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Employment in Israel

Understanding Israeli Salaries

Whether you have lived in Israel for a number of years, are considering aliyah or are packing up to make the big move, one of your biggest concerns is surely how to make a good living in Israel. Stanley Fisher, former President of the Bank of Israel, famously remarked that he couldn’t understand his own salary slips. Salaries in Israel are made up of a number of components and understanding them is key to analyzing your financial situation. 

Let’s clarify some of the basic terms that are used to describe the required and optional tax and social benefit obligations in Israel. 

Ø  Bruto – Gross salary. Generally the base salary that is offered to you in a contract.

Ø  Neto – The amount of money actually deposited in your bank account on a monthly basis, after deductions of income tax and other required payments are removed. Note that the Israeli standard is to be paid monthly, not bi-weekly or bi-monthly.

Ø  Mas Hachnasa – Income tax. Incurred at a graduated rate. Income tax is removed automatically from your salary, and in most cases, there is no need to file taxes at the end of the year. Income taxes are calculated on an annual basis, yet paid out on a monthly scale. We will dissect this area in a later post.

Ø  Bituach Leumi – National Insurance coverage. Often compared to US Social Security benefits, but they are actually very different. (I’ll compare these two institutions in a future article.)

Ø  Keren Pentzia – Pension fund deposit. This is a mandatory benefit requiring the employer to pay a minimum of 6.5% of the monthly bruto total and the employee to deposit a minimum of 6% of bruto. Each employee has the ability to choose the investment option they prefer. This will also be the subject of a later post.

Ø  Kupat Gemel – Mutual fund investment. Similar to a pension fund in structure and purpose, but not mandatory.

Ø  Bituach Menahalim – Pension for managerial positions and above. 

Ø  Keren Hishtalmut – Translated as a “Study Fund.” The initial purpose was for an employee to accumulate a base in order to apply for continuing education. In reality, it now acts as an additional, optional short term tax free savings vehicle. Some employers offer this as an added benefit, but it is not available across the board.

Ø  Ovdan kosher avodah – Additional, optional long term disability insurance. This perk is generally only offered in the hi-tech sphere.

When you are offered a job in Israel, you will be told what the bruto salary is and what additional benefits (if any) are provided. An employer will not be able to tell you what your neto take home pay will be, since this is based on many factors outside his control. You can get an idea of what your neto salary will be by using this calculator.

Got any more questions about how your neto salary is determined? Comment below and I will respond.

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