Israeli Employment Law – Did you know? Annual Vacation Entitlement: Key Considerations for Employers as We Approach Year-End

As 2026 draws to a close, now is an opportune time for employers to review their annual vacation practices and accrued vacation liabilities and to prepare for the year ahead. It is also a good moment to remind employees, ahead of the upcoming holiday season (Christmas, Hanukkah or otherwise), of any applicable accrual caps and to encourage them to use their accrued vacation days before year-end.

Vacation management should be approached as an ongoing compliance matter rather than a once-a-year exercise. In recent years, it has become more complex due to changing work patterns (such as remote work) and special legislation adopted in light of the ongoing security situation. Because these rules continue to evolve, we recommend that employers actively monitor vacation balances and periodically review their policies to confirm they remain aligned with current legal requirements.

Below are several practical reminders for employers.

Vacation Is Intended to Be Taken

Under Israeli law, annual vacation is first and foremost a social entitlement intended to provide employees with an opportunity to rest and recuperate. As a general rule, employees may not redeem unused vacation days during employment, and redemption of vacation is generally permitted only upon termination of employment.

Did you know? Employers should actively encourage the utilisation of vacation.

Did you know? At a time when employee mental health and well-being are high on the agenda, taking regular vacation is one of the most effective tools for preventing burnout and supporting resilience. Encouraging employees to take time off, and making sure they actually do so, therefore offers real benefits for both employees and the organisation.

Minimum Vacation Entitlements

The Annual Vacation Law prescribes minimum vacation entitlements, which generally increase with an employee’s length of service. However, statutory entitlements are not always the end of the analysis. Many employees may be entitled to enhanced vacation quotas under collective agreements, extension orders, individual employment agreements, or company policies and practices.

Did you know? Employers should periodically verify that their vacation policies and payroll systems accurately reflect all applicable sources of entitlement.

Vacation Accrual Requires Active Management

Israeli law permits the carry-over of vacation days from one vacation (calendar) year to the next only with the consent of the employer and conditional upon the employee using a minimum of 7 vacation (calendar) days and carrying the remainder over the next two calendar years. Nevertheless, in Israel, as in many other jurisdictions, the analysis does not end with the written terms; the employer’s actual conduct is also taken into account. Where an employer in practice allows employees to accrue vacation days, even though such accrual is not permitted under the employment agreement or exceeds the cap it sets out, this practice may, depending on the circumstances, become binding on the employer.

Importantly, Israeli courts have also recognised that an employer’s passiveness, for example, consistently permitting the accumulation of vacation beyond the applicable framework without objection, may be construed as implied consent to such accrual, again depending on the circumstances of each case.

Did you know? To actively enforce vacation policies and thus avoid creating significant accrued liabilities over time, it is advisable to send employees regular reminders to use their vacation days, for example at the beginning of the year and ahead of the holiday seasons, the summer, or year-end.

Attention – Special Rules Relating to Reserve Duty Service

Employers should be particularly careful when reviewing vacation balances accumulated in recent years. Following the start of the war in October 2023 and the resulting large-scale call-up of military reservists, new provisions have been adopted affecting, among other things, the carry-over of annual vacation days of employees who served in the reserves, which under certain terms may be carried over for the following two years even where they would otherwise have been forfeited, so that employees do not lose vacation days they were unable to use due to their reserve duty service.

Did you know? Before implementing any “use it or lose it” approach, employers should review the accrual year of the relevant vacation days and consider whether special protections may apply.

Managing Vacation Liabilities

Many employers currently carry substantial accrued vacation liabilities on their books. These balances have grown in some workplaces due to operational demands, workforce shortages, reserve duty service, or employees postponing planned leave.

High vacation balances present both:

• a financial exposure for the employer; and
• a wellbeing and workforce management concern.

Did you know? Employers should conduct a year-end review of accrued balances and implement a structured plan to encourage the utilisation of excessive vacation accruals during 2027.

Key Takeaway

Year-end is an appropriate time for employers to:

• review vacation policies and accrual practices;
• assess potential vacation liabilities;
• verify compliance with statutory carry-over requirements

We Are Here to Support You

 Our Labour & Employment team regularly advises multinational and local employers on all aspects of Israeli employment law.

If you would like to discuss your organisation’s vacation practices or any other employment-related issue, please feel free to contact us at [email protected].

As the year draws to a close, we would like to thank you for your trust and cooperation throughout 2026. We look forward to continuing our partnership in the year ahead. We wish you and your teams a restful holiday season and a happy, healthy and successful 2027.

The Labour & Employment Department

Herzog, Fox & Neeman