Hire employees in Israel
What a foreign company needs to know before employing people in Israel: whether you need an entity, what an employee costs once National Insurance, pension, Section 14 severance and the customary study fund are added, why every dismissal starts with a hearing, and how the 2026 minimum wage, tax band and recuperation pay changes affect your budget. Written for CHROs, CFOs, General Counsel and founders.
Quick answers
The questions leadership teams ask first.
Do I need an Israeli entity to hire?
No. There are three routes:
- Employer of Record. Dryft Global employs the person through an Israeli entity, runs payroll, National Insurance, pension and study fund deposits, and issues written terms. You direct the work.
- Direct Israeli entity. You register a company with the Israeli Corporations Authority and open income tax, withholding, VAT and National Insurance files and a bank account: usually several weeks for a foreign-owned company.
- Independent contractor. Possible for genuinely independent work, but Labour Courts look at substance and reclassify contractors who are integrated into the business.
When should I use an EOR instead of setting up an entity?
Use an EOR for your first hires, sales and support roles, or to test the market. You skip company registration and tax files, and the pension, Section 14, study fund and hearing processes are handled for you. Your own entity earns its keep for a growing R&D centre, for Preferred Technological Enterprise tax rates, or for large teams.
What does an employee actually cost beyond salary?
Statutory costs add about 24%: employer National Insurance of 4.51% up to ILS 7,703 a month and 7.6% up to the ILS 51,910 ceiling, 6.5% pension, 8.33% severance under Section 14, plus recuperation and travel pay. In technology the 7.5% study fund and a meal card are customary, which takes the total to about 31% to 34%.
How difficult is termination in Israel?
It is procedural. Every dismissal, even during probation, needs a hearing (shimua) with written reasons and a chance to respond. Notice rises to one month after a year of service, severance is one month's pay per year after one year, and full Section 14 pension deposits replace it. Pregnant employees, new parents and employees in fertility treatment can only be dismissed with a Ministry of Labour permit, and reservists are protected around their service.
Can Dryft Global legally employ my team in Israel?
Yes. Dryft Global acts as the legal employer in Israel. We issue contracts and written notice of terms, run monthly payroll by the 9th, file Form 102, make pension, Section 14 and study fund deposits, pay recuperation and travel, claim reserve duty reimbursement from National Insurance, and run hearings and terminations with you. We structure each engagement with the Manpower Contractors Law in mind.
Hiring routes compared
Speed, administration and liability differ by route.
| Factor | Direct Israeli entity | Dryft Global EOR | Independent contractor |
|---|---|---|---|
| Time to first hire | Several weeks for registration, tax files and bank | Days once terms are agreed | Fast, with classification risk |
| Tax, VAT and NI files | Required | Not required | Contractor's own |
| Pension and study fund | Your responsibility | Handled by Dryft Global | Not provided |
| Hearing and termination | Your process | Run by Dryft Global with you | Contract terms only |
| Statutory liability | Direct corporate exposure | Assumed by Dryft Global | High if reclassified |
| Best fit | R&D centres, large teams | First hires, sales and support | Short independent projects |
What an employee costs in Israel
Pension and severance deposits are the largest on-cost, not National Insurance. The model below is a Tel Aviv software engineer on ILS 35,000 a month in 2026, first year of service, with full Section 14 deposits.
| Component | Employer share | Notes |
|---|---|---|
| National Insurance | 4.51% / 7.6% | Reduced rate to ILS 7,703 a month, full rate to the ILS 51,910 ceiling (~6.9% on the model) |
| Pension | 6.5% | Mandatory; starts after 6 months, or day one with a prior fund |
| Severance (Section 14) | 8.33% | Monthly deposit that replaces statutory severance |
| Recuperation and travel | ~2% | ILS 451.50 a day recuperation; public transport reimbursement |
| Statutory subtotal | ~24% | About ILS 8,300 a month on the model |
| Study fund | 7.5% | Customary in technology; tax-free to a salary ceiling |
| Meal card and perks | ~3% | Customary |
| Total employer on-cost | ~24% to 34% | Statutory only at the low end, full technology package at the high end |
On the model salary, the employer cost is about ILS 551,000 a year with the study fund (about USD 176,700 at ILS 3.118, 30 October 2026) against ILS 420,000 gross, or about ILS 563,000 with a meal card, before the EOR fee. Ask us for a cost model with your package.
Payroll and tax
Employees are paid monthly in ILS, no later than the 9th of the following month, with a payslip in the form the Wage Protection Law prescribes. The employer files Form 102 and pays withheld income tax, National Insurance and health tax by the 15th, reports pension deposits monthly, and issues Form 106 to each employee by 31 March. Employees declare tax credit points on Form 101 at hire and each January.
Income tax
Employment income is taxed in bands from 10% to 47%, with a 3% surtax above ILS 721,560 a year, so the top rate is 50%. The 20% and 31% bands were widened from 1 January 2026. Credit points (2.25 for resident men, 2.75 for resident women, more for children, new immigrants and discharged soldiers) reduce the tax due. Employees also pay National Insurance and health tax of 4.27% up to ILS 7,703 a month and 12.17% above it, to the ceiling.
Minimum wage
ILS 6,443.85 a month from 1 April 2026, or ILS 35.40 an hour on a 182-hour month. It is updated each April to at least 47.5% of the average wage. Lower youth and apprentice rates apply as percentages of the adult rate.
Leave and mandatory benefits
- Annual leave. 12 working days a year for years 1 to 5 on a five-day week, 14 in year 6 and 15 in year 7, rising further with seniority. Unused leave is paid out on exit.
- Public holidays. 9 paid holiday days under the general extension order, following the Hebrew calendar, plus Knesset election day. Non-Jewish employees may substitute their own religious holidays.
- Sick leave. 1.5 days accrue per month, up to 90 days. Day 1 is unpaid, days 2 and 3 at 50%, then full pay.
- Maternity. 26 weeks, 15 of them paid by National Insurance for qualifying employees. A permit is needed to dismiss during pregnancy, maternity leave and the period after return.
- Other leave. Paternity 5 days around the birth; partners may share maternity leave after the first six weeks.
- Recuperation pay. 5 to 10 days a year by seniority, at ILS 451.50 a day in the private sector for 2026.
- Reserve duty. Salary continues during reserve service and is reimbursed by National Insurance up to a cap. Dismissal because of call-up is prohibited.
- Working time. 42-hour week, Sunday to Thursday. Overtime at 125% for the first two hours a day, then 150%. Global overtime clauses are common in technology.
Termination and notice periods
There is no statutory probation; contracts commonly set 3 to 6 months, but notice and the hearing duty apply from the first day. Severance accrues after one year and is usually funded month by month through Section 14 deposits.
| Situation | Requirement |
|---|---|
| Notice, months 1 to 6 (monthly-paid) | 1 day per month worked |
| Notice, months 7 to 12 | 6 days plus 2.5 days per further month |
| Notice after 1 year | 1 month, either party; pay in lieu permitted |
| Hearing (shimua) | Required before every dismissal |
| Severance | One month's last salary per year after 1 year; replaced by full Section 14 deposits |
- Hold the hearing properly. Written reasons, time to prepare, the right to be accompanied and a reasoned decision. A defective hearing gives rise to damages.
- Permits for protected employees. Pregnancy, maternity leave, the period after return and fertility treatment require a Ministry of Labour permit; a dismissal without one is void.
- Check reserve duty status. Reservists are protected during service and for a period after it, and 2026 emergency measures extended protection for some employees. Confirm current terms before deciding.
- Rights cannot be waived. Accrued leave, recuperation and severance survive a signed release.
Can I use independent contractors?
Only for genuinely independent work. Israeli Labour Courts apply an integration test: is the work an integral part of your business, and does the worker run an independent business of their own? Control, personal performance, economic dependence and continuity also count, and the contract label is not decisive. A reclassified contractor can claim severance, notice, pension, leave and recuperation pay for the whole engagement, within a seven-year limitation period, with National Insurance and withholding exposure on top. Staffing models carry their own rules: under the Manpower Contractors Law, a business that employs people to place them under a client's direction must be licensed, and a non-IT worker placed with the same client for more than nine months is deemed the client's employee. For anyone who works like an employee, an EOR structured with these rules in mind is the compliant route.
The legal framework in brief
Israel has no single labour code. Protective statutes, extension orders and Labour Court case law together set the rules. The instruments you will hear most:
- Severance Pay Law, 1963, and Section 14. One month's pay per year of service, replaced by full 8.33% pension deposits.
- Pension extension order. Mandatory pension for every employee: 6.5% employer, 6% to 8.33% severance, 6% employee.
- Hours of Work and Rest Law, Annual Leave Law and Sick Pay Law. The 42-hour week, overtime, leave by seniority and sick pay.
- Prior Notice for Dismissal and Resignation Law, 2001. Notice by seniority, for both sides.
- Employment of Women Law. 26 weeks' maternity leave and dismissal permits.
- Protection of Privacy Law, Amendment 13. In force since 14 August 2025, with administrative fines and updated notice duties.
- Authorities. Ministry of Labour, National Insurance Institute, Israel Tax Authority, Population and Immigration Authority, and the Privacy Protection Authority.
Where the talent is
About 10.2 million people and an employed workforce of about 4.4 million, with unemployment at 3.0% in September 2026. Technology employs about 400,000 people, more than 11% of all employees, across software, cyber, semiconductors, AI, fintech and life sciences, and many global companies run their largest R&D centres outside headquarters here. Hebrew is the official language, but English is the working language of most technology companies. Israel Standard Time (UTC+2, UTC+3 in summer) overlaps most of the European day and 2 to 4 hours with the US East Coast, Monday to Thursday. The working week runs Sunday to Thursday. Reserve duty takes some employees out for weeks at a time, so plan cover and keep paying salary, which National Insurance reimburses.
| Region | Talent and industry concentration |
|---|---|
| Tel Aviv and Gush Dan | Software, fintech, cyber, startups and most multinational offices; Ramat Gan, Petah Tikva, Herzliya and Ra'anana |
| Haifa | Hardware, semiconductors and multinational R&D around the Technion |
| Jerusalem | Life sciences, automotive technology and university research |
| Be'er Sheva | Cyber cluster at the Advanced Technologies Park and Ben-Gurion University |
Israel Implementation Kit
This page tells you the rules. The kit tells you what to do, in what order, and what goes wrong when you skip a step.
- Step-by-step checklist, from route selection to first payroll by the 9th
- Pension, Section 14 and study fund set-up guide
- Employer cost worksheet: National Insurance bands, pension, recuperation and travel
- Written terms and Form 101 onboarding checklist
- Hearing (shimua) procedure and termination checklist, including permit cases
- Contractor and Manpower Contractors Law risk check
- Every official Israeli authority with direct links
This guide is general information, not legal, tax or immigration advice. Israel updates the minimum wage each April and National Insurance bands each January, extension orders change recuperation and other benefits, and emergency measures for reservists can change at short notice. Confirm current figures with a qualified adviser or with Dryft. Last reviewed November 2026.
Ready to hire in Israel?
Tell us who you want to hire and the package you have in mind. You will get a cost model and a compliant route within a day, from a person who has done this before.