Israeli Employee Benefits
Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Israel might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labor contracts for employees in Israel, including local benefits.
When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. In Israel, benefits are guaranteed by national legislation as well as collective agreements with trade unions or workers’ councils.
Benefits and entitlements for employees in Israel are based on a framework of laws and regulations detailing minimum statutory allowances for specific aspects of employment. Individual contracts, collective bargaining and trade union agreements also come into play – and it is always the one which is most beneficial to the employee that applies.
Minimum guaranteed benefits, either from legislation or collective agreements, include such as:
- Minimum wages
- Paid vacations
- Working hours
- Termination, notice periods and severance
- Sick leave
- Maternity allowances and benefits
The responsibilities of foreign companies reach further than simply complying with tax, social security, and payroll regulations, however. Failure to comply with specific regulations applying to benefits and entitlements runs the risk of fines and sanctions. It is vital that employers have a firm grasp of what is guaranteed for their employees, as this will affect the employer-employee relationship
What Compensation Laws exist in Israel?
The employer-employee relationship in Israel is based on contracts (which do not necessarily have to be in writing), collective and trade union agreements. Underpinning these is a framework of statutory and mandatory legislation.
Individual laws include such areas as Minimum Wages, Equal Pay for Men and Women, Hours of Work and Rest, Sick Leave, Women in Employment, Dismissal and Resignation, Severance Pay, Protection of Privacy, Equal Opportunities and Annual Leave.
Incoming foreign companies hiring employees in Israel must meet their obligations to employees regarding benefits. The ‘highest minimum’ always applies – whether from contracts, legislation, or collective agreements.
Therefore, the requirement for employers to respect employees’ rights stretches further than simply complying with tax and payroll procedures.
Drawing up contracts is tricky enough, but in Israel as elsewhere it is vital for employers to be up to speed with responsibilities to their staff over benefits, compensation, and minimum requirements. Do not take the risk of paying penalties for ignoring these responsibilities.
Compensation, entitlements, and benefits include:
- National Minimum Wage: The minimum for 2021 is ILS 5,300 (€1,497, US$1,680) per month or an hourly rate of ILS 29 (€8.20, US$9.20), with planned increases until 2025. In 2022 the monthly minimum is set for of ILS 5,400 (€1,525, US$1,713) rising to ILS 6,000 (€1,696, US$1,903) by December 2025.
- Sickness Benefit: Employees absent from work due to illness are entitled to sickness benefit at the rate of 50% of their pay for the second and third day of incapacity and 100% thereafter, subject to presenting a doctor’s medical certificate. Leave entitlement equates to a day-and-a-half for each month worked in a year. If contracts or collective agreements in their sector provide for better allowances, they apply. Individuals can accrue a maximum 90 days paid sick leave over five years, paid partly by the employer and from the social security contributions.
- Working Hours and Breaks: A regular 42-hour five-day working week comprises four 8.6-hour days and one at 7.6 hours. Employees on a six-day week work four days at eight hours, one seven-hour day and three hours on a Friday. Approved collective agreements can allow four nine-hour days (including a 45-minute break) and one eight-hour day; but they cannot exceed 10 hours per day, including breaks, or 45 a week. The Hours of Work and Rest Law stipulates that after six hours’ work there should be an unpaid meal break of 45 minutes including at least 30 minutes unbroken rest. Employees may take time to pray in accordance with religious requirements. In a break of more than 30 minutes an employee may leave the place of work. Daily rest must be at least eight hours between workdays; weekly rest is generally not less than 36 continuous hours. If certain employment conditions, make this untenable then continuous rest must not be less than 25 hours.
- Overtime: Employees receive 125% of their normal hourly rate for working the first two extra hours and 150% after that. Working on a Saturday or holiday entitles employees to 150% of the usual hourly rate plus a vacation day.
- Termination: The Notice of Discharge and Resignation Law requires both parties to give notice of dismissal or resignation. All employers and employees are subject to the laws on termination, which is permitted on reasonable grounds, excluding discrimination, if correct procedures are followed. Terminations are restricted or prohibited in some situations: Pregnant women (after six months employment); women within the first 60 days after returning to work following maternity leave; employees on fertility treatment, or individuals on maternity or paternity leave. In these cases, dismissal is permitted only with permission from the Ministry of Economy.
- Severance: The Advance Notice for Dismissal and Resignation Law (2001) sets statutory severance of one months’ salary for each year of service, after working for at least 12 months. A substantial portion is generally covered by employers’ monthly contributions of 8.33% of the employee’s salary towards the severance portion of the insurance or provident fund. Where an employee does not receive his full entitlement or none from their employer, the balance is made up by the National Insurance Institute.
- Notice Periods: One day for each month during the first six months of employment, with additional 2.5 days for subsequent months up to completing one year’s service. Full-time employees are entitled to a minimum 30 days’ notice after completing one year, which is usually included in employment contracts. Payment in lieu of notices or equivalent salary is permitted, as is gardening leave on full salary and benefits.
Social Security in Israel
Israel’s social security benefits for employees are funded by contributions from employers and workers, with further additions by the government in some categories. National Insurance Institute contributions cover old age and survivors, long term care, disability, accident and work injury, maternity, childcare and unemployment. All employees over 18 years old must contribute, including foreigners, and be registered with one of four health funds. Different contribution rates apply according to income. Employers must withhold employees’ contributions and remit them to the National Insurance Institute (NII).
Deductions apply to both employers and employees. Resident employees contribute 0.4% of their income up to ILS 6,331 (€1,756, US$1,988) per month and 7% above that up to a maximum of ILS 44,020 (€12,215, US$13,826).
Employers contribute 3.55% and 7.6% of the resident employee’s salary within the same monthly income limits. Non-resident employees contribute 0.04% and 0.87% in the same income parameters and employers of non-resident employees contribute 0.59% and 2.65%.
Statutory Employer Costs in Israel
- Corporate Income Tax (CIT): Employers face the statutory liability of Corporate Tax at the rate of 23%, applying to companies incorporated in Israel and foreign companies with a presence in the country. Resident entities are liable for taxation on their worldwide income, with non-resident companies liable only on their Israel-sourced income. There are no local taxes on corporate income.
- National Minimum Wage: Employers must comply with the statutory requirement of paying minimum wages to their employees. The minimum an employee can be paid in 2021 is ILS 5,300 (€1,497, US$1,680) per month or an hourly rate of ILS 29 (€8.20, US$9.20), with planned increments until 2025.
In November 2021, the Finance Ministry, Bank of Israel, Israel’s national trade union, (Histadrut) and the Manufacturers’ Association announced a monthly minimum of ILS 5,400 (€1,525, US$1,713) for 2022 rising to ILS 6,000 (€1,696, US$1,903) by December 2025.