# Israeli Labor Law Summary This reference covers the key Israeli labor laws and regulations that govern employment contracts. Use this when verifying statutory requirements or resolving disputes about employee entitlements. ## Core Employment Laws ### Severance Pay Law (Chok Pitzuyei Pitoorim), 1963 - **Entitlement:** Employee who completed at least 1 year of employment and was dismissed is entitled to severance pay - **Calculation:** Last monthly salary multiplied by years of employment - **Resignation:** Generally no severance upon resignation, with exceptions (relocation, health, employer breach) - **Section 14:** A payment to a pension/provident fund does NOT replace severance unless a collective agreement so provides or the Minister of Labour approved it (in practice, the General Authorization, י"פ תשנ"ח 4394). The 8.33% figure comes from that Authorization, not from Section 14. Requires: - Written agreement with employee - Contributions to qualifying pension fund or insurance policy - General approval from the Minister of Labor (published in 1998) - Once activated, employer is exempt from additional severance calculation - **Partial year:** Pro-rata calculation for employment exceeding full years - **Payment deadline:** Within 15 days of termination (or date entitlement is established) ### Annual Leave Law (Chok Chofsha Shnatit), 1951 - **Minimum days** (for 5-day work week): - Years 1-4: 12 days - Year 5: 16 days - Year 6: 18 days - Year 7+: 21 days - **Accrual:** From the first day of employment - **Redemption:** Unused leave can be redeemed only upon termination; employer cannot force monetary redemption during employment (except days exceeding 7-day minimum balance) - **Scheduling:** Employer sets vacation dates, but must allow at least 7 consecutive days once per year if employee requests - **Part-time:** Pro-rata based on work days per week ### Sick Pay Law (Chok Dmei Machala), 1976 - **Accrual:** 1.5 days per month of employment (18 days per year) - **Maximum accumulation:** 90 days - **Payment tiers:** - Day 1: No pay - Days 2-3: 50% of daily wage - Day 4 onward: 100% of daily wage - **Medical certificate:** Required; employer may specify from which day - **Pregnancy/birth:** Separate provisions under Employment of Women Law - **Family member illness:** Employee may use up to 6 sick days per year for child illness (up to 16-year-old child), 6 days for parent illness ### Hours of Work and Rest Law (Chok She'ot Avoda U'Menucha), 1951 - **Standard work week:** 42 hours (reduced from 43 via the collective labor agreement extended in April 2018; further transition-order step) - **Standard work day (5-day week):** 8.4 hours per day - **Standard work day (6-day week):** 8 hours per day - **Overtime pay:** - First 2 overtime hours: 125% of regular hourly rate - Each additional hour: 150% of regular hourly rate - **Daily maximum:** 12 hours (including overtime) - **Weekly rest:** Minimum 36 consecutive hours; for Jewish employees, includes Shabbat (Saturday) - **Night work:** 7-hour day for night shifts (21:00 - 06:00) - **Exemptions:** Certain management/trust positions may be exempt, but exemption is narrowly interpreted by courts ### Notice to Employee and Job Candidate (Employment Conditions and Screening and Hiring Procedures) Law, 5762-2002 (Chok Hodaa LeOved VeLeMuamad LaAvoda) Originally enacted as the Notification to Employee Law; the title was expanded by amendment to cover job candidates and screening and hiring procedures. Commonly still referred to as "Chok Hodaa LeOved". - **Written notice required:** Employer must provide written details of employment terms within 30 days of start - **Required information:** - Identity of employer and employee - Start date - Job description and main duties - Name/title of direct supervisor - Total salary and breakdown of components - Work day/week length - Rest day - All social benefits (pension, education fund, etc.) - **Changes:** Any change in terms must be notified in writing within 30 days - **Penalty:** Failure to provide notification creates a rebuttable presumption in favor of the employee in disputes ### Protection of Wages Law (Chok Haganat HaSachar), 1958 - **Payment deadline:** Salary must be paid by the 9th of the following month - **Late payment:** Employer owes linkage differentials and interest on late payments - **Payslip:** Employer must provide detailed monthly payslip including: - Gross salary components - All deductions (tax, social insurance, pension, etc.) - Net payment - Overtime hours and payment - Leave balances - **Prohibited deductions:** Employer may not deduct from wages except as authorized by law or written employee consent - **Wage lien:** Employee wages have priority in employer bankruptcy proceedings ### Minimum Wage Law (Chok Schar Minimum), 1987 - **Monthly minimum:** Updated every April by government order. As of 1 April 2026: NIS 6,443.85/month full-time, NIS 35.40/hour. Set at no less than 47.5% of the national average wage. Verify the current rate annually - **Hourly minimum:** Monthly minimum divided by 182 hours (for full-time) - **Youth rates:** Different rates apply for employees under 18 - **Part-time:** Hourly rate applies; monthly minimum is pro-rata - **Enforcement:** Employer paying below minimum wage faces criminal penalties and civil liability ## Extension Orders (Tzav Harchava) Extension orders are issued by the Minister of Economy (formerly Labor) and extend collective bargaining agreements to all employers and employees in a sector or nationwide. ### Comprehensive Pension Extension Order (2008) The most significant extension order in Israeli labor law: - **Mandatory pension:** All employees are entitled to pension insurance - **New employees (no prior pension):** Pension begins after 6 months of employment - **Employees with prior pension:** Pension begins from day 1 (or after 3 months per the specific arrangement) - **Contribution rates (current):** - Employer: 6.5% of salary (pension) + up to 8.33% (severance component) - Employee: 6% of salary - **Fund choice:** Employee has the right to choose their pension fund - **Employer must deposit:** Within 7 days of salary payment ### Convalescence Pay Extension Order (Dmei Havra'a) - **Entitlement:** All employees after 1 year of employment - **Days per seniority:** - Year 1: 5 days - Years 2-3: 6 days - Years 4-10: 7 days - Years 11-15: 8 days - Years 16-19: 9 days - Year 20+: 10 days - **Daily rate:** Updated by extension order. The private-sector rate for havra'a year 2026 (1.7.2025 to 30.6.2026) is NIS 451.5/day, raised from NIS 418 by the extension order published 18 August 2026. An employer who paid at 418 owes NIS 33.50 per havra'a day. - **Payment timing:** Typically June-July as annual lump sum - **Calculation:** Days x daily rate (no additional tax withholding beyond regular income tax) ### Travel Allowance Extension Order - **Coverage:** Reimbursement for commuting expenses - **Tax-exempt ceiling:** Published annually by Tax Authority - **Calculation:** Based on public transport cost or per-kilometer rate for drivers - **Common practice:** Many employers provide fixed monthly travel allowance up to the tax-exempt ceiling ## Key Case Law ### Non-Compete (Haskamot Ee Tcharut) **Check Point (National Labor Court, ע"ע 164/99, Frumer and Check Point Software Technologies v. Radguard)** and subsequent rulings established that non-compete clauses are enforceable only when: 1. Employer has a legitimate protectable interest (genuine trade secrets, not general skills) 2. Restriction is reasonable in scope, geography, and time 3. Employee received special consideration beyond standard compensation 4. Restriction does not disproportionately harm the employee's livelihood **Practical impact:** - Courts rarely enforce non-compete beyond 6-12 months - Israel-wide restrictions are disfavored - Global restrictions are almost never enforced - Confidentiality clauses are far more enforceable than non-compete ### Employee vs. Contractor Classification Israeli courts use a multi-factor test focusing on: - **Integration test (Mivchan HaHishtalvut):** Is the worker integrated into the employer's business? - **Control:** Does the employer control how, when, and where work is done? - **Tools/equipment:** Whose equipment does the worker use? - **Exclusivity:** Does the worker serve multiple clients? - **Economic reality:** Is the worker economically dependent on this engagement? - **Duration:** Long-term, continuous engagement suggests employment **Consequence of misclassification:** Retroactive payment of all employment benefits (pension, leave, severance, sick days, convalescence, overtime) plus penalties. ## Intellectual Property in Employment ### Patent Law, Section 132 (Service Inventions) - Inventions created by employees in the course of their duties belong to the employer - Employee may be entitled to compensation if the invention has "special value" beyond what the salary covers - Disputes resolved by a Patents Compensation Committee - Employment contract should address: assignment scope, disclosure obligations, compensation terms ### Copyright Law, 2007 (Section 34) - Works created by an employee in the course of employment belong to the employer (unless otherwise agreed) - Applies to software, documentation, designs, and other copyrightable works - Independent contractors retain copyright unless explicitly assigned in the contract ## Tax Treatment of Employee Pension Contributions ### Section 45a of the Income Tax Ordinance (Zikui Pensiyoni) When a contract sets the employee pension contribution at 6% of salary (the mandatory floor), the employee is entitled to a 35% income-tax credit on that contribution under Section 45a of the Income Tax Ordinance. This credit is part of the monthly payroll calculation and reduces the employee's tax liability, making the net cost of pension contributions significantly lower than the gross 6%. Key conditions (2026): - Employee pension contribution must not exceed 7% of salary for the credit to apply to the full amount - Annual contribution ceiling for the full credit: approximately NIS 8,148 (Section 45a ceiling, updated annually) - The credit is automatic for salaried employees whose payroll deducts pension contributions - Appears on the payslip (tlush maskoret) and on Form 106 at year-end Why this matters for contracts: - When quoting the employee's 6% pension deduction as a net-pay impact, the 35% Section 45a credit partially offsets it (a 6% gross deduction has a smaller net cost) - If the contract allows a higher-than-6% employee contribution, verify that the salary falls under the annual ceiling to preserve the full credit - Payroll systems must apply the credit monthly; if a payslip omits it, the employee is entitled to a retroactive refund Source: Income Tax Ordinance, Section 45a (). ## Regulatory Bodies - **Ministry of Economy and Industry (Misrad HaKalkala):** Sets minimum wage, publishes extension orders, labor inspection - **National Insurance Institute (Bituach Leumi):** Social insurance, work injury, maternity, unemployment - **Tax Authority (Rashut HaMisim / Mas Hachnasa):** Income tax withholding, employer reporting (Forms 101, 102, 126) - **Labor Courts (Beit Din LaAvoda):** Exclusive jurisdiction for employment disputes - **Pension Supervisor (Memune Al Shuk HaHon):** Regulates pension funds, education funds