In Israel, any payment beyond the employee’s base salary — such as bonuses, commissions, and allowances — is generally considered taxable income and therefore subject to employer obligations. These include contributions to National Insurance (Bituach Leumi), pension, and other mandatory benefits. However, some exceptions apply depending on the nature of the payment. Here’s what employers (and especially global companies using EOR services) need to know:
1. National Insurance (Bituach Leumi) & Health Tax
Bonuses, commissions, and fixed allowances are subject to National Insurance contributions at the same rate as regular salary:
| Income Bracket (ILS) | Employee’s Contribution | Employer’s Contribution |
| Up to 7,522 ILS | 4.27% | 4.51% |
| Above 7,522 ILS (up to 50,695) | 12.16% | 7.6% |
Important Notes:
- Bonuses and commissions are subject to full social deductions, even when paid quarterly or annually.
- If the total salary (including bonuses) exceeds the monthly cap of 50,695 ILS, no additional National Insurance is required for the excess amount.
- Employers sometimes split large one-time bonuses across months to optimise contributions.
2. Pension Contributions
By default, bonuses and commissions are pensionable, unless excluded by contract.
| Component | Employer’s Contribution | Employee’s Contribution | Total |
| Pension Fund | 6.5% | 6% | 12.5% |
| Severance (Pitzuyim) | 8.33% | 0% | 8.33% |
| Total | 14.83% | 6% | 20.83% |
Exceptions:
- One-time performance bonuses may be excluded if stated in the employment agreement.
- Reimbursed allowances (travel, meals) are not pensionable.
- If bonuses are paid in lieu of salary, they are treated as regular wages for pension.
3. Severance Pay (Pitzuyim)
Severance contributions (8.33% of pensionable pay) usually apply to bonuses and commissions unless:
- The bonus is non-recurring and clearly defined as such.
- The employment contract excludes it from severance calculations.
4. Taxation of Additional Pay
All bonuses, commissions, and allowances are subject to income tax:
- Israel has a progressive tax system, so a large one-time bonus could temporarily push an employee into a higher tax bracket.
- Employers may opt to split large bonuses over two or more months to reduce the immediate tax burden.
5. Special Considerations for EOR Employees
For Employer of Record (EOR) employees in Israel, all additional pay is treated like salary:
- Fully taxable and pensionable, unless contractually excluded.
- Expense reimbursements (can not be tied to direct EOR business expenses) are taxable and should not be paid as allowances.
- CWS Israel recommends using a corporate card or the CWS debit card for reimbursable expenses to ensure compliance.
Summary Table
| Type of Payment | National Insurance? | Pension? | Severance Pay? | Employer Action |
| Bonuses | Yes | Yes* | Yes* | Prorate if needed |
| Commissions | Yes | Yes | Yes | Include in salary |
| Fixed Allowances | Yes | No** | No | Define structure |
| One-time Payments | Yes | Yes* | No** | Consider splitting |
| EOR Reimbursements | Yes (taxable) | No | No | Use corporate card |
*– Unless explicitly excluded in the employment agreement
**– Only if reimbursement; if paid as regular income, then pension/severance apply
Final Recommendations for Employers
- Always treat additional pay as salary unless explicitly excluded.
- Structure agreements clearly to define recurring vs. one-off payments.
- Budget for full employer costs when awarding bonuses or incentives.
- For EOR arrangements, avoid reimbursements and provide company cards when possible.
- Consult a local payroll advisor for structuring high-value incentives tax-efficiently.
