reliefs: N/A

In Israel, employers are required to pay salaries in accordance with the terms set out in individual or collective employment contracts, and these salaries must be at least the legally mandated minimum wage.

Salaries are calculated based on working days, and employees receive 12 monthly salary payments per year. There are no mandatory 13th or 14th month salaries in Israel. All contracted amounts must be paid in the local currency, Israeli Shekel (ILS). Employers must pay salaries by the 9th of the month following the month in which wages were earned, adhering to a monthly payroll cycle. (With Native Teams, we process salary payments by the 5th of the following month.)

There are specific contribution ceilings for social security and health tax contributions, which are adjusted annually based on average wages. As of 1 February 2025, the following rates apply:

Employer contributions:

• Up to ILS 7,522 — 4.51%
• ILS 7,522 to ILS 50,695 — 7.6%

Employee contributions:

• National insurance:
  Up to ILS 7,522 — 1.04%
  ILS 7,522 to ILS 50,695 — 7%
  
• Health insurance:
  Up to ILS 7,522 — 3.23%
  ILS 7,522 to ILS 50,695 — 5.17%

These rates are subject to annual adjustments based on changes in the national average wage.

• Salary payment deadline: By the 9th day of the month after the wages were earned
• Taxes and contributions payment deadline: By the 15th of the following month
• Payroll declarations deadline: By the 15th of the following month
• Payroll currency: ILS

Israeli labour laws protect both employees and employers by setting clear rules on wages, working hours, leave, and termination. These laws apply to all workers in Israel, including foreign employees with valid visas. Key regulations include the minimum wage law, the hours of work and rest law, and the annual leave law.

Total employment cost:

• National insurance (3.45% on salaries up to 6,754 NIS and 7.5% on salaries up to 48,000 NIS).
• As of February 2025, contribution ceilings and rates have been updated: employers contribute 4.51% up to ILS 7,522 and 7.6% up to ILS 50,695, with matching employee contributions applied progressively.
• Mandatory pension contributions (6.5% for pension funding and 8.33% for severance funding)

Minimum wage: 6,247.67 ILS per month
Probation period: One to six months can be extended up to a year in exceptional cases

EOR services in Israel let you hire employees legally without setting up a local entity. The EOR acts as the legal employer and handles all responsibilities, including:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

PEO services in Israel give you HR and administrative support while you stay the legal employer. They’re ideal if you already have a legal entity in the country but need help managing your workforce, including:

• HR support and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

Native Teams offers a payroll calculator tailored to Israel’s labour laws. You can quickly estimate net and gross salaries, employer and employee contributions, and all mandatory deductions using our tool.