Payroll

This section covers Payroll laws, rules and practices including minimum wage, severance pay, vacation pay and more.

Working hours on Israel’s Memorial Day & Independence Day

Moshe

Memorial Day of Israel’s Fallen soldiers is Monday April 15th, 2013

According to the fallen soldiers law (1963), any employee who is one of the following:
*  parent
*  grandparent
*  spouse
* child
* sibling

of a fallen soldier, is eligible to be absent from work on this day without liability of deduction from pay.

 

Independence Day (Yom Ha’atzmaut)

Israel’s 65 birthday is Tuesday April 16th, 2013

According to the Independence Day law (1959), This is a paid national holiday. This applies to all employers in Israel.

The day prior to Independence Day (Memorial Day or Erev Yom Ha’atzmaut) is a shortened work day, by law.
Employees who work an 8 hour workday, need work only 7 hours.
Employees who work a 9 hour workday, need work only 8 hours.
Places of employment that have a collective or personal agreement, or custom which is more favorable to the employee than the law, these would take precedence.
There is no deduction for missing hours for this day.

To be paid for Independence Day, you need to have at least 3 month’s tenure with your employer and you need to work the day before and the day after Independence day.

Employers that are not included in the list of places that need to operate on a holiday which is published by the Prime Minister’s Office are not allowed to force their employees to work on Independence Day as publicized by the Israeli Labor Court.

Employees who work for an employer who is included in the list, are entitled to 200% for all hours worked from 24:00 (midnight) on Memorial Day until 24:00 on Independence Day.
Payment for Independence Day needs to be itemized separately on the payslip.

 

 

Tax Authority adds more hours in the afternoon to customer service

Moshe

The Israeli Tax Authority released a memorandum to the public on March 10th, 2013 regarding the hours in the afternoon/evening that the tax reconciliation department is open to the public. The memorandum can be found in Hebrew on the Tax Authority’s website: www.taxes.gov.il

In an effort to better serve the public in a more efficient manner, The Tax offices in Jerusalem 3, Tel-Aviv 5, Be’er Sheva and Haifa will be open on Sundays from 3 p.m. until 6 p.m. on a trial basis up until (and including) April 14th, 2013.
After which it will be determined whether to continue this service and to what extent.

The service is meant for anyone who wishes to procure a new tax reconciliation for more than one employer for 2013 and those who wish to file for a tax rebate for previous years.

 

 

 

Employers: Do you have issues with employees incorrectly filling out 101 forms ?

Moshe

According to income tax regulation 2: “all employees are required to fill out an employee card (101 tax form) at the start of employment with a new employer and on the 1st of January of each subsequent year. The form includes: the employee’s personal information and sources of income. In addition, the employee is required by law to report any change in the information supplied on the form, within a week of the change.” Responsibility for the accuracy of the information is the employee’s only. The employee signs at the end of the 101 form a statement stating that all the information is correct. Supplying incorrect information is a criminal offense. The 101 tax form has instructions, but they are not too explicit.  Employees who do not understand what or how to fill out the form should ask the payroll accountant for help. Veteran payroll accountants attach written instructions to employees along with the form, correctly knowing that any mistakes in filling out the forms will come back to them in the end and they will need to chase after employees to “get it right” or deduct maximum tax, which just causes extra work.

Most employers have issues with employees filling out their annual 101 tax form. In some instances they leave out important mandatory information, in other cases they forget to check the boxes regarding the type of payment they are receiving from the employer or whether they have any other source of income. These things, while correctable in most cases during the tax year, can be very problematic in that until they are rectified, they may incur a maximum tax deduction from the employee’s salary. There can even be serious repercussions, by way of unnecessary fines in the case of an audit by the tax authorities.

The employer in general, and the payroll accountant specifically need to ensure that the proper form is being used (it’s updated frequently and can be found under “forms” on the Tax Authority’s website: http://taxes.gov.il/Pages/TaxesFastForms.aspx

It is important to note that each time a tax form is updated, all previous versions become obsolete and invalid from that point on. Using an outdated form can also result in fine ! However, all computerized payroll systems have the option of printing out pre-printed 101 forms with both the employer’s info as well as the employee’s info as it appears in the program. This is actually a time-saver as it allows the employee to double-check and correct only when information is incorrect or has changed, check the relevant boxes and sign the form, instead of filling out the form from scratch. This usually takes only a few moments. The responsibility for updating the 101 form in the payroll program is the Program’s responsibility.

The employer is responsible for keeping these forms on file along with any letters from the tax authority regarding their employees tax credits, exemptions or reconciliations.

Good news !

The tax Authority has launched an initiative that will not only simplify the 101 tax form process, but it will ensure zero mistakes and do away with the need to get the forms to the employees and get them back in a timely manner, as well as eliminating the need to keep them on file, thus saving space and becoming environment friendly (no more paper) !

So how does this work ?

The tax Authority issued instructions for procuring an electronic 101 tax form which is available here:
http://taxes.gov.il/IncomeTax/Pages/IncoeTaxMeidaMaasikim.aspx
look for the item dated May 20, 2012 – there are two. the top one is the one you need (9 page document) and it includes the application form for the employer (pages 8 and 9)

 

As of Jan 2013, this is voluntary, but highly recommended. Keep reading…….

The employer needs to fill out a request to be included in the criteria for filling out electronic 101 forms and use the system. The request needs to be submitted to the Tax Authority not later than 2 months prior to the end of the tax year in order to use the system for the next year.

(Employers who wish to develop their own system for electronic 101 tax forms or companies who sell payroll programs, or the use of them to employers need to submit 4 months prior to the end of the tax year)

The process

After submitting the form, the employer will receive written approval from the Tax Authority  along with access codes to a secure site and instructions. In general, employees can access the secure site via a unique and personal password ensuring privacy. the employee will update all personal and income information. Any time there is a change in an employee’s information, the employee will log onto the secure site and repeat the process, changing the necessary information. All forms after finalization by the employee become locked PDF files and each update becomes a newer version. All versions are kept on-line and accessible to both the employer and the employee. In cases where employees do not complete the process, it will automatically incur maximum tax (currently 48%) on the employee’s annual salary.

 

The above information is taken from the Israel Tax Authority’s publications and is not a translation of those publications.

Disclaimer:  Israpay has done it’s best to explain this issue in easy to understand terms, however should any discrepancy be found between the information contained in this blog post and the Tax Authority’s referendums and notifications to employers, the latter will prevail. This information is intended as a service and is not legal advise in any way or form. It reflects the author’s opinion only and is not to be taken as more than general information and a friendly recommendation that may be worth checking out. There may be restraints, in the employer’s payroll program or otherwise, that currently will not enable the employer to currently implement use of the electronic 101 tax form.

 

New Tax brackets for 2013

Moshe

2013 Tax Brackets


The value of each tax credit point has been updated to 218 sh.

These changes are effective from Jan 1, 2013 (January 2013 salary).

 

Tax Bracket

Gross pay

Tax

10%

5,280

528

14%

9,010

1,050

21%

14,000

2,098

31%

20,000

3,958

34%

41,830

11,380

48%

Each additional sh

 

 

Employers: Do you really need to file reports to the authorities on the 15th of each month ?

Moshe

All employers know that their monthly payments and reporting to V.A.T., the Tax Authority & the National Insurance Institute (Social Security) (including payments deducted from payroll) need to be filed and paid by the 15th of each calendar month for the previous month.

But is this necessarily true ?

A recent notification to employers, by the Israel Tax Authority, dated December 10, 2012 states the following:

1. According to the wording of the V.A.T. law and the directives of the Income tax directives, periodic reports and payments must be filed by the 15th of each month, each report and payment according to the applicable laws regarding them.

2. As per the above laws it has not been determined that if the 15th of the month falls out on the weekly rest day of the person/entity who is required to file and pay, the date of payment is deferred to the next business day.

3. However, in order to facilitate the members of all religions in Israel, the management of the Israel Tax Authority has decided that if the 15th of the month falls out on the weekly rest day of the person/entity who is required to file and pay, according to his/her religion, reporting and payment will be delayed until the next business day after the aforementioned weekly rest day.

What does this mean ?

Usually, when the 15th of the month fell out on Shabbat or Holiday, people would pay the day before, so as to avoid possible interest charges on tardy reporting and payments. the above referendum makes it clear that the Tax Authority is aware and sensitive to the people and will allow reporting and payment after the 15th when the weekly rest day or a holiday falls out on the 15th of the month, without chancing extra charges for late filing/payment, thus easing pressure to finish up prior to the 15th.

The above referendum can be found on the Tax Authority’s website:

http://taxes.gov.il/IncomeTax/Pages/IncoeTaxMeidaMaasikim.aspx

(they recommend best results using internet explorer browser)

 

 

 

Youth employee ? Download new application to know your rights !

Moshe

The Ministry of Industry, Trade and Labor has launched an application that can be downloaded for free to an Iphone and will soon be available for smartphones too. If you are between the ages of 14-18 and employed or if you have children or grandchildren who are, this is for them !

What will this enable users to do ?
1. Know your rights and the employer’s lawful responsibilities towards youth
they employ.

2. Enable youth to keep track of their hours in an organized manner.

3. Salary calculator to figure out what you are owed.

4. Contact details for complaints to the Ministry’s labor law enforcement dept.
if they feel their employer is not obeying the laws.

5. Enable users to define a goal to save for, and enable them to track how many
more hours of work they need to reach their goal.

 

For now this application is available only in Hebrew.

It is downloadable from the Ministry’s website, here:

http://www.moital.gov.il/NR/exeres/46273C9D-B2FF-4DB3-A4ED-8D80E5BAC62F,frameless.htm

Employee sexually discriminated against

Moshe

The municipality of Petah Tikva started a project for police patrol service via a security company. The service was to operate 24/7 via foot-patrol and motorized patrol.

Noa was invited to an interview and accepted to this position along with 16 others. She was the only female in the group. Noa was slotted in to do only the foot patrol on all her watches. She asked the person in charge of scheduling the shifts to put her on some motor-patrols as well, but was turned down, according to Noa “because people don’t want to see a woman driving a jeep…”

She was requested to pass an internal driving test to show she is capable of “navigating in the area” before she would even be considered for a motorized patrol, even though none of the other employees were required to do so.

Noa submitted a formal complaint to the labor court against her employer demanding 100,000 sh in damages pertaining to non-compliance with the equal opportunity in employment law, loss of income and tarnishing her good name and aggravation.

The labor court issued the following verdict:

The equal opportunity in employment law clearly states in section 2a that it is forbidden to discriminate due to sex, among other things, in accepting a candidate for employment, in training a candidate, in firing an employee, etc.
The law passes over the responsibility to the employer to prove their was no foul play and discrimination in his decision.

The court found that Noa wasn’t scheduled for motorized patrols simply because she is a woman. Also the fact that she was required to take extra tests as opposed to the men. Noa also submitted  taped conversations between herself and her employer to back her claims. The court ruled that this is indeed invalid discrimination and although no monetary damage was proved, the court still believed that this type of behavior needs to be curbed harshly and therefore fined the employer 55,000 shekels.

Bituach Leumi – Tax or benefit ?

Moshe

Many Olim do not understand why they need to pay Bituach Leumi and Health Tax from their salary. “I pay my health tax to Kupat Cholim, so this is a double tax” or “I have health insurance from abroad – I don’t need it, so can’t I just tell my employer to cancel it and not deduct it from my pay ?” are just a few of the questions I am asked frequently.

Well, no,  you cannot just cancel it.   Let’s start at the beginning:  Before this started ( the mandatory health tax) in Jan 1995, people could choose not to be a member of a health fund (kupat cholim) and they weren’t insured. Each fund had it’s own criteria and could accept members, or not, according to their own criteria. These included past medical history, so for example, someone who had diabetes would not be able to choose which fund they wanted but were only accepted to Klalit.

The other thing was that each fund had different rates that were based on the member’s gross income. There were problems with this system too. If both husband and wife worked they paid more than if only one of them worked.
Let’s say that someone was wealthy, but was doing internship as a lawyer  and thus making minimum wage, they would pay the minimum where someone else who made a bit more than that and maybe wasn’t as wealthy might pay double what the wealthy intern was paying.

Many people would forge payslips in order to get reduced rates.

The Health Ministry by introducing the mandatory health law put all of this in the past. Everyone who has Israeli citizenship must have a health fund. You can choose any fund and they must accept you. Today this is done simply by filling out a form at your local post office with your teudat zehut.
The basic coverage is deducted from the salary and transferred by the employer to Bituach Leumi each month. Each fund has additional coverage packages that are optional and one needs to sign up via the fund directly. payment is between you and the fund and there is no connection to your employer or your payslip.

The problem is that these additions are not cheap, but without them you will not get very much insurance at all. The basic insurance covers only what is specified by the law. (the coverage is updated from time to time – usually when the state budget is passed in the knesset)

So, in a way- Yes it is a double tax. If you work you pay, if not, not. However it is mandatory and not optional. If both Husband and wife are working you’re both paying, if only one works, the other is exempt from payment, either way you get the same coverage.

Employees that are Foreign workers or receiving an old-age stipend from Bituach Leumi are exempt from paying the health tax via payroll. (As opposed to Kupat Cholim payments which are a type of Insurance and non-payroll related. – contact your local Kupat Cholim for rates, etc)

Bituach Leumi is Social Security. The months that you work ensure that you procure credit for them via the deductions from your salary.

You are buying coverage for the following:

  • old age stipend (Women from age 62 and men from age 67)
  • work-related accident
  • maternity leave
  • employer bankruptcy
  • loss of work ability stipend
  • unemployment
  • health insurance
Each of the above have specific criteria, who is eligible and under which circumstances (see Bituach leumi’s website for more information: http://www.btl.gov.il/English%20homepage/Pages/default.aspx)
Both employer and employee contribute towards the health tax and social security as a pro-rated percentage based on the total gross taxable salary.
The percentages differ between age groups (under 18, 18-62, 62-70, 70 +) as well as between foreign residents and Israeli citizens.
Anyone who is receiving an old-age stipend is exempt from both the health tax and social security.
There are two levels: The lower level is up to 5,171 sh gross (updated Jan 2012) and the percentages are listed as follows (lower rate listed first higher rate (over 5,171 sh and up to a ceiling of 41,850 sh monthly).
Age                                                              Social Security   Health tax Who pays
18 – retirement age 0.4 %  / 7 % 3.1 % / 5 % employee
18 – retirement age  3.45 % 5.9 % employer
up to age 18 or above retirement age and receiving old age stipend 0.38 % / 0.93 % exempt employer only
From retirement age – (but not receiving old age stipend) 0.27 % / 4.86 % 3.1 % / 5 % employee
From retirement age – (but not receiving old age stipend) 3.15% 5.38% employer
Above old age stipend age  (but not receiving old age stipend) exempt  3.1 % / 5 % employee
Above old age stipend age  (but not receiving old age stipend) 0.38 % / 0.93 % exempt employer
Foreign employee  0.04 % / 0.87 % exempt employee
Foreign employee  0.49 % / 1.17 % exempt employer
Employee on non-paid vacation 6.57 %  from min wage exempt employee
These are Social laws that enable most employees to be eligible for a series of possible stipends for events that can occur during a lifetime.
Although Bituach Leumi is still far from a service-oriented organization, at least today they have computers. I guess that in itself is a huge accomplishment due to the work-ethics and culture in Government agencies and the educational background of their employees.

 

 

 

Section 14 of the Severance pay law

Moshe

 

The severance pay law (1963) is the law that defines the employee’s right to severance pay at the end of employment.

On a side note, there are criteria specifically defined in the law that determine under which circumstances an employee is entitled to severance pay. But, that is not what this blog post is about. However, there are 2 basic criteria that determine eligibility for severance pay in regular cases: An employee worked for at least one year and he was fired. If the employee resigns he forfeits the right to severance pay. (There are exceptions, but we won’t get into that right now).

Section 14 of the severance pay law is titled “severance and benefits” and it deals with cases in which both the employer and employee made contributions (via the payslip) towards pension or savings plans. According to section 14, the monies accumulated in the “severance pay” portion can be substituted for severance pay. Or in other words, by releasing the severance pay portion to the employee, the employer would then be exempt from paying any severance pay !

In 1998, the Minister of Labor signed an order enabling employers together with their employees to agree on enforcing section 14 at the place of employment. In this case, they do not need the Minister’s signature to enforce it. However, there are certain criteria that must be met in order to enforce section 14:

  1. The payments to the pension plan/ savings plan need to be the % defined in the general permit (including insurance coverage).
    This means only full pension and not mandatory pension
  2. There needs to be explicit agreement in writing between the employer and the employee, prior to start of employment.
    This means that it is part of the work agreement and known in advance.
  3. The employer needs to forfeit explicitly return of severance pay to him if the employee resigns.
    This means that employee leaving employ for whatever reason would receive the severance pay that has accumulated in the pension plan and nothing more.
  4. The monthly payments need to be paid on-time  !
    This means that the deductions from payroll need to be deposited into the pension plan by the 15th of each month. If the employer writes the check to the pension plan on the 15th and sends it via mail – that doesn’t count. One can easily see the date of deposit on the semi-annual statements the pension plan companies are required to send to the employees.

All of the above conditions need to be met in order for this to be legal.

The above is a risk for both sides: for the employee, forfeits his right to full severance pay, even when fired. On the other hand, the employer forfeits his right to reclaim severance pay from the fund in case of resignation.

The aforementioned permit from 1998  allows for retroactive enforcement provided it be in writing and within 3 months of starting the pension plan for the employee, no later.

So if your employer wakes up one day and decides that section 14 should apply to all employees – not so fast !

Employers who give Mandatory pension plan only – the law which came into effect starting Jan 2008 at lower rates than full pension plans are not eligible foe section 14 of the severance pay law.

 

 

Raise in taxes for individuals – From Jan 2013

Moshe

On Aug 13, 2012 The “law for reducing the national deficit and change of the burden of tax 2012” was made public.

This law goes into affect on Jan 1, 2013 and includes 2 items regarding employees:

1) A change in the tax brackets for salaried employees as follows (amounts are from total gross pay):

up to 62,400 sh annually – 10%
from 62,401 sh – 106,560 sh annually – 14%
from 106,561 sh – 168,000 sh annually – 21%
from 168,001 sh – 240,000 sh annually – 31%
from 240,001 sh – 501,960 sh annually – 34%
from every additional sh – 48%

2) Anyone making annual income which exceeds 800,000 sh will incur an additional 2% tax on the amount over 800,000 sh

Employer’s expense to rise over next 3 years !

Moshe

Change in Employer’s contribution to Social Security

 

As part of “the law to reduce the national deficit and change in the burden of taxes”, which was published today – August 13, 2012, a raise in the employer’s contribution towards Social Security has been authorized for the next 3 years, as follows:

From the higher level (on the part of salary over 60% of the average wage)

In 2013 – 6.5%

In 2014 – 7%

In 2015 – 7.5%

 

The current rate in 2012 is 5.9%.

This does not include employees who are pension-age, receiving a old-age stipend from Social Security or foreign workers or employees under age 18.