Employers' contributions in Israel, myth or reality?
No, it's not a myth: employers' contributions in Israel are much lower than in France.
Indeed, the Israeli state encourages employers and adopts a very flexible tax system for employers in Israel.
Summary table of expenses
The firm has prepared a table summarizing the minimum compulsory charges. (We have separated the employer and employee sections):
|Employer's contribution||Employee contribution||Total|
|Bitouah Léoumi (up to 7,122 Shekels/month).||3.55%||3.5%||7.05%|
|Bitouah Léoumi (over 7,122 Shekels/month).||7.6%||12%||19.6%|
|Total||Between 16.05% and 20% of salary.||Between 9.5% and 15% of salary.||–|
Contribution for severance pay - פיצויים
The employer is obliged to contribute to severance pay.
As you know, when an employee is dismissed from his place of work, he is entitled to compensation. Compensation is 1 salary for each year worked (in proportion to the number of hours worked: part-time or full-time).
In order to prevent any possible dismissal, the employer is therefore required to contribute 6%, as a minimum, for redundancy payments - פיצויים.
As you can see in the following article, pension contributions in Israel are made as follows:
- Employee contribution: 6% of gross salary. (Possibility of ceiling, see below).
- Employer's contribution: 6.5% of gross salary. (Possibility of ceiling, see below).
When are pension contributions compulsory?
Contributions are compulsory if the employee has been with the company for more than 3 months.
Once this seniority has been reached, contributions will be made retroactively for the previous 3 months.
Consequently, the employer will have to pay the pension fund the retroactive contribution for the past 3 months. The employee will also have to contribute his share of 6% in retirement, retroactively.
However, if the employee has never paid pension contributions in Israel (Ole Hadash or first job), then contributions become compulsory only from the 6th month of seniority.
In this case, there is no retroactivity.
Average salary as the authorized ceiling
Theoretically, the employer must contribute as a percentage of the employee's gross salary.
However, if the gross salary exceeds the average salary in Israel (11,870 shekels for 2023), the employer is only entitled to contribute up to this amount.
Of course, in the case of פיצויים, the boss will have to top up if an employee is made redundant.
Contributions are paid directly to the pension fund
Contributions (pension & severance pay) are deducted directly by the employer and paid into the employee's pension fund.
Under Israeli law, employees are entitled to choose the pension fund of their choice.
Here's a quick example to help you understand severance pay.
Lucas has been with Company X for 3 years. His salary is 15,000 shekels gross per month.
His boss has decided to limit his contributions to the amount of the average wage.
Lucas has just received his letter of dismissal.
His boss therefore owes him 45,000 shekels. In the contribution fund, 20,600 shekels have been paid in. Company X will therefore have to make up the difference of 24,400 shekels (45,000 - 20,600 = 24,400).
In a nutshell:
The Israeli government encourages entrepreneurs in Israel.
Thanks to low employer charges, employment is encouraged and helps to reduce unemployment in Israel.
Your questions - our advice
- What happens if my employer hasn't paid the pension fund contributions?
- If I resign, am I entitled to severance pay?
- How are contributions calculated if I work in several locations?