Your guide to payroll in Israel

Payroll management in Israel requires a clear understanding of the tax system, labor laws, and social security obligations. It is suggested to get Israel payroll right for compliance and employee trust. 

Israel has a progressive income tax structure, specific employer responsibilities, and mandatory National Insurance (Bituach Leumi) contributions, which are different from other markets. 

This guide walks you through everything you need to know about Israel payroll processing. This helps employers pay employees in Israel in a timely and accurate manner. Understand how a reliable EOR, such as Payoneer Workforce Management, helps with payroll compliance in Israel with effective payroll processing and management. 

Israel payroll: Wages and other payments

In Israel, payroll, employee compensation is much more than the monthly salary. Employers in the country have to navigate a layered pay structure, including statutory minimums, sick pay, maternity and paternity pay, severance pay, and more. 

There are certain payments, such as the recuperation pay (dmei havraah), which are unique to the Israeli market. Employers must know what they are obligated to pay and when. This is mandatory for payroll compliance in Israel. 

Payroll cycle in Israel

The payroll cycle in Israel is monthly. Employees get paid between the 5th and the 7th of the subsequent month. 

Minimum wage

The payout currency in Israel is ILS. 

The minimum wage in Israel is 13,316 ILS. 

For foreign experts, the earnings are a minimum of two times the average wage. For them, the minimum base salary stands at 26,632 ILS per month. 

Overtime pay

An employee in Israel is entitled to overtime pay for the additional hours of work. However, the employer has to approve the overtime work. Employees are entitled to a maximum of 16 additional hours per week. 

• Overtime is paid for weekdays, weekends (normal and extra hours), night hours, and public holidays. The compensation is at the rate of 250% of the normal salary. It is 150% for the working hours and 100% as holiday pay. 
• Employees are entitled to a minimum of 125% of their regular salary for the two additional hours on the same workday. For every additional hour after that, the employee is entitled to a minimum of 150% of their regular salary. 

Sick pay

Employees in Israel are entitled to 1.5 days of sick leave per month. The total accumulation of sick leave is up to 90 days. 

• For the first day of absence due to sickness/illness, there is no sick pay.
• For the 2nd and 3rd day of absence, the employee is entitled to half of the full sick pay. 
• From the 4th day of absence, the employee is entitled to full sick pay. 

Maternity pay

In Israel, female employees are entitled to 15-26 weeks of maternity leave. 

Maternity pay is fully funded by the Bituach Leumi, the National Insurance. 

• If a female employee has paid insurance contributions for either 10 of the 14 months or 15 of the 22 months before the cessation of work, she is entitled to the maximum maternity allowance for a period of 15 weeks (105 days of entitlement). 
• However, if the female employee has paid insurance contributions for 6 of the 14 months before the cessation of the work, she is entitled to partial maternity allowance for a period of 8 weeks (56 days of entitlement). 

Paternity pay

Fathers in Israel are entitled to paid paternity leave. When both parents agree, fathers can share a part of the maternity leave. 

However, this is possible only after the first 6 weeks of the mother’s paid maternity leave for 15 weeks. The new father can take up to 7 weeks of the mother’s maternity leave. The father must meet the eligibility requirements, such as working for a minimum of 6 months before childbirth. 

Severance pay

Employees in Israel are entitled to severance pay. 8.33% of the employee’s salary is added every month. This is accumulated in a government-mandated fund. Severance pay is redeemed at the end of employment. 

Payroll in Israel: Contributions and deductions

If you check the payslips in Israel, they clearly reflect a calculated set of mandatory contributions and deductions, which are split between the employer and employee. These include income tax withheld at source, National Insurance (Bituach Leumi) contributions, and more. 

The deduction and contribution amounts vary, depending on salary level, residency status, employee age, and more. Employers have to be extremely careful about Israeli payroll deductions and contributions to avoid issues with payroll compliance in Israel. 

Income tax

The individual income tax in Israel has different brackets. It depends on the employee’s income. 

Social security contributions in Israel

Social security contributions in Israel are an integral part of the payroll. 

• Employers have to pay national insurance contributions based on a percentage of each employee’s monthly income. Employers withhold the employees’ contributions from wages and remit them with the employers’ own contributions. The contributions cover employee rights insurance, workers’ compensation, maternity insurance, etc. 

Other employee benefits

Even though there is considerable income and salary tax in Israel, employees are entitled to certain benefits as well. 

Public health insurance

• For all Israeli residents, public health insurance is mandatory. 
• The insurance is funded through income-based health taxes.
• It is provided by four government-regulated health funds (Kupot Cholim). 
• The insurance program ensures universal access to essential medical services in the country. 

Earned or annual leave

According to the Annual Leave Law 5711-1951, employees in Israel are entitled to a minimum of 12 days of annual leave. 

Annual bonus

Providing an annual bonus to employees is not mandatory in Israel. 

Israel payroll compliance best practices

Just paying the right employee and employer taxes in Israel, along with the necessary contributions, is not enough. It is mandatory to maintain payroll compliance in Israel to avoid legal consequences. 

For error-free Israel payroll processing, employers must remain compliant with the country’s payroll regulations and remain updated with record-keeping and timely filings. Following the compliance best practices mentioned below helps with Israel payroll. 

• Before processing the first payroll, ensure that you are registered as an employer with the Israel Tax Authority and National Insurance Institute (Bituach Leumi). 
• Payslip requirements in Israel are mandatory – the Israeli law requires it. Employers must issue detailed and itemized payslips to employees every month. Employees can see their deductions and contributions transparently in the payslips. 
• Ensure you are updated with income tax brackets, national minimum wage, and national insurance rates, which are revised regularly. 
• Maintain accurate employee records, including contracts, salary changes, and attendance data, for at least seven years, as required by law. 
• To meet all payment deadlines, income tax and National Insurance contributions must be transferred to the authorities by the 15th of the following month. 
• Conduct periodic internal audits for miscalculations in overtime, recuperation pay, or pension contributions before they become compliance issues. 

Your options for payroll services in Israel

You can opt for various payroll services if you want to optimize employment costs in Israel. All the services mentioned below help in effective engagement of talent and payroll management in Israel. 

• Setting up a local entity in the country: To make a legal business presence in a country, you can think of setting up a local entity there. The process involves thorough documentation and is overall time-consuming. 
• Hiring independent contractors: When you aim to hire for a specific task or project, independent contractors are the best choice. Refrain from making misclassification mistakes. You don’t have any liability for such contractors. 
• An EOR service: You can always seek assistance from an EOR service, such as Payoneer Workforce Management, to handle employee onboarding, Israeli payroll, benefits, and more with accuracy. 

Along with offering support to pay employees in Israel, Payoneer Workforce Management also helps with seamless payroll management in Israel. Along with extending assistance with taxation, employee leave entitlements, onboarding, and termination, the EOR service helps with payroll compliance in Israel as well. 

Book a demo today!

Frequently asked questions (FAQs)