Employee Pension Contributions in Israel — Everything Employers Must Know
Mandatory pension contributions apply to every employer in Israel — no exceptions. This comprehensive 2026 guide covers contribution rates, salary ceilings, Section 14, penalties, Appendix V, and how NETO handles full compliance on your behalf.
Guide Summary
In this comprehensive guide, everything you need to know about employee pension contributions in Israel – the essential guide for every employer, in brief:
- Every salaried employee is entitled to pension contributions – without exception*
- Full contribution rate: up to 21% (6% employee + up to 15% employer)
- The obligation applies retroactively from the first day of employment
- Non-compliance = breaking the law, fines and lawsuits
- The solution: hire through NETO as your EOR – we handle it all
* There are exceptions: employees under age 21 (male) / 20 (female), employees without an active pension fund during the waiting period, and more. See details below.
Table of Contents
- What Does Israeli Law Say? The Extension Order for Mandatory Pension
- Employee Pension Contributions Israel – Who Is Eligible?
- The Waiting Period – When Do Contributions Begin?
- Employee Pension Contributions Israel – Updated Rates 2026
- Employee Pension Contributions Israel – Annual Ceiling 2026
- How Much Do Pension Contributions Cost? A Calculation Example
- Employee Pension Contributions Israel – Sanctions and Risks
- Which Pension Funds Can You Contribute To?
- Appendix V – Employee’s Choice of Pension Fund
- Section 14 of the Severance Pay Law
- Employee Declaration – Regarding Pension Contributions
- Employee Pension Contributions Israel – The NETO EOR Solution
- Frequently Asked Questions
- Summary
NETO deposits 8.33% by default
What Does Israeli Law Say? The Extension Order for Mandatory Pension
Therefore, understanding employee pension contributions in Israel is essential for every employer. Since 2008, Israel has enforced the Extension Order for Comprehensive Pension Insurance (under the Collective Agreements Law, 5717-1957). This landmark legislation established that every salaried employee in Israel is entitled to pension contributions – regardless of the size of the business, the type of position (full-time or part-time), or the nature of the employment.
In other words, employee pension contributions in Israel are mandatory – even if you have only one employee, you are legally obligated to contribute on their behalf.
Employee Pension Contributions Israel – Who Is Eligible?
As a result of the Extension Order, every salaried employee over the age of 21 (male) or 20 (female) is entitled to pension contributions, including:
- Full-time and part-time employees
- Temporary and seasonal workers
- Employees in their probation period (after the waiting period)
- Remote workers (work from home)
- Foreign employees (subject to certain conditions)
Please note: Employees who have not yet turned 21 (male) or 20 (female), and employees without an active pension fund who have not yet completed the waiting period, are not yet required to have contributions. Additionally, employees on one-time assignments or employment shorter than 2 months may be exempt, depending on the circumstances.
The Waiting Period – When Do Contributions Begin?
According to the Extension Order, the obligation to contribute begins as follows:
Employee without prior pension insurance – After 6 months of employment at the same workplace, retroactively from the first day of work.
Employee with existing pension insurance – From the first day of work, with actual contributions beginning after 3 months or at the end of the tax year (whichever comes first), retroactively.
Employee Pension Contributions Israel – Updated Rates 2026
Below are the current employee pension contributions Israel rates as mandated by law for 2026:
| Component | Employer Share | Employee Share | Total |
|---|---|---|---|
| Pension (Tagmulim) | 6.5% | 6% | 12.5% |
| Severance (Pitzuyim) | 6% | – | 6% |
| Disability Insurance* | Up to 2.5% | – | Up to 2.5% |
| Maximum Total | Up to 15% | 6% | Up to 21% |
* Disability insurance (loss of work capacity) is included within the employer’s 6.5% contribution, but coverage varies depending on the fund type and policy terms.
Important: The employer’s pension contribution (6.5%) includes the disability insurance component. If the disability insurance costs less than 2.5%, the employer must add the difference to the pension savings (Tagmulim) component.
Employee Pension Contributions Israel – Annual Ceiling 2026
Additionally, Israeli law sets a maximum salary amount on which pension contributions are calculated. As of 2026, the annual ceiling for pension contributions is based on the average wage in the economy (updated annually by the National Insurance Institute).
2026 Pension Contribution Ceiling:
The maximum monthly salary for pension contribution calculation is approximately NIS 47,465 (the exact figure is updated each January). Salary earned above this amount is not subject to mandatory pension contributions.
However, many employers choose to contribute on the full salary even above the ceiling. The ceiling primarily applies to the mandatory minimum.
How Much Do Pension Contributions Cost? A Calculation Example
Let’s look at a practical example for an employee earning NIS 10,000 gross per month:
| Component | Rate | Monthly Amount (NIS) |
|---|---|---|
| Employer – Pension (Tagmulim) | 6.5% | 650 |
| Employee – Pension (Tagmulim) | 6% | 600 |
| Employer – Severance (Pitzuyim) | 8.33% | 833 |
| Total Employer Cost | 14.83% | 1,483 |
| Total Deposited to Fund | 20.83% | 2,083 |
As shown, the total cost of employee pension contributions in Israel adds approximately 14.83% on top of the gross salary. This is a significant expense that must be factored into your hiring budget. Learn more about why hiring through NETO is worth it.
Employee Pension Contributions Israel – Sanctions and Risks
According to the Israel Ministry of Labor, failing to make pension contributions is a violation of Israeli labor law and can result in severe consequences:
Employee Pension Contributions Israel: Penalties and Legal Consequences
- Financial penalties – Fines of up to NIS 35,000 per violation, imposed by the National Insurance Institute and the Ministry of Labor
- Employee lawsuits – Employees can sue for the full amount of unpaid contributions, plus interest and linkage differentials
- Criminal liability – In extreme cases, willful non-compliance can lead to criminal proceedings
- Retroactive payments – You’ll need to pay all missing contributions retroactively, often with penalties
- Reputational damage – Labor court verdicts are public record
A small oversight can cost you dearly. Even a minor calculation error or delayed payment can result in fines and legal claims. Therefore, this is one of the key reasons many international companies choose to work with an Employer of Record (EOR) like NETO.
Which Pension Funds Can You Contribute To?
Employee Pension Contributions Israel: Fund Types
In Israel, pension contributions can be deposited into several types of savings instruments:
- Comprehensive Pension Fund (Keren Pensia Makifa) – The most common option, offering pension, disability, and survivors benefits
- Provident Fund (Kupat Gemel) – A savings-oriented fund without insurance components
- Managers Insurance (Bituach Menahalim) – An insurance-based pension product (less common for new policies since 2013)
Furthermore, the employee has the right to choose which fund to contribute to. If the employee does not make a selection, the employer must deposit into a default fund as determined by government tender.
Appendix V (Nispach Vav) – Employee’s Choice of Pension Fund
In addition, every employee has the right to choose their own pension fund. To enable the employer to deposit contributions into the employee’s preferred fund, the employee must provide an Appendix V (Nispach Vav) form.
What Is Appendix V?
In essence, Appendix V is an official form issued by the insurance company or pension fund. It serves as confirmation from the fund to the employer that the employee has an active pension account and authorizes the employer to make deposits into it.
How to Obtain Appendix V
Therefore, the employee should contact their insurance company or insurance agent and request the form. The form should include the following employer details:
Employer Details for Appendix V
| Company Name | BAREKET IT Ltd. (Neto) |
| Company Number (C.N.) | 515486058 |
| Tax File (Tik Nikuyim) | 925435851 |
| Address | 3/2 Har Nevo St., Hashmonaim, 73127 |
| Corporate Number | 5 |
| Income Tax Deduction File | 925435851 |
| National Insurance Deduction File | 9254385100 |
Consequently, we deposit pension contributions on your behalf according to Section 14 of the Severance Pay Law: 6% employee + 6.5% employer pension + 8.33% severance pay.
Default Fund: If the employee does not provide an Appendix V or does not select a pension fund within 60 days, the employer is required to enroll them in one of the 4 government-selected default pension funds (valid from November 2021 through October 2028).
The Four Selected Default Pension Funds
| Pension Fund | ID Check Digit |
|---|---|
| Altshuler Shaham | 2, 3 |
| Meitav | 0, 1 |
| Infinity | 7, 8, 9 |
| Mor | 4, 5, 6 |
How is the fund selected? Starting June 2025, for employers with 50 or more employees, the fund assignment is determined by the check digit (last digit) of the employee’s Israeli ID number. Smaller employers may select any of the 4 funds.
Maximum management fees: 0.22% of accumulated balance + 1.00% of deposits — fixed for at least 10 years. Enrollment requires no medical questionnaire or underwriting.
Section 14 of the Severance Pay Law
Section 14 of the Severance Pay Law (1963) is a crucial provision for both employers and employees. It establishes that ongoing pension contributions made by the employer count toward the severance pay obligation.
Consequently, in practice this means:
- When an employer contributes at least 8.33% of the salary to a severance component in a pension fund, those contributions replace the obligation to pay full severance upon termination
- The money belongs to the employee from the moment it is deposited
- The employer is released from additional severance liability for the amounts already contributed
- This provides certainty for both parties and simplifies the employment relationship
At NETO, we apply Section 14 for all employees. This means we contribute 6% employee + 6.5% employer pension + 8.33% severance, ensuring full compliance and financial clarity for both the employer and the employee.
Employee Declaration – Regarding Pension Contributions
However, in certain circumstances, an employee may request that the employer not make pension contributions on their behalf. This applies mainly in two situations:
- The employee does not have an active pension and compensation fund (in the last 6 months)
- The employment is a one-time job or lasts less than two months
In such cases, the employee must sign a formal declaration accepting responsibility for not receiving pension contributions.
BAREKET IT Ltd. | Company No. 515486058
3/2 Har Nevo St., Hashmonaim Zip Code 73127
fax: 08-9171510 | Phone: 08-9761874 | [email protected]
The employee’s / freelancer’s statement – regarding the deposit for pension and compensation
I hereby declare that:
I know and understand the law regarding the employer’s responsibility for depositing into the pension fund and compensation. And so I stated that:
- I do not have an active pension and compensation fund (in the last 6 months).
- This is a one-time job/transaction and/or the period of the job/transaction will be less than two months.
Therefore, I request that NETO – Barkat IT Ltd. will not deposit for me for pension and compensation. Rather, I will take the excess money that I will earn by virtue of this statement and I myself will make sure to deposit it for the pension and compensation according to the law.
I undertake not to make any claims/demands towards NETO (Barkat IT Ltd.). If I am asked, it is my responsibility to immediately pay the pension money, the compensation, the fines and the differences retroactively.
It is clear to me that as a result of my statement my net income has increased, but the tax burden may increase. I confirm that it was explained to me that if I had not made this statement, the pension funds and compensation would have been deposited for me with the insurance company (according to S. 14 of the law) as part of the employer’s costs, while the net amount that would have remained in my bank account would have been smaller.
Identity number: ___ , Phone ID: ___ , Job number: ___
This is my declaration, this is my name and this is my signature:
Important: The employee declaration does not exempt the employer from the legal obligation. It is the employee’s choice and responsibility. As an employer, always ensure proper documentation and consult with a labor law professional if needed.
Employee Pension Contributions Israel – The NETO EOR Solution
Indeed, managing pension contributions, calculating percentages, meeting deadlines, choosing the right funds, filing reports – all of these require specialized knowledge and constant attention. A small mistake can cost you dearly.
When you hire employees through NETO as your Employer of Record (EOR), all employer obligations transfer to us:
- We make pension contributions – on time and in full compliance with the law
- We manage payroll – pay slips, national insurance, income tax
- We assume the risk – lawsuits, fines, audits
- You manage the employee – just like your own, without the bureaucracy
Frequently Asked Questions
Employee Pension Contributions Israel: Compliance and International Hiring
Summary
In conclusion, pension contributions for employees in Israel are not optional – they are a legal obligation that applies to every employer. As a result, the total contribution can reach up to 21% of the gross salary (6% employee + up to 15% employer). Consequently, non-compliance carries severe penalties including fines, lawsuits, and retroactive payments.
For international companies hiring in Israel, managing pension compliance can be complex. NETO offers a complete EOR solution that handles all employer obligations – from pension contributions and payroll to tax compliance and legal protection. Contact us today to learn how we can simplify your Israeli employment.
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This guide is provided for informational purposes only and does not constitute legal advice. For specific questions about your situation, consult with a qualified labor law professional. Visit our FAQ page for more answers. Last updated: 2026.
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