Guest Contributor: Daniel Rushfield
Israel offers a wide range of professional opportunities in both the private and public sectors. Whether you’ve already found a job or are still seeking, it’s important to understand the basic components of both salary and the benefits that are customary in Israel.
In general, when attempting to determine a reasonable starting salary for a position, bear in mind that despite your experience from abroad, you will have to prove yourself to your new employer. For this reason, most new immigrants take a step backward in professional responsibility when they begin to work in Israel. The Hilan Tax Survey (in Hebrew) is a useful tool for figuring the exact amount of tax on a certain salary.
Tlush Maskoret (Monthly Pay Slip)
In Israel, employees are paid monthly, as opposed to the practice in the U.S. of receiving payment weekly or bimonthly.
A monthly pay slip in Israel is usually more detailed than that which you received abroad. The salary slip is generally divided into two parts: gross pay you received and deductions from pay. Gross pay less deductions equals net salary received. The following is a brief summary of potential data on a salary slip (not every employer pays all of the categories of gross pay):
|Gross pay||(Sechar Basis)||Everyone gets this|
|Overtime pay||(Sha’ot Nosafot)||Hours multiplied by hourly overtime rate. In many cases, global overtime exists, whereby the employee is paid automatically paid for a certain number of overtime hours, whether he/she worked them or not.|
|Experience Premium||(Vetek)||Addition of 1% per year of experience|
|Month 13 Salary||(Maskoret Shelosh Esray)||Since there are 52 weeks per year, but only 12 months, some employers pay a 13th month salary|
|Vacation Pay||(Tashlum Chufsha)||By law, employees are entitled to a salary addition for at least one week of vacation. This payment is over 1,000 shekels and depending upon the employer’s generosity, can reach at least 5 times this amount. The amount is either paid in full at the beginning of the summer or divided into 12 monthly payments.|
|Public Transportation Allowance||(Tachbura Tziborit)||Covers the cost of traveling to work by public transportation. By law, a public transportation allowance must be paid unless this cost is expressly dealt with in the framework of base salary, or in the form of a car allowance. |
Car Allowance (Tashlum Rechev)* Allocation per kilometer multiplied by cost of operating vehicle per kilometer traveled. When car allowances are granted, often there are additional payments for car insurance and auto license fees.
|Income Tax||(Mas Hachnasa)||The more you earn, the more you pay (see table below)|
|National Insurance||(Bituach Leumi)||About 5% of gross pay. Insurance for unemployment, disability, retirement.|
|Health Insurance||(Bituach Briut Mamlachti)||About 5% of gross pay. Insurance for doctors visits and operations, including childbirth.|
|Pension **||(Pensia)||About 7% of worker’s base salary (the employer voluntarily contributes at least this much as well). Provides for monthly pension upon retirement.|
|Kupat Gemel***||5% of worker salary (the employer contributes too). Sometimes paid on non-base salary as an addition to pension, and sometimes on whole salary. Funds a one-time lump sum payment upon retirement.|
|Manager Insurance (generic term – not limited to managers)***||(Bituach Menahalim)||5% of worker salary (the employer contributes too). Generally paid on base salary only. Until 2008 it provided the option of a retiree receiving either a one-time lump sum payment or a monthly payment upon retirement, plus disability insurance. As of 2008, the government instituted new regulations which eliminated the lump sum payment option.|
|Keren Hishtalmut***||2.5% of worker salary (the employer contributes 5% or 7.5%). Generally paid on base salary only. Funds a one-time payment every 6 years, which may in theory be for education, but in practice may be used for whatever purpose the worker chooses.|
|Union Fee||1% of base salary, when a union exists.|
* Some employers offer company cars in place of car allowances. The value of these cars, as fixed for the Income Tax Authority, is a taxable benefit, even though no money is given with these cars. Accepting a company car reduces net salary, but it saves the employee various costs of running a car, such as depreciation, gas, repairs and insurance costs.
** As of 2009, by law employers must offer a pension plan, although during the initial years of the law the amounts which the employer must set aside are low compared to employers who voluntarily pay pension plans.
*** These deductions are considered optional worker benefits. Some employers give them to all workers, some employers give them to some workers and not others, and unfortunately, some places of employment won’t offer them at all.
Given that money set aside for pension and manager insurance is usually paid only on base salary, it is important to structure your salary so that your base salary represents a high proportion of total salary.
One benefit that all workers are entitled to without deduction from pay is Pitzuim (separation pay). The employer contributes out of his pocket 8.3% of the base salary (one month per year), which is paid to the employee if he is laid off and sometimes if he resigns, as well.
As in your country of origin, income tax in Israel is calculated according to marginal tax rates and deductions from tax owed. The following is a table of marginal tax rates for 2010:
|Monthly Salary in Shekels||Marginal Tax Rate|
|The first 5,280||10%|
|5,281 to 9,010 (the next 3,730)||14%|
|9,111 to 14,200 (the next 5,190)||21%|
|14,201 to 20,290 (the next 6,090)||31%|
|20,291 to 42,430 (the next 22,140)||34%|
|42,431 to 66,666 (the next 24,236)||48%|
The primary deduction from tax is tax credit points. Each point is worth 216 Shekels. Tax credit points are allocated as follows:
|Male Resident of Israel – unmarried or married||2.25|
|Working woman without children||2.75|
|New immigrants||3 extra points in the first 18 months in Israel; 2 points in the next 12 months; 1 point in the next 12 months.|
|Working woman with children||2.75 points plus two extra points per child who in the tax year is between age 1 and 5, and one extra point per child between age 6 to 17, 1/2 point per child up to age 1, and 1/2 point per child the year he/she turns 18|
|Working man with children*||2.25 points plus one extra point for a child up to age 1, two extra points for a child aged 1 or 2, and one extra point for a child age 3|
*Following the social protests of 2011, and the recommendations of the Trachtenberg Committee which followed, tax points for working women and men with children under the age of 17 were increased to the levels appearing above.
The following is a short, simplified example of a pay slip for a married man who is a new immigrant:
|Income Tax (based upon marginal tax rates and 3 extra tax credit points)||124|
|Keren Hishtalmut||(2.5%) 225|
|Kupat Gemel||(5%) 450|
- Total Salary versus Net Salary: Some employers will make you an offer of Total Salary, which is prior to total deductions, and others will cite a Net Salary figure, which is after total deductions. Recommendation: Since the size of deductions for Pension, Kupat Gemel, Manager Insurance and Keren Hishtalmut are related to gross salary, have the employer cite you offers for both Total Salary and Net Salary.
- Optional worker benefits: Some employers will start putting aside money for Pension, Kupat Gemel, Manager Insurance and Keren Hishtalmut (2.5-5%) from the beginning of your employment, others will start them only after completion of a trial period, and others will not offer them at all. Recommendation: Since employer payments can amount to over 10% of total salary, be sure to understand whether they are included and under what conditions.
- Vacation and Sick Leave: By law, your employer is obligated to give you 10 vacation days per year. Legally, you do not have to be paid for the first sick day, and provided you present a doctor’s note for the second and third sick days you should be paid 37.5% of your daily salary; from the fourth sick day and onwards, you should get 75% of your daily salary. This applies to both hourly and salaried workers. Recommendation: Ask what the employer provides.
- Basic Training and Miluim (Reserve Duty): If you are called to serve in the IDF, you will be paid either by National Insurance, or directly by your employer, who will then get refunded by National Insurance. An employer may not fire a worker called to do basic training or reserve duty, but he is not obligated to give preference in hiring to someone about to be called to army duty.
- Maternity Leave: Women who give birth are entitled to 3 months of pay from National Insurance, and according to a recent change in the law may take up to 6 months off with their jobs held for them. By law, an employer may not fire a pregnant woman, although experience shows that it may be difficult for a clearly pregnant woman seeking work to receive job offers.
Job Stability versus Potential for Improved Compensation
In choosing an employer, a job seeker in Israel usually has the same major considerations as he/she would have abroad: job stability and potential for improved compensation.
- Job Stability: The chance of achieving long-term employment without fear of layoffs due to efficiency measures or business closure.
- Potential for Improved Compensation: The opportunity to improve your compensation package over time. This opportunity depends on the financial health of the employer and the extent to which the employer is geared to promote professional advancement. In general, employment opportunities in which both job stability and the potential for improved compensation are high are fairly limited. In many cases, there exists an inverse relationship between the two.
However, in Israel, this inverse correlation doesn’t always hold up. Setting aside initial starting compensation based on profession.
- Small businesses (private stores or companies with only a few employees) tend to offer limited job stability and limited opportunity for improved compensation.
- Israeli subsidiaries of foreign companies and Israeli commercial banks tend to be stable employers who also offer good opportunities for professional advancement and as a result, increased compensation.
- Israeli start-ups tend to be risky but offer potential for compensation growth (assuming the company stays viable long enough).
- Government (both national and local) tends to be a stable employer with relatively limited opportunities for improved compensation. However, government jobs sometimes provide a good starting point for obtaining initial Israel work experience. Strong Hebrew skills are necessary in order to work in the government job.
Beyond an understanding of how various taxes are calculated (see above), the following are several tax issues that you should be aware of:
First year in Israel: In a common scenario, you will arrive in Israel in mid-year, having worked abroad until your Aliyah, and then will study in an Ulpan for several months before seeking work. The tax year in Israel corresponds to the 12-month civil calendar year. This scenario has several implications:
- You were likely taxed in your pre-Aliyah nation based upon earning a monthly salary for a 12 month calendar year. Even if Israel has a tax treaty with the nation, given that you moved to Israel in mid-year and did not work for several months, you very likely paid excess taxes which can be obtained as a refund.
- If you work in Israel in the same tax year, you should notify the payroll department of your employer that you did not work in Israel during the entire 12 month calendar year. This will allow that employer to reduce the income tax you pay on your Israeli earnings.
- Be aware: Even though the professional person who hired knows that you are a new Oleh, chances are that he/she will not realize that there are tax implications and won’t notify the payroll department.
- If you don’t get income tax reduced during the year, you can file a short form with the Income Tax Authority and receive a tax refund after the year is over.
American Citizens in Israel from year 2 and on: Families with children age 16 and under are entitled to substantial tax credits for each of these children. For example, if a U.S. family living and working in Israel shows that its Israeli income tax is higher than the income tax it would have paid on that income in America, which is usually the case, its tax obligation to the Internal Revenue Service is zero, and in addition it is entitled to a refund of $1,000 per child age 16 and under. There are cases where the childcare credit may not lead to a refund:
- Self employed workers who owe social security tax – the credit will only partially offset social security tax. The family has substantial taxable income on interest and dividend income from America. Foreign filers who elect to take the childcare credit must commit to filing this way for a 5 year period. If you will only have children under age 17 for a year or two, this method may not be worth the trouble. Nevertheless, for families with several children in this category, serious money is involved. The procedure for filing is somewhat complicated, and the Internal Revenue Service has expanded the checking of these requests, thus it is strongly recommended to employ the services of a competent accountant who is familiar with U.S. tax law.
It is unusual in Israel to spend one’s entire working career with one employer. Therefore, it is important to understand various terms which are relevant if you leave a job:
- Pitzuim – Separation Pay: If you are fired, by law you are entitled to one month per year separation pay for every year you worked. Some places may give more. If you quit a job voluntarily, some employers pay Pitzuim, even though the law does not mandate it.
- Taxation of Pitzuim: An exemption from taxes exists on approximately the first 10,000 shekels per year. For example, if you work 5 years at a monthly salary of 7,000 shekels per month, and are paid for 5 months, all 35,000 shekels are tax free. If you work for 5 years at a monthly salary of 12,000 shekels per month, the first 50,000 shekels (10,000 times 5 years) of the 60,000 is tax free, and the remaining 10,000 is taxed at the worker’s marginal tax rate.
The following are payments which an employer may pay in certain situations:
- Maanak Peraydah: A one- time payment for leaving, above and beyond Pitzuim.
- Dmai Histaglut: Adjustment pay, usually amounting to several months of extra salary.
Once you have left the job, you may be entitled to:
- Dmai Avtalah: Unemployment compensation, paid through the National Insurance Institute (Bituach Leumi) if you have been working for a specified number of days within the past 12 months. To obtain this benefit, you should obtain a letter from your former employer indicating that your employment ended as of a particular date, and bring it to the National Insurance Institute, together with pay slips from that job. You will receive a percentage of your average salary for a period not exceeding 175 work days, and perhaps less – depending upon age and family situation. Since National Insurance payments are made on the gross salary, the basis for calculation of unemployment compensation is the worker’s total gross salary.
- High wage earners, take note: No matter what your salary had been, the maximum monthly payment is less than 10,000 shekels per month. If you are still unemployed when the compensation period ends, you may be eligible to receive National Insurance payments, but there are restrictions, such as ownership of a car.