Do you have employees to pay in Israel? our experts in Tel Aviv, Gilad Levi and Monika Harel explain five key aspects of local legislation that you'll need to factor in to your payroll processing.
1. Overtime payments
Work performed on Israel's days of rest (Shabbat ie. Saturday, and on national holidays) sees employee overtime remuneration calculated within the regular salary (base salary prior to added work on rest days) as follows.
- For the first two additional hours:
The employees' salary for each of the first two additional hours will be 175% of their regular salary. That is, an additional 50% of regular salary applies for his/her work on the day of rest, plus 25% of regular salary for his/her work in overtime hours.
- For each hour over the first two overtime hours:
The employees' salary for each of these additional hours will be 200% of his/her regular salary. That is, an additional 50% of his/her regular salary for his/her work on the day of rest plus 50% of his/her regular salary for his/her work in overtime hours.
2. Recuperation pay
Staff employed for more than one year with the same employer in Israel are entitled to an annual payment for convalescence (or recuperation), the rate of which is updated from time to time, and the quota of which is dependent upon the employees' period of service.
3. Educational fund
Historically a savings fund with which Israeli employees could finance further education such as professional conferences and work-related programs; today it is used for the most part as a general savings channel for the medium term.
4. Army reserve duty
An absence due to Israeli Army reserve duty sees the employee entitled to compensation pay from social security. Payroll departments are required to receive an absence certificate from the employee, complete and submit a request to social security and make the complex calculation for payroll.
5. Severance payments and employee termination
Since 2008 it has been compulsory for employees in Israel to be registered for pension insurance, which is funded through payments made by both employer and employee. In addition to this, the employer must allocate a specific amount to a severance pay ("pitzuyim") fund for each employee.
In 2015 the total allocation amount for these schemes is 17.5%, of which 5.5% is paid by the employee and the remainder (12%) is paid by the employer.
- 6% of the employer's contribution is allocated to the employee pension payment and the other half to the employee's severance pay fund.
- While the employer can choose to make the maximum contribution for severance payment - 8.33 % - the percentage usually depends on the employees' pension plan and whether the employer approves the higher contribution.
Employees in Israel are usually terminated under one of two scenarios: voluntary leave or dismissal. In each case, the employer must check if the employee has a section 14, and the severance payment will be calculated accordingly.
- Where the employee doesn't have a section 14 and was dismissed after working more than a year, the employer must pay an additional amount for severance purposes excluding the amount already accumulated in the employee's pension plan (the pension plan is always released to the employee).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.