Doing Business in Israel- Labor Regulation

Statutory legislation

The socialist background of the State of Israel in the decades before and after its independence has left its impression in legislation that protects the rights of employees in Israel. Alongside strong trade unions, whose power is evident primarily in the governmental/public sector, the Israeli employee has a right to form unions with a given employer, and to be a member of a nationwide workers’ organization. This right is strictly enforced by

the labor courts that operate within the judiciary, with independence and clear separation of powers.

A range of labor laws regulate the right of the Israeli employee to a  set of  working and resting hours; to annual vacation; to receive payment during illness; to receive compensation in the case of termination of employment, etc. These rights are strictly enforced. An employer who fails to fulfill requirements of the various labor laws is liable for fines and other penalties.

Each month, the Israeli employer transfers payment, in accordance with the amount of the employee’s salary, to the National Insurance Institute (part of the payment is withheld from the employee’s pay) alongside the income tax withheld from the employee’s salary at source, which is transferred to the Tax Authority. Payments made to the National Insurance Institute, secure the right of the employee to healthcare services (in Israel there is a sophisticated, advanced medical care system for all residents), including nursing services, and receipt of pensions and allowances that include, inter alia, the right to receive compensation in the case of bankruptcy of the employer; sick pay and compensation for work accidents; and a modest pension upon retirement. In addition, employers in Israel must make a provision, starting a few years ago, with partial employee co-payment, of amounts for pension funds that will ensure the employee a pension upon retiring: this mandatory pension, along with the allowance paid by the National Insurance Institute, is supposed to secure the future of employees in Israel once they retire.

Conditions may be added to those prescribed in the various labor laws, however, omitting conditions is strictly forbidden. Senior employees usually get additional benefits, such as ‘incapacity to work’ insurance and provisions for vocational study funds. The volume of the payments to which the employee is entitled upon retirement may be hedged and the sum of provisions

actually, made each month may be restricted by enrolling the employee, with his consent, in a scheme that is prescribed in Section 14 of the Severance Compensation Law.

In many fields of occupation, ‘collective agreements’ are practiced, and they apply to all employers and employees in those fields. In addition to the threshold conditions prescribed in the various labor laws, these agreements also prescribe conditions that are unique to that sector. We advise people who are planning to establish a business in Israel to examine, with a well-versed consultant, the work conditions of employees in the field of activity of that business, in order to avoid surprises vis-à-vis the effective cost of employing workers after the business is already up and running.

Employment contracts – standard terms

Employment conditions must be vested in a written document, however short. This document will usually include an indication of the employee’s gross salary; his degree of employment; individual fringe benefits (such as the right to a company vehicle or vehicle expense reimbursements) and more.

Minimum wage regulation

The minimum wage in Israel is NIS 5,400 per month.

Maternity leave entitlements

A female employee who gives birth after having worked at least a year for an employer, is entitled to 26 weeks of maternity leave (15 weeks paid by National Insurance and the rest is unpaid). An employee who goes on maternity leave is entitled to payment of a birth benefit from the National Insurance Institute, which replaces her ordinary salary in the leave period. The employee is allowed to divide the maternity leave between herself and her spouse.
In certain cases, both of them are allowed to extend the maternity leave, for a period that will not exceed a quarter of the period of the mother’s employment at that employer or workplace, or up to a year from the day of birth (whichever comes first), with no additional payment of salary. The employer will be required to receive the employee back to work at the end of the ordinary maternity leave period, or within four weeks of the day on which the employee announces her wish to return to work from an extended un-paid period of maternity leave. Termination of the employment of a female worker during her maternity leave and for 60 days after her maternity leave is prohibited.

Sick leave

An employee who is absent from work due to illness for a period exceeding one day is entitled to payment from his employer for his days of absence. The eligibility of sick pay will not exceed a cumulative period of a day and a half per month of seniority at work for that employer, up to a maximum of 90 days of sick leave. For the second and third day of the period of absence, the worker is entitled to receive 50% of his ordinary wages. From the fourth day onward the employee is entitled to 100% of his wages.

The employee will receive sick pay for a longer period of time in cases in which a collective employment agreement or an individual employment contract prescribing better conditions to those set in the law applies.

Work permits and visas

A foreign citizen wishing to work in Israel must receive a work permit and a corresponding entry visa. Usually, this the type of Visa is  – B1. The Israeli employer assumes the processing of the application: by Israeli law, he must arrange comprehensive medical insurance for the foreign employee throughout the period of his employment, and ensure that he has appropriate living quarters available. In addition, the employer assumes duties of reporting to the state, fee payments, providing sureties to the state, paying the fee for the employment permit and other payments that are prescribed in the law, according to the economic sector in which the foreign worker is to be employed.

The process of receiving the visa consists of four stages:

  1. submitting to the Ministry of the Interior an application form for approval of employment;
  2. submitting an application for an entry visa;
  3. receiving the visa, which is temporary, at the Israeli consulate in the country of origin;
  4. extending the visa: an action that is performed after arriving in Israel.

Upon its extension, the visa will allow the employee to enter Israel multiple times, throughout its valid period. In the appropriate cases, an ‘approved expert’ status may be requested and obtained, which grants certain tax benefits for the expert.

The foreign worker is entitled to the same conditions under Israel’s labor laws as workers who are residents of the state. In addition, each child above the age of five who has been in Israel for more than three months is entitled to study in institutions that are recognized by the Ministry of Education at no cost. Pursuant to arrangements that the state has established through the Ministry of Health, in exchange for monthly payment to the National Insurance Institute of a similar amount to that paid by a resident of Israel (approximately US$ 50 for the first child; double of the amount for both children; exemption from additional payment for additional children), the children of work migrants, legal and illegal alike, may receive the healthcare services that are granted under the laws of the State of Israel to all children.

Termination of employment

Subject to the provisions of a specific labor agreement with the employee, his employment may be terminated at any time as long as the provisions in the labor laws and collective labor agreements, if in force, have been fulfilled.

An Israeli employee is entitled by law to a hearing from his or her employer before termination of employment. This hearing must be duly held, otherwise the employee may be entitled to extraordinary compensation. The employee is entitled to receive early notice of his employment termination. After one year of full employment by that employer, the termination period stands at one month. During the first year of his employment, the early notice period is shorter, and the right to it is accumulated gradually. The employee is entitled to receive his full pay during the early notice period, even if the employer opts not to continue his actual employment during that period.

Upon his employment termination, the employee will be entitled to receive severance compensation of one month’s salary for each year of employment. From this amount, provisions made by the employer during the employment  to a compensation fund in the name of the employer will be withheld (the employer will be exempt from any additional payment if the employee has joined a scheme prescribed in Section 14 of the Severance Compensation Law as described above). In addition, the employee will usually be entitled to redemption of accumulated vacation days.