Like many other countries with social-democratic characteristics, Israel enforces a national retirement plan, colloquially referred to as PENSION. Generally speaking, each employee in Israel is obliged by law to maintain a Pension fund. Seeing as most Israelis are wage-earners rather than self-employed, the Israeli Legislative and Executive branches of government found it efficient to regulate and enforce the Pension funds through Labor and Employment Laws.
Since the enactment of the Extension Order for Economic Comprehensive Pension Insurance Order of 2008, every employee is guaranteed a monthly sum allowed for his/her retirement fund. The allowance is financed by two sources: the employee him/her self, which contributes 5.5% of his/her own salary; and the employer who has to allow a 6% of the employee’s salary at the employer’s expense.
Seeing that this is a fundamental part of Israeli citizens’ social security, compliance with it is strictly enforced. Employers failing to comply with the Order, as well as with other legislative and executive acts regarding social security and benefits, may face criminal charges and harsh fines. Thus, close attention to changes in this kind of regulation is advisable, especially when drafting employment contracts.
Recently, the above-mentioned Extension Order was updated, expanding upon the compulsory allowance to the Pension fund and increasing it to 5.75% on the employee’s expense and to 6.25% on the employer’s expense. This is planned to be further expanded by July 2017, to 6% and 6.5% respectively.
These changes need to be addressed by companies planning to conduct business in Israel. At Dardik, Gross and Co. we take pride in providing our clients with all-encompassing commercial legal services, including social securities and benefits legislation. The latest expansion to the Extension Order for Economic Comprehensive Pension Insurance Order is available (albeit in Hebrew) here.