Israel has around 8 million people, and a GDP of about ₪131,600 ($36,000, £28,872, €33,766) per capita. Their economy has leapt off the page in the last few years, growing due to consumer spending, valuable exports, and smart investments. Tax revenues have been high, and Israel is keen to get even more business in their country. They recently cut corporate tax from 26.5% to 25%, and then cut it again this year to 24%. By next year, Israel is expected to lower it again to 23%.

Major sectors of the economy include science and technology, as well as diamonds, petroleum, automobiles, and wheat. Setting up payroll there can get complicated though. In addition to standard income taxes, security, and insurance, there are a number of other financial considerations on both the part of the employer and employee. An international payroll company can help you sort out the many measures involved, especially considering that income and corporate tax is likely to change.

Getting Started

You will need to register your company with the authorities at the Registrar of Companies and Tax as either Limited, Private, or Public. Typically, you'll need to file documents that state your objective and company details. The Articles of Association will outline the rules of conduct of your company. If a company chooses not to do this, they must follow the standard articles for Israel. You will need an Israeli lawyer to verify the paperwork, and then you'll need to register with the Tax Authorities. 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.


Payroll Assessment

Employee Rights

Israel works from 8 a.m. to 5 p.m. between Sundays and Thursday, with the work week around 43 hours for those over the age of 18 (maximum 45 hours.) Religion will play a part which days people work, but there needs to be a rest period of at least 36 hours on Friday and the weekends. Overtime is required at time-and-a-quarter after the first two hours, and then time-and-a half after that.

Generally, you need a contract with an employee that spells out the terms of employment, but this contract does not have to be in writing. Probationary periods are either 1, 6, or 12 months, and are determined by collective agreement. Employers may extend the probationary period under special circumstances, as long as both parties agree.


Typically, compensation is decided upon between the employee and the employer, without the help of collective bargaining. However, the minimum salary is about ₪ 5,115 ($1,400, £1,121, €1,312) a month. 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. Also, as an employer, you're expected to compensate the employee at the going rate based on their experience.

Tax Requirements

Income tax is deducted by the employer from the employee's salary and given to the Tax Authorities every month. Income tax and social security is based on salary, and can range anywhere from ten to fifty percent. The National Insurance in Israel deducts fees from a foreign employee's salary to cover a variety of health concerns or even severance pay if an employer goes bankrupt. Money can also be deducted for housing or health insurance. A company is required to file company tax installments, VAT, National Insurance, and withholdings. Employees are required to receive an allowance for public transportation as well.

Leave, Maternity and Sick Time

In the first two years of employment, employees who work five or six days a week are given 12-14 days of leave respectively. There are also vacation allowances which start after 12 months of working for the same employer. Public holidays differ from year to year based on the religious calendar. New mothers can take up to 14 weeks off, but new fathers can only take leave if the mother chooses to go back to work early. During this time, the Social Security Institute steps in to pay for maternity leave. Sick days accrue at a rate of 1.5 days a month.

 Date  Israel's Public Holiday Schedule
 Between March 26th and April 25th  Passover
 Between April 1st and May 1st  7th Day of Passover
 May 2nd  Independence Day
 May 24th  Jerusalem Day
 Between May 15th and June 14th   Pentecost/Shavuot
 Between September 5th and October 5th  New Year (2 days)
 Between September 14th and October 14th  Day of Atonement
 Between September 19th and October 19th   Sukkot 
 Between September 26th and October 26th   SimChat Torah

Further Details

This is certainly a time of prosperity in Israel and the country is taking advantage of it. Employers would be wise to follow the trends with a sense of generosity toward their employees. With corporate tax rates coming down and financial resources going up, it is also a good time to strike while the iron is hot.

Final Thoughts

Payroll regulations in Israel include mandatory pension plans and educational funds, in addition to the other tax requirements. There is also social security compensation for those who may need to leave to fulfill their duties to the army. The tax rates and rules also tend to change regularly enough that companies really need to pay attention. A global payroll solution can be the best way to fulfill these and other legal duties without taking undue risk.

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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