Tax credit point update (Kachlon law) June 2017

The Israel Tax Authority published a new directive to employers on May 28, 2017 regarding tax credit points to parents of children who are salaried employees via their payslip.
1. The number of tax credit points will now be equal for men and women. All parents are now eligible for 1.5 tax credit points in the year their child is born and 2.5 tax credit points in the years the child is age 1 to age 5.
2. This directive is effective for the tax years 2017 and 2018 only (from Jan 2019 it is cancelled, unless an extension is approved by the government).
3. Effective in June 2017 salary (to be paid by July 9, 2107), employers will credit their employees to whom this applies with the additional tax credit points, retroactive to January 2017.
For women: In the year the child is born you will receive 1.5 tax credit points (instead of 0.5 up until now) and in the years the child’s age is 1-5 you will get 2.5 tax credit points (instead of 2 up until now). You can elect to defer 1 tax credit point of the 1.5 allotted for each child to the following tax year (2018). This is done by filling out a 116 D tax form and giving it to your employer (HR or salary dept). You will need to also fill out this form in 2018 (section dalet).
Men do not have this option of deferring tax credit points.
For men: In the year the child is born you will receive 1.5 tax credit points (instead of 1 up until now). In the years the child’s age is 1-2 you will receive 2.5 tax credit points (instead of 2 up until now) and in the year the child’s age is 3 you will receive 2.5 tax credit points (instead of 1 up until now) and in the years the child’s age is 4-5 you will receive 2.5 tax credit points (instead of none up until now).
This will lower taxes on working parents salaries and raise their net pay. The tax credit points are monthly.
Employers: you need to keep this form 116 D with the employee’s 101 tax form.

July 2016 updates

Effective in July 2016’s payroll there will come into effect several changes in labor laws:
1.  Mandatory pension law

Correction 12 to this law was updated, adding 1% to employee and employer pension plan contributions in a two step update: 1/2% in July 2016 and another 1/2% in jan 2017.
The current update (July 2016) % are now Employee 5.75% and Employer 6%.
This effects all employers in Israel in all sectors by way of a comprehensive ordinance signed by the Minister of Economy. The only exceptions are if the exsisting % are higher (due to a collective agreement or personal contract) or if an employee has a Bituach Menahalim plan or pension plan with lower rates but the employer contributes to a loss of work ability insurance (IWA), whereas the joint % of the Bituach Menahalim and lWA insurance is equal to or higher than 6%. In this case, only the employee’s contribution will increase, as the employer is already contributing at the new % or more.
For comparison, here is a breakdown of pre-change and after:

 

payroll Employee contribution Employer contribution Severance pay (employer) Total
Jan 2016 5.5%    6% 6% 17.5%
Jul 2016  5.75%  6.25% 6% 18%
Jan 2017  6%  6.5%   6% 18.5%

 

2. Vacation day law
The minimum number of mandatory Annual vacation days allotted is to increase by 2 days starting July 1,2016 (In essence 1 day for 2016 as it for half a year) for the first 5 years of tenure with the same employer. Above 6 years there is no change.

tenure                                      # of days allotted

up to June 30, 2016                                                         1 – 4 years                                              14 days
5  years                                               16 days

From July 1, 2016 – Dec 31,2016                                1 -4 years                                                15 days
5 years                                                 16 days

From Jan 1, 2017                                                                1- 5 years                                               16 days

Note: The number of days listed are calendar days, not work days and as such they include the weekly rest day (Shabbat) which is not a vacation day. For example employees who worked a 5 day work week got 10 days for the first 4 years (.083 days per month * 12) and those who worked a 6 day work week got 12 days for the first 4 years (1 day per month * 12).

This is very general, there are other factors that go into what employees receive in actuality, such as full or part-time, if an employee worked at least 200 or 240 days total during the year. In any case the wording of the law is binding, even if difficult to comprehend and this article is not legal advice. In instances where a personal contract or sectorial/ collective agreement entitles employees to more vacation days than listed above, this update does not apply.

3. Minimum wage update

Effective July 1st 2016 the third step of the gradual update of the min. wage to 5,000 sh per month comes into effect. The new minimum wage starting in July 2016 will be 4,825 sh  for a full time monthly rated position.

The new minimum hourly rate is 25.94 sh

Youth min wage rates

Age % of min wage min monthly rate (40 weekly hours) Min Hourly rate
עד 16 70% 3,377.5  19.52 
עד 17 75% 3,618.75  20.92 
עד 18 83% 4004.75  23.15 
Apprentice 60% 2,895.00  16.73