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Israeli Labor Law Changes for 2026
As we enter 2026, Israeli employers must navigate significant regulatory shifts affecting payroll, reserve duty benefits, minimum wage, and employee protections. These Israeli Labor Law Changes for 2026 include both the expiration of temporary wartime measures and new tax benefits for combat reservists. Whether you operate as an international company through an Employer of Record (EOR) or manage Israeli employees directly, understanding these changes is critical to maintaining compliance and avoiding costly penalties.
This comprehensive guide breaks down six major regulatory updates that take effect in 2026, with actionable steps to ensure your organization remains compliant with Israeli employment law.
What Happened to the Mandatory Recuperation Pay Reduction in 2026?
The temporary legislation requiring employers to reduce recuperation pay (דמי הבראה) applied exclusively to the 2025 tax year. As of January 1, 2026, there is no legal obligation to reduce recuperation pay, and employers must return to standard recuperation pay arrangements as defined in collective agreements or employment contracts.
Action Required: Ensure your payroll system has reverted to full recuperation pay calculations for 2026. If reductions were manually configured for 2025, remove these adjustments immediately.
Which Reserve Duty Benefits for Employers Have Expired in 2026?
Israel’s temporary wartime support measures for employers with reservist employees have concluded. Here are the four critical changes affecting reserve duty compensation and protections:
Did the 20% Social Contributions Compensation End?
Yes. The National Insurance Institute (Bituach Leumi) regulations that provided employers with 20% compensation for social contributions paid during employee reserve duty service have expired. Starting January 2026, employers will no longer receive this supplemental reimbursement for social security payments made while employees serve in the reserves.
Financial Impact: Employers should recalculate the true cost of reserve duty service for budget planning purposes, as this benefit reduction increases the net expense of maintaining employees during reserve service.
Is Extended Leave for Spouses of Reservists Still Available in 2026?
No. The temporary entitlement to unpaid leave for spouses of reserve duty soldiers is not in effect for 2026. Employers are no longer obligated to provide this additional leave protection.
How Long Are Returning Reservists Protected from Dismissal in 2026?
The protected period during which an employee returning from reserve duty cannot be dismissed returns to 30 days, down from the 60-day protection period established under the temporary wartime order.
Compliance Note: Employers must still provide legitimate business reasons for any dismissal occurring after the 30-day protection period expires, as standard Israeli labor law protections continue to apply.
Do Accumulated Reservist Vacation Days Expire?
Yes, with a deadline. Reservists who accumulated vacation days under the temporary order (which allowed accumulation of up to two years in advance) must use these days by the end of 2027. After December 31, 2027, employers have the right to cancel unused accumulated vacation days.
Action Required:
- Audit accumulated vacation balances for all reservist employees
- Implement a tracking system to ensure vacation is taken before the 2027 deadline
- Communicate the deadline clearly to affected employees in Q1 2026
When Does the Minimum Wage Increase Take Effect in Israel?
Starting April 1, 2026, Israel’s minimum wage will increase to:
- ₪6,443.85 per month for full-time employment (186 hours)
- ₪35.40 per hour for hourly workers
This represents the standard annual adjustment linked to inflation and average wage growth in the Israeli economy.
Action Required:
- Update payroll systems before April 1, 2026
- Review all employment contracts for workers at or near minimum wage
- Adjust wage scales to maintain internal equity
- Budget for increased salary expenses starting Q2 2026
What Is the New Average National Wage Ceiling for Social Contributions?
The average wage in the Israeli economy has risen to ₪13,769 for 2026. This figure determines the maximum monthly salary on which social contributions (National Insurance and Health Tax) are calculated.
How Do I Update the Average Wage Ceiling in My Payroll System?
Immediate Action Required for January 2026 Payroll:
- Access your payroll software’s contribution ceiling settings
- Verify the ceiling has automatically updated to ₪13,769
- If the ceiling was set manually, change it from manual to automatic definition to ensure future updates apply correctly
- Run a test payroll calculation for high-earning employees to verify correct contribution calculations
Risk of Non-Compliance: Failing to update this ceiling results in under-payment of social contributions, which can trigger penalties and retroactive payment requirements from the National Insurance Institute.
What Are the New Tax Credit Points for Combat Reservists in 2026?
A significant new benefit has been introduced: tax credit points for reserve duty soldiers serving in combat roles. This benefit recognizes the substantial time commitment and personal sacrifice of combat reservists during the ongoing security situation.
How Do Employees Claim Combat Reservist Tax Credits?
The new entitlement appears in Form 101, Section 16 (the employee tax withholding certificate). Employees must:
- Calculate their service days from the previous tax year
- Obtain official confirmation from the IDF regarding eligibility for combat service
- Submit updated Form 101 with the completed Section 16 to their employer
What Is the Tax Credit Point Scale Based on Service Days?
Credit points are awarded based on total days of reserve duty service in combat roles during the previous tax year:
| Service Days | Credit Points Awarded |
|---|---|
| 30-39 days | 0.5 credit points |
| 40-49 days | 0.75 credit points |
| 50-59 days | 1.0 credit point |
| 60+ days | 1.0 + 0.25 points for every additional 5 days |
Maximum Benefit: Up to 4 total credit points (equivalent to significant monthly tax savings)
Employer Responsibility:
- Inform all employees about this new benefit
- Process updated Form 101 submissions promptly
- Update payroll tax withholding calculations when supporting documentation is provided
- Maintain copies of IDF confirmation letters for audit purposes
What Do Recent Court Rulings Say About Advance Notice and Loss of Trust?
Two significant Israeli Labor Court decisions in late 2025 have strengthened employers’ rights to withhold wages during advance notice periods when serious misconduct or loss of trust occurs.
Can Employers Withhold Advance Notice Pay When Theft Is Suspected?
Yes, according to the Regional Labor Court. In Case 54613-11-19 (Zanzuri v. Rubin), the court ruled that when there is reasonable suspicion of theft from the employer (such as from a cash register), the employer may legally prevent the employee from working during the advance notice period without paying wages for that period.
Key Principle: The ruling recognizes that requiring an employee suspected of theft to continue working with access to company assets creates an unreasonable risk for employers.
When Else Can Employers Avoid Paying Advance Notice Wages?
The National Labor Court expanded this principle in Appeal 34003-02-25 (Eli.B Maintenance Services v. Ibragimov), ruling that when an employee is prevented from performing the specific work for which they were hired (due to loss of trust, safety concerns, or other legitimate business reasons), the employer has the option not to pay wages for advance notice period days.
Practical Application: This ruling provides flexibility for employers in situations where:
- Security clearances are revoked
- Professional licenses are suspended
- Customer relationships are irreparably damaged
- Trade secret protection is required
Important Limitation: Employers must document the specific circumstances that justify withholding advance notice pay and be prepared to demonstrate that continued employment during the notice period was genuinely impractical.
Contact CWS Israel today to discuss how we can help you navigate these regulatory changes and maintain seamless Israeli employment operations.
Last updated: January 2026. This guide reflects Israeli labor law as of the publication date. Regulations may change. Consult with legal counsel for specific situations.
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