How much do pension and severance cost an employer in Israel?

Mandatory pension contributions total 18.5% of salary, split between employer and employee, with a 6% employer severance component included. Full statutory severance is one month's salary per year of service, equal to 8.33% of salary per month. On a 6,443.85 ILS minimum-wage salary, the employer's pension and severance contributions come to about 955.62 ILS per month before National Insurance and travel.

Can NETO help foreign companies with Israeli payroll and benefits?

Yes. NETO, a licensed manpower contractor (license #1565) operating since 2016, helps foreign companies work with Israeli workers through a local employment and payroll structure, including payslips, payroll reporting, pension and every mandatory benefit. The client company pays a simple 5% commission on the invoice (pre-VAT, billed to the client); the worker never pays the commission.

Is this page legal advice?

No. This page provides general operational information for foreign employers. Specific legal questions should be reviewed by a qualified professional.

Mandatory Employee Benefits in IsraelThe 2026 guide for foreign employers · pension, severance, National Insurance, leave & travel

Q: What benefits are mandatory for employees in Israel?

Mandatory employee benefits in Israel commonly include a legal minimum wage, pension contributions, severance treatment, National Insurance, paid vacation, sick leave, convalescence pay, holiday pay, travel reimbursement, payslips and legally required payroll reporting. The exact treatment depends on the employment structure and applicable agreements.

Q: What is the minimum wage in Israel in 2026?

The Israeli minimum wage for 2026 is 6,443.85 ILS per month for a full-time position and 35.40 ILS per hour. The daily minimum wage is 297.41 ILS for a 5-day week and 257.75 ILS for a 6-day week. These are floors: many roles pay above them.

Hiring in Israel? The monthly cost is not just gross salary. This guide breaks down every mandatory benefit a foreign employer must budget for in 2026 · with the real 2026 figures and worked cost examples in shekels.

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Foreign employer planning the full cost of mandatory employee benefits in Israel

18.5% pensionSplit employer + employee

8.33% severance1 month's salary per year

AI summary Smart overview of this page · click hereClick to read the page summary

Employing someone in Israel means budgeting well beyond gross salary. Mandatory components include pension and severance, National Insurance, paid vacation, sick leave, convalescence and public holidays, plus travel reimbursement · so the real employer cost is higher than the headline wage. For a foreign company these have to be planned and documented before work begins, and NETO handles them under licensed contractor #1565.

Employer cost in Israel Israel payroll Pension contributions Israel Tax Authority

This summary is based on the page content

Quick answer · in five points

Mandatory employee benefits in Israel are part of the payroll structure, not an optional add-on. When a foreign company hires in Israel, the total employer cost includes several legally required components on top of gross salary · and each of them needs to be planned before work begins.

Minimum wage: 6,443.85 ILS/month or 35.40 ILS/hour (2026) · a legal floor.
Pension: 18.5% of salary in total, split between employer and employee.
Severance: one month's salary per year of service · 8.33% monthly.
Also mandatory: National Insurance, vacation, sick leave, convalescence and travel.
Travel: reimbursed up to 22.60 ILS per working day, on top of salary.

Table of contents

What foreign employers must budget for
The mandatory benefits in numbers (2026)
Worked cost examples
Why this is hard for a foreign company
How NETO helps · with video
Frequently asked questions
Related guides

Beyond gross salary

What foreign employers must budget for

When a foreign company hires in Israel, the monthly cost should not be calculated from gross salary alone. Israeli employment includes several payroll and benefit components that must be planned before work begins · they sit at the heart of Israeli labor law and shape the full employer cost in Israel.

Component	What it means	Why it matters
Payslip & payroll reporting	Local salary slip, tax withholding and payroll records.	Creates proper employment documentation.
National Insurance	Israeli social security reporting and payments.	Required for the local employment workflow.
Pension & severance	Employer and employee pension deposits, plus the severance component.	A core cost item · see pension contributions and severance pay.
Vacation & sick leave	Paid leave rights under Israeli employment rules.	Affects cost, documentation and termination planning.
Convalescence & holidays	Convalescence pay and paid public holidays.	Recurring annual costs that add to total employer cost.
Travel reimbursement	Cost of getting to and from work, up to 22.60 ILS/day.	Paid on top of salary · see the travel reimbursement rules.

Why it matters: the approved salary is not the same as total employer cost. A simulation is needed before signing · and each benefit should be documented clearly from the start. The full picture appears in our Israel payroll guide.

The 2026 figures

The mandatory benefits in numbers

These are the core Israeli figures for 2026. The wage numbers are legal floors · many roles pay above them · but every employer must plan for at least these amounts.

35.40

Minimum wage / hour2026 · ILS per hour

6,443.85

Minimum wage / month2026 · full-time, ILS

18.5%

Pension totalSplit employer + employee

8.33%

Severance / month1 month's salary per year

Daily minimum wage

297.41 ILS for a 5-day week and 257.75 ILS for a 6-day week · the daily floor for full-day work in 2026.

Travel reimbursement

Capped at 22.60 ILS per working day, paid on top of salary to cover getting to and from work.

Pension split (18.5%)

Employee 6% + employer 6.5% + employer severance component 6% · a 12.5% employer share in total.

Note: the 18.5% pension total already includes a 6% employer severance component. Full statutory severance is one month's salary per year of service, equal to 8.33% of monthly salary. National Insurance is charged on top; its rate depends on the salary bracket.

Worked examples

What a new hire really costs

Three worked examples using the 2026 figures above. Every number is calculated from gross salary · so you can see exactly how mandatory benefits add to total employer cost.

Example 1 · full-time worker at minimum wage

A foreign company hires a full-time worker at the 2026 minimum wage of 6,443.85 ILS/month. Here is the employer's mandatory social cost on top of gross salary.

Gross monthly salary = 6,443.85 ILS
Employer pension (6.5%) = 6,443.85 × 0.065 = 418.85 ILS
Severance provision (8.33%) = 6,443.85 × 0.0833 = 536.77 ILS
Employer pension + severance = 955.62 ILS / month
Total before National Insurance & travel = 6,443.85 + 955.62 = 7,399.47 ILS

Add employer National Insurance and travel reimbursement (up to 22.60 ILS/day) on top · the take-home salary is only part of the story.

Example 2 · where the 18.5% pension goes

On the same 6,443.85 ILS salary, this is how the mandatory 18.5% pension contribution splits between the parties.

Employee share (6%) = 6,443.85 × 0.06 = 386.63 ILS · deducted from the worker's pay
Employer share (6.5%) = 6,443.85 × 0.065 = 418.85 ILS
Employer severance component (6%) = 6,443.85 × 0.06 = 386.63 ILS
Total into the pension fund (18.5%) = 1,192.11 ILS / month
Employer portion of that total (12.5%) = 805.48 ILS

The employer pays 12.5% and the worker 6% · together the full 18.5% goes into the worker's pension and severance savings.

Example 3 · part-time hourly worker + travel

A part-time worker is hired at the 2026 hourly minimum of 35.40 ILS and works 100 hours across 20 days in a month.

Gross salary = 35.40 × 100 hours = 3,540.00 ILS
Employer pension (6.5%) = 3,540.00 × 0.065 = 230.10 ILS
Severance provision (8.33%) = 3,540.00 × 0.0833 = 294.88 ILS
Travel (20 days × 22.60) = 452.00 ILS
Employer add-ons = 230.10 + 294.88 + 452.00 = 976.98 ILS
Total before National Insurance = 3,540.00 + 976.98 = 4,516.98 ILS

Even a part-time role carries pension, severance and travel · the mandatory benefits scale with the hours worked.

Figures are illustrative, based on the 2026 minimum-wage floors and standard mandatory rates. Exact amounts depend on hours, the applicable agreement and salary bracket. For a precise figure, run a full simulation · see employer cost in Israel.

The challenge

Why this is hard for a foreign company

A foreign company may understand salary and invoices, but Israeli payroll uses local rules, local reporting and local employment documentation. Improvising the process can create confusion around net salary, employer cost, social contributions and termination obligations.

Budget gap: the approved salary is not the same as total employer cost · a simulation is needed before signing.
Documentation gap: employment terms, payroll records and benefits must be documented clearly from the start.
Reporting gap: National Insurance, tax withholding and pension deposits are filed locally, on Israeli timelines.

Rather than set up a local entity, many foreign companies work through an Employer of Record in Israel or use EOR services for foreign companies to keep the workflow compliant.

Mandatory employee benefits in Israel · pension, vacation and sick leave required by law

Local rulesreporting, payslips & deposits

For employers

How NETO helps

NETO lets foreign companies work with Israeli talent through a local employment and payroll structure. The foreign company receives an invoice, while the worker receives an Israeli payslip and the whole payroll workflow · National Insurance, pension, severance, leave and travel · is handled in Israel.

NETO is a licensed manpower contractor (#1565), supervised by the Ministry of Labor and operating since 2016. The service costs the client company a simple 5% commission on the invoice (pre-VAT), billed to the client · the worker never pays it. It covers payroll, payslips and every mandatory benefit on this page.

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For employers · how to hire and pay in Israel through NETO

NETO employer guide · registration, worker details, cost simulation and local payroll

Watch · in under 2 minutes, see how simple it is to pay a worker in Israel · with every mandatory benefit included · through NETO.

FAQ

Frequently asked questions

What benefits are mandatory for employees in Israel?

Mandatory benefits commonly include a legal minimum wage, pension contributions, severance treatment, National Insurance, paid vacation, sick leave, convalescence pay, holiday pay, travel reimbursement, payslips and legally required payroll reporting. The exact treatment depends on the employment structure and applicable agreements.

What is the minimum wage in Israel in 2026?

For 2026 it is 6,443.85 ILS/month for a full-time position and 35.40 ILS/hour. The daily minimum is 297.41 ILS for a 5-day week and 257.75 ILS for a 6-day week. These are legal floors · many roles pay above them.

How much do pension and severance cost an employer?

Mandatory pension totals 18.5% of salary, split between employer and employee, and already includes a 6% employer severance component. Full statutory severance is one month's salary per year of service · 8.33% monthly. On a 6,443.85 ILS salary, the employer's pension and severance come to about 955.62 ILS/month before National Insurance and travel.

Is travel reimbursement mandatory in Israel?

Yes. Employers must reimburse the cost of getting to and from work, capped at 22.60 ILS per working day. It is paid on top of salary and adds to the total employer cost · see the travel reimbursement guide.

Does a foreign employer manage Israeli benefits directly?

Not necessarily. A foreign company can use a local Employer of Record or payroll provider to handle the Israeli employment and payroll workflow, including payslips, National Insurance, pension and severance deposits.

Can NETO help foreign companies with Israeli payroll?

Yes. NETO · Licensed Manpower Contractor #1565, operating since 2016 · helps foreign companies work with Israeli workers through a local employment and payroll structure, including payslips, reporting, pension and every mandatory benefit. The client company pays a simple 5% commission on the invoice (pre-VAT); the worker never pays the commission.

Mandatory benefits, handled for you

Hire in Israel without a local entity. NETO · a licensed manpower contractor (#1565) operating since 2016 · handles payslips, National Insurance, pension, severance, leave and travel for the workers you employ. You receive one invoice; the worker gets a fully compliant Israeli payslip.

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