Israel Payroll

Payroll in Israel – The Smart and Legal Way to Manage Employee Salaries

Running a business in Israel comes with many opportunities, but also with unique challenges. One of the most complicated and time-consuming areas for any employer is payroll. Calculating salaries, deducting taxes, reporting to authorities, managing benefits, and making sure every employee is paid on time and according to the law – all of this requires significant expertise.

For many small and mid-sized businesses, keeping payroll in-house quickly becomes overwhelming. Even larger companies discover that mistakes in salary payments or reporting can lead to heavy fines, lawsuits, and frustrated employees. That’s why more and more organizations are turning to outsourced payroll services as a smarter, safer, and more cost-effective solution.

NETO, a licensed employment contractor in Israel (Labor Contractor License No. 1565), offers a complete digital payroll platform that combines technology, compliance, and flexibility. Whether you are a local Israeli business or an international company looking to hire employees in Israel, NETO provides a streamlined, legal, and professional payroll solution.

Why Payroll Matters More Than Ever

Payroll is not “just accounting.” It’s the backbone of your employment relationship. Accurate payroll ensures that:

• Employees receive their salaries on time and in full.
• Taxes and social security contributions are properly deducted.
• Pension and severance obligations are met.
• Businesses stay compliant with Israeli labor laws.

Inaccurate payroll is one of the leading causes of legal disputes in Israel’s labor courts. For businesses that want to grow and maintain a positive reputation, getting payroll right is non-negotiable.

Common Mistakes Businesses Make With Payroll

Many companies try to handle payroll internally, but soon face issues such as:

• Incorrect tax deductions – leading to unexpected debts to the Tax Authority.
• Late salary payments – damaging employee trust.
• Failure to follow labor laws – for example, not paying overtime or holiday pay.
• Lack of updates on legislation – Israeli labor law changes frequently, and missing an update can be costly.
• Audit risks – without proper documentation, a routine inspection can turn into a serious financial penalty.

Why Outsourcing Payroll Makes Sense

Instead of investing in expensive payroll software, training staff, and staying up-to-date with complex regulations, outsourcing payroll to NETO offers clear advantages:

• Cost savings – no need for an internal payroll department or costly systems.
• Accuracy – automated calculations and double-check mechanisms reduce errors.
• Compliance – NETO operates under License No. 1565 and is monitored by the Ministry of Labor.
• Flexibility – manage both employees and freelancers in one platform.
• Availability – payroll is processed reliably, 365 days a year.
• Peace of mind – NETO assumes full responsibility for reporting and compliance.

How It Works – Step by Step

1. Employee Data Collection – employee details, contracts, working hours, and benefits are entered into the system.
2. Automated Calculations – gross salary, tax deductions, national insurance, and pension contributions are calculated automatically.
3. Payslip Generation – employees receive a detailed payslip, fully compliant with Israeli law.
4. Salary Transfer – salaries are transferred directly to employees’ bank accounts.
5. Reporting – NETO reports to all relevant authorities (Tax Authority, National Insurance, pension funds).
6. Ongoing Management – vacation days, sick leave, overtime, and legal updates are continuously tracked.

NETO’s Unique Advantage

Unlike traditional payroll providers or accounting firms that focus only on payslips, NETO offers something different:

• Legal security – as a licensed labor contractor, NETO is required to deposit guarantees with the Ministry of Labor, ensuring employees are always protected.
• One platform for all – businesses can manage both salaried employees and freelancers in the same system.
• International expertise – NETO supports foreign companies hiring in Israel under an Employer of Record (EOR) model.

Real-World Examples

A startup with 20 employees – NETO manages all payroll, including overtime and equity-related benefits, allowing the founders to focus on product development.

A small marketing agency – The agency combines full-time staff with freelancers. NETO’s platform handles both seamlessly.

A nonprofit organization – Operating under tight budgets, the NGO saves money by outsourcing payroll instead of hiring a full-time payroll clerk.

An international tech company – Setting up a branch in Israel, the company uses NETO’s EOR service to employ local developers and consultants legally, without opening a local legal entity.

Who Is Payroll Outsourcing For – And Who Isn’t?

Payroll outsourcing is ideal for:

• Small and mid-sized businesses that want to save time and reduce costs.
• Startups that need to focus on growth instead of administration.
• International companies hiring Israeli employees in roles like management, R&D, consulting, and marketing.
• Nonprofits that want to stay compliant without overspending.

It may be less relevant for:

• Large corporations that already have a full internal payroll department.
• Solo freelancers who issue only one invoice per month (for them, NETO’s “Invoice as an Employee” service is a better fit).