Compensation Statements: Permitted and Deductible Salary Components

General

Any deduction not specifically permitted by law or expansion order or collective agreement or specified in an agreement between the employee and employer may not be made.

Permissible but Not Mandatory (in Writing)

• Fixed monthly donation
• Meals provided at the workplace
• Various optional insurances such as life insurance, vehicle, apartment, personal accident and any other insurance.

Deductions Permitted – Partial Listing

• Income Tax (if applicable to the employee)
• National Insurance
• Health insurance (but not supplementary insurance with health funds)
• Payments to pension funds
• Membership fees to employee associations
• Fines for disciplinary infractions for employees in the public sector or those included in the collective agreements (but not in every case).
• Debts that are not contested such as loans or advance payments that the employee has received from the employer.

Deductions Forbidden – Partial Listing

• Damage in respect of "employee error"
• Festival gifts (irrespective of the amount – deduction is forbidden)
• Traffic accident damage caused by the employee (each incident separately)
• Telephone fees where the employee has a telephone for work purposes (but the telephone bill may be limited up to a specific ceiling)
• "Agreed" compensation for early departure of the employee.

Earnings and Leave Statement Importance

The earnings and leave statement is an essential document for the employee the importance of which should not be underestimated. First, since it tells the employee whether he has been paid everything he is entitled to (including reimbursement for traveling expenses, annual vacation allowance); whether he has accumulated vacation days, and whether the calculation of his hours worked and salary paid is correct. Moreover, the importance of the earnings and leave statement is even greater with regard to the National Insurance Institute. In the absence of an earnings and leave statement, an employee who is injured in a work-related accident, or an employee who gives birth, or someone who is fired and is entitled to unemployment benefit – cannot obtain their benefits with the national Insurance Institute.

Earnings and Leave Statement Requirements

Employers are required to include:

• Identification details of the employee and the employer (including the licensed dealer number or company registration number)
• Seniority in the company, type of position (part-time, hourly based etc.)
• Details of hours and work days
• Sick leave and annual vacation days used and remaining
• Hourly pay rate
• Regular monthly pay rate
• Salary additions such as payment for overtime hours
• Annual vacation allowance
• Vacation pay
• Total pay subject to income tax
• Pay differentials (when they exist) including the period for which they are applicable.

General deductions such as:

• Income tax
• National Insurance payments
• Deductions for health insurance tax
• Deductions for savings funds, with a breakdown according to the fund to which the deduction applies and the amount.
• Any other deduction which should show details of the type of deduction and the amount.

Employer Obligation

Employers are obligated to give employees their earnings and leave statement by the ninth day of every month. If they do not give the earnings and leave statement to employees or give them an earnings and leave statement that does not contain the items required by law, they are in criminal breach of the law.

An employee who does not receive an earnings and leave statement can issue a civil claim for compensation of up to NIS 5,000 in respect of each earnings and leave statement that s/he did not receive.

Summary

The earnings and leave statement is issued mainly for the employee so that s/he knows and can monitor compensation and deductions.

With the earnings and leave statement, one may monitor what happens in the salary payments system for the employee. This is the right way to stay updated regarding one`s salary, salary deductions, additions to salary and all other important details of the employee`s compensation.

It is recommended to retain earnings and leave statements for many years together with Forms 106 that are received from the employer once a year.

Sincerely,
 

Tzvi Szjanbrum, Attorney at Law

Special thanks to Jeremy Wallach for his donation of translation services of this document.