Employer's Full Cost Per Employee Significantly Higher Than Gross Salary

For every shekel an employee receives in net pay, their employer spends approximately 1.59 shekels, a figure that does not even include additional benefits like a company car. This calculation is based on an employee earning a gross salary of 18,000 shekels per month, resulting in a net pay of 13,621 shekels. The total cost to the employer for this employee is 21,725 shekels.

Of the 59% difference between gross and net, 3,749 shekels are allocated to the employee's pension and severance pay savings. Another 4,355 shekels go towards income tax and national insurance and health contributions. The employer also contributes 1,056 shekels to national insurance and health, 1,170 shekels to pension benefits, and 1,499 shekels for severance pay. These employer contributions are added on top of the gross salary.

An online tool can calculate these figures in reverse. Knowing the gross salary allows for the determination of both the net pay and the total employer cost. Conversely, knowing the total employer cost allows for the calculation of the maximum gross salary that can be offered during recruitment.

The default pension contributions, based on a mandatory expansion order, are 6.5% from the employer, 6% from the employee, and 8.33% for severance. Adjustments, such as a higher employer contribution to pension or the addition of a study fund, can alter the monthly cost by several hundred shekels. The number of tax credit points also significantly impacts net pay; a male Israeli resident typically receives 2.25 points, while women receive an additional half point. Parents with young children may qualify for more points.

Income tax deductions are influenced by these factors. In the example provided, the income tax deduction was 1,794 shekels, relatively low due to a 35% tax credit on employee pension contributions and the tax credit points. National insurance contributions have a reduced rate up to a monthly salary of 7,703 shekels, with a ceiling of 51,910 shekels. Salaries above this ceiling are exempt from additional national insurance payments, meaning the employer's cost per net shekel decreases for higher earners.