Employee Benefits in Israel

Who Is Entitled to Employee Benefits In Israel

In Israel, virtually all employees are entitled to statutory employee benefits, regardless of nationality, as long as they have an employment relationship under Israeli law. This includes full-time and part-time employees, and in many cases temporary or fixed-term employees. Benefits such as paid vacation, public holidays, sick leave, and pension contributions generally apply on a pro-rated basis according to the percentage of a full-time position.

Independent contractors and freelancers are not entitled to employee benefits, but authorities may reclassify them as employees if the working relationship is effectively one of employment. Eligibility for some benefits can depend on seniority, minimum periods of employment, or hours worked per month; for example, pension contributions usually begin after a short qualifying period if the employee does not have an existing plan, and certain leave rights increase with length of service.

Overview of Employee Benefits In Israel

Employee benefits in Israel are relatively generous by global standards, with strong protections around leave, social security, and retirement savings. Benefits are a central part of workplace culture, and many employers go beyond the minimum legal requirements to stay competitive, especially in sectors like technology and professional services.

Mandatory Employee Benefits In Israel

Mandatory benefits are legally required and form the core of any employee benefits package in Israel. Here's a comprehensive list of mandatory benefits in Israel:

Statutory Annual Paid Vacation

All employees in Israel are entitled to annual paid vacation, with the number of days determined by seniority and weekly working pattern, and in some cases by applicable collective agreements. As a baseline, full-time employees typically receive at least the statutory minimum number of vacation days per year, increasing with years of service; part-time employees are entitled to a pro-rated allowance based on their percentage of full-time work.

Vacation pay is usually based on the employee’s regular salary, and employers must keep accurate records of vacation accrual and usage. Employees should submit vacation requests in advance according to workplace policy, and you must ensure that they are able to take the statutory minimum; paying vacation in lieu is generally restricted except when employment ends.

Paid Public Holidays

Employees who work on a monthly salary are generally entitled to paid days off on official holidays, including national and religious holidays recognized in Israel. Hourly or daily-paid employees may also be entitled to paid holidays if they meet conditions such as minimum seniority and regular work patterns before the holiday.

If your business requires work on a public holiday, employees are typically entitled to premium pay and a compensatory day off, subject to statutory and collective agreement rules. You should document holiday schedules, any work performed, and related pay calculations to ensure compliance.

Paid Sick Leave

Employees in Israel accrue sick leave days over time, up to a statutory cap, and can use these days when medically unable to work. The law prescribes a standard payment structure: usually no payment for the first sick day, partial pay for days two and three, and full pay from the fourth day onward, though many employers provide more generous terms via contract or policy.

Employees must provide a medical certificate from a licensed doctor to justify sick leave beyond a short absence. Proper recordkeeping of accrued and used sick days is essential, and certain specific situations, like illness of a child or parent, may carry additional or separate leave entitlements under Israeli law.

Pension and Severance Fund Contributions

Pension savings are mandatory for most employees in Israel under the compulsory pension arrangement, usually implemented via a pension fund or insurance policy. Both employer and employee contribute a percentage of the employee’s pensionable salary to a pension plan, with the employer also paying an additional component earmarked for severance (often referred to collectively as “pension and severance contributions”).

If an employee arrives with an existing pension arrangement, contributions typically begin within a short period; if not, contributions usually start after a limited qualifying period but are often backdated. You must collect and remit contributions each month and provide employees with information about their chosen fund; failure to contribute can result in liability for missed deposits and penalties.

National Insurance (Bituach Leumi) and Health Contributions

Employers in Israel are required to pay National Insurance (Bituach Leumi) and health insurance contributions on behalf of their employees. These cover social security benefits such as work injury insurance, unemployment benefits, maternity benefits, and universal health coverage.

Contributions are calculated as a percentage of the employee’s salary, with different rates applying to different salary bands and components. Your company must deduct the employee’s share from gross salary and add the employer’s share, then remit the total to the National Insurance Institute with appropriate reports; accurate classification of salary components and timely filings are essential for compliance.

Mandatory Recovery Pay (“Dmei Havraa”)

Recovery pay, known as “dmei havraa,” is a distinctive Israeli benefit that provides employees with an annual payment intended to support rest and recuperation. Eligibility generally begins after a minimum period of continuous service, and the number of recovery days for which payment is made increases with seniority and may also be governed by extension orders or collective agreements for particular sectors.

The payment is calculated by multiplying the number of recovery days by a statutory daily rate that is periodically updated. Employers typically pay recovery pay once per year, frequently in the summer months, and must track employee tenure and the applicable sectoral rules to ensure correct amounts are paid.

Maternity Leave and Maternity Benefits

Female employees in Israel are entitled to maternity leave, with the length of leave depending on seniority and other conditions; a standard full leave period is typically 26 weeks, part of which may be paid as maternity benefits by the National Insurance Institute if contribution conditions are met. During the protected leave period, the employee’s job is generally safeguarded, and termination is heavily restricted.

Payment during maternity leave often comes from the National Insurance Institute rather than directly from the employer, though payroll coordination is required. You must provide the necessary documentation, such as confirmation of salary and employment periods, so the employee can claim benefits and ensure that return-to-work rights are honored.

Paternity/Partner and Parental Leave

Fathers or non-birthing partners may be entitled to paternity or partner leave shortly after the birth, as well as the possibility to take part of the parental leave in place of the mother under certain conditions. Some of this leave may be eligible for payment by the National Insurance Institute, subject to contribution history and statutory rules.

There are also additional parental leave rights, such as unpaid leave following maternity leave for employees with sufficient tenure. Employers should coordinate closely with employees planning parental leave, collect any necessary declarations, and ensure that job protection, seniority, and benefit accruals are handled in accordance with the law.

Bereavement and Family-Related Leave

Employees in Israel are generally entitled to bereavement leave (often called “shiv’a” leave) in the event of the death of certain close family members. The duration and payment obligations are defined by law and may be supplemented by collective agreements or workplace policies.

Additional protected leaves exist for circumstances such as child illness, serious illness of a parent or spouse, fertility treatments, and more, each with specific eligibility and documentation requirements. You should maintain clear internal procedures for approving and recording these leaves while ensuring employees are aware of their rights.

Work Injury and Accident Coverage

Through National Insurance contributions, employees are covered for work injuries and occupational diseases. When a work accident occurs, the employee may be entitled to wage replacement and medical coverage via the National Insurance Institute, rather than from the employer directly, although employers have obligations to report incidents and cooperate with authorities.

Your company must promptly document and report work accidents and provide any salary and employment information requested by the National Insurance Institute. Maintaining a strong health and safety culture reduces both legal risk and the potential for claims under this system.

Supplemental Employee Benefits In Israel

Supplemental benefits are not required by law, but can help you stand out as an employer and attract top talent. They include:

Enhanced Private Health Insurance

While basic health coverage is provided under Israel’s public system and funded via statutory contributions, many employers offer supplemental private health insurance. This can cover shorter waiting times, access to private hospitals, extended specialist networks, and services not fully covered by the public system.

Employers usually cover all or part of the premium and may extend coverage to dependents at a favorable rate. For internationally minded or senior employees, enhanced health coverage is a strong differentiator and signals a commitment to well-being.

Meal Vouchers and Food Subsidies

Providing meal vouchers, prepaid food cards, or subsidized on-site catering is common in Israel, particularly in the tech and services sectors. These benefits help employees manage daily living costs and contribute to office culture by encouraging shared breaks and team interaction.

Companies may allocate a monthly meal budget per employee, sometimes linked to office attendance, or provide subsidized cafeterias. Depending on the structure, some or all of the value may be treated as taxable income, so it is important to design the program with tax considerations in mind.

Company Car, Parking, and Transportation Benefits

Many employers offer a company car or car allowance to certain roles, or alternatively subsidized public transportation and parking. A company car is highly valued but is treated as a taxable fringe benefit with a notional value added to the employee’s taxable income.

Other transportation supports can include monthly public transport passes, shuttle services, or reimbursement of commuting costs. Structuring these benefits transparently and explaining the tax impact helps employees understand their total compensation package.

Bonuses, Incentives, and Equity Plans

Performance-based bonuses and discretionary annual bonuses are common in Israel and are often used to reward individual and company performance. They are typically defined in employment agreements or separate bonus plans, with clear metrics and targets where possible.

Equity-based compensation, such as stock options or RSUs under approved Israeli tax tracks, is especially prevalent in startups and technology companies. These plans can provide significant upside for employees and are a powerful tool for aligning long-term interests and retention, though they require specialized legal and tax structuring.

Supplemental Life, Disability, and Long-Term Care Insurance

In addition to the mandatory social security and pension protections, some employers provide group life insurance, long-term disability coverage, or long-term care policies. These products enhance financial security for employees and their families beyond the statutory minimums.

Typically, the employer negotiates a group policy with an insurer and pays all or part of the premiums. Communicating the scope of coverage, potential payouts, and claim processes helps employees appreciate the full value of these benefits.

Professional Development and Education Support

Employers frequently invest in employee learning through course reimbursements, conference budgets, or internal training programs. This may include language classes, technical certifications, leadership programs, or tuition assistance for relevant degrees.

Providing structured development budgets and clear guidelines on eligible training supports both employee growth and organizational capability. In a competitive talent market, visible commitment to learning and career progression is a key differentiator.

Wellness, Mental Health, and Work–Life Balance Programs

Wellness programs in Israel can include gym memberships, wellness stipends, mindfulness apps, or access to counseling and employee assistance programs. Mental health support, in particular, has become a priority, with many employers offering confidential psychological support services.

Flexible working arrangements, such as hybrid work, compressed weeks, or generous remote work policies, are also viewed as part of a modern benefits offering. These measures can reduce burnout and increase engagement without always creating large direct costs.

Home Office and Technology Stipends

As remote and hybrid work have expanded, employers often contribute toward home office equipment and communication costs. This may include a one-time setup stipend for furniture and hardware, plus ongoing contributions for internet or mobile phone plans.

Clear policies outlining eligible expenses, approval workflows, and asset ownership at the end of employment help keep these programs manageable. When structured well, they support productivity and signal trust in employees’ ability to manage their work environments.

Tax Implications of Employee Benefits in Israel

How Are Employee Benefits Taxed for Employees?

In Israel, most cash benefits and many in-kind benefits are treated as taxable income to the employee. Salary, bonuses, and most allowances are fully taxable and subject to income tax, National Insurance, and health contributions; certain non-cash benefits, such as a company car or some meal benefits, are assigned a notional taxable value under tax regulations.

Some benefits, especially certain pension contributions within statutory limits or specific equity plans approved under Israeli tax tracks, can receive preferential or deferred tax treatment. Employees must understand that the “gross cost” of a benefit to the employer may not equal the “net” value they receive after taxation.

How Are Benefits Treated for Employers?

For employers in Israel, most benefit costs that are wholly and exclusively for business purposes are generally deductible for corporate tax purposes, including salaries, mandatory social contributions, and many supplemental benefits. However, if benefits are considered non-business or excessive, deductions may be limited, and certain benefits can trigger additional employer-side National Insurance costs.

It is crucial to categorize payments correctly (for example, distinguishing between salary, benefits, and reimbursements) and to observe limits where tax-advantaged treatment applies, such as pension contributions or approved equity plans. Proper planning with local tax advisors can optimize both employer and employee outcomes.

What Documentation Is Required for Tax Compliance?

To comply with Israeli tax and social security rules, your company must maintain detailed payroll records showing gross salary, each benefit type, both employer and employee contribution amounts, and all withholdings. Supporting documents should include employment agreements, pension and insurance policies, invoices for reimbursed expenses, leave records, and any approvals related to equity plans or specific tax regimes.

Employers must file monthly and annual reports to the Tax Authority and National Insurance Institute, and provide employees with annual wage statements summarizing taxable income and contributions. Accurate, timely documentation is essential to withstand audits and to ensure employees receive correct credit for their contributions and benefits.

Are There Tax Advantages to Offering Certain Benefits?

Some benefits in Israel, particularly those aligned with social policy goals, can offer tax efficiencies. Mandatory and certain supplemental pension contributions, for instance, may be tax-deductible for the employer while benefiting from favorable or deferred tax treatment for employees up to prescribed limits.

Equity plans approved under specific sections of the Israeli Income Tax Ordinance can also provide meaningful tax advantages if designed and administered correctly. Working with experienced local counsel allows you to structure benefits in ways that maximize value within the regulatory framework.

Legal Considerations for Employee Benefits in Israel

Employee benefits in Israel are governed by a complex mix of statutes, extension orders, and collective agreements. Key pieces of legislation include the Annual Leave Law, Sick Pay Law, Hours of Work and Rest Law, National Insurance Law, and laws establishing mandatory pensions and recovery pay; in many industries, sectoral collective agreements extended by law set higher standards that you must follow even if you are not a party to the agreement.

Non-compliance with benefits obligations can result in administrative fines, civil claims for back pay and damages, and, in serious cases, criminal liability for company officers. Employees can bring claims before labor courts, and authorities such as the Ministry of Labor and the National Insurance Institute have enforcement powers including inspections, audits, and sanctions.

Your company should conduct regular internal reviews of payroll, benefits contributions, and leave records, particularly when laws or extension orders change or when you scale hiring. Engaging local employment counsel or experienced payroll providers is highly recommended to ensure that contracts, policies, and day-to-day practices align with the current legal framework in Israel.

How Benefits Impact Employee Cost

In Israel, the total cost of employing someone typically exceeds base salary by a substantial margin once mandatory benefits are included. Employer-side pension and severance contributions, National Insurance and health contributions, recovery pay, paid vacation, holidays, and sick leave can together add roughly 20–30% or more to the gross salary cost, depending on salary level and sectoral rules; supplemental benefits like private health plans, meal subsidies, and transportation can further increase this percentage.

Effective cost management starts with modeling “total compensation” rather than focusing only on base pay, and with deciding which supplemental benefits deliver the highest perceived value for employees relative to their cost. Structured benefits policies, clear eligibility rules, and regular benchmarking against the Israeli market can help you balance competitiveness with budget discipline, while the return on investment is often realized through better retention, higher engagement, and stronger employer branding.