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, 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 receives this|
|Overtime pay||(Sha’ot Nosafot)||Hours multiplied by hourly overtime rate. In many cases, global overtime exists, whereby the employee is automatically paid for a certain number of overtime hours, whether he/she worked them or not.|
|Convalesescence Pay||D’mei Havraa||By law, employees who have worked at least one year are entitled to a salary addition called dmei havraa. This payment is based on your seniority with your company. The payment is either paid during the summer or divided into 12 monthly payments. Calculate your dmei havraa here.|
|Month 13 Salary||(Maskoret Shelosh Esray)||Since there are 52 weeks per year, but only 12 months, some employers pay a 13th month salary. This is a rare benefit & most employees do not receive this.|
|Transportation Allowance||(Tachbura Tziborit)||Covers the cost of traveling to work by public transportation. By law, the amount paid is either your monthly bus ticket or approximately 22.60 NIS per day, whichever is lower. |
Some employees receive the benefit of a car or a car allowance (tashlum rechev).*
|Income Tax||(Mas Hachnasa)||Income Tax is based on your salary and your personal tax credits. Credits are based on: |
New Olim receive an extra three credit points in the first 18 months after their Aliyah, two extra credit points in the next 12 months, & one extra credit point in the following 12 months.
Calculate your income tax here.
|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 to cover your health funds (kupot cholim)|
|Pension||Pension or Kupat Gemel or Bituach Minhalim||Employer contributes 6.5% of salary & employee contributes 6%. Generally paid on base salary only. |
One benefit to which all workers are entitled to without deduction from pay is Pitzuim (severance pay). The employer contributes 8.3% of the base salary (one month per year), which is paid to the employee if s/he is laid off, and sometimes if s/he resigns as well.
|Keren Hishtalmut***||Keren Hishtalmut is a benefit whereby the employee contributes 2.5% of worker salary and the employer contributes 5% or 7.5%). Generally paid on base salary only. Funds a one time payment every 6 years, which in theory may be for education, but in practice may be used for whatever one chooses. |
These deductions are considered optional employee benefits. Some employers give this to all employees, some to only certain employees, and some don’t offer this at all.
* 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.
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.
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 2020*:
|Monthly Salary in Shekels||Marginal Tax Rate|
|The first 6,330||10%|
|6,331 to 9080 (the next 2,750)||14%|
|9081 to 14,580 (the next 5,500)||20%|
|14,581 to 20,260 (the next 5,680)||31%|
|20,261 to 42,160 (the next 21,900)||35%|
|42,161 to 54,300||47%|
*Information taken from the Israel Tax Authorities website for 2020.
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 begin setting money aside for Keren Hishtalmut (2.5-7.5%) from the beginning of one’s employment, while others will begin only after completion of a trial period. Some employers do not offer this benefit 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.
- Pension Plan/Managers Insurance Policy: is required by law. Currently the rates are:
a) 6% paid by Employer for pension
b) 5/5% paid by Employee for pension
c) 6% paid by Employer for Severance Pay.
These percentages apply to either the employee’s actual salary or the national average salary. It must be funded after six months of employment for employees who did not have a pension plan in place upon commencement of employment with the new employer. If there was a pension fund in place, it must begin after three months, retroactive to the first day of employment.
- Vacation and Sick Leave: By law, your employer is obligated to give you 10 vacation days per year. One is required by law to take at least one week of vacation per year, ie., vacation day during Jewish holidays.
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 50% of your daily salary; from the fourth sick day and on wards, you should get 100% of your daily salary. This applies to both hourly and salaried workers.
An employee may take up to 18 sick days per year.
- 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 3.5 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.
- 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.
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 (Severance) Pay: If you are fired, by law you are entitled to one month per year separation pay for every year you worked. Pitzuim are deposited monthly into your pension fund by your employer. Some places may give more, though very few do. If you quit a job voluntarily, some employers pay Pitzuim, even though the law does not mandate it. However, any pitzuim accumulated in a pension fund belong to the employee.
- Taxation of Pitzuim: An exemption from taxes exists on approximately the first 12,420 NIS 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 15,000 shekels per month, the first 62,100 shekels (12,420 times 5 years) of the 75,000 is tax free, and the remaining 12,900 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 someone has left a job, s/he 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.