By Itzik Laniado, Partner
What are mandatory deductions, and what are discretionary ones? What happens if an employer deducts amounts not permitted by law? What are employers’ obligations concerning the transfer of deducted funds?
These and other questions frequently arise at Kan-Tor & Acco from both employers and foreign workers seeking clarity on their rights and obligations in this area. This article provides answers to these questions, clarifies permissible deduction rules, and explains the responsibilities of employers and the rights afforded to foreign workers in Israel.
Legal Framework for Deductions from Foreign Workers Wages
Employing foreign workers in Israel requires strict adherence to legal provisions regarding wage deductions. Employers may only deduct specific payments with the worker’s written consent. Any unauthorized deduction can constitute a criminal offense. Below, we outline the permissible deduction rules and the corresponding rights and duties of employers and employees.
Mandatory Deductions
An employer may deduct payments defined as mandatory deductions, including income tax and National Insurance contributions. The amount of income tax depends on the worker’s salary, occupation, and personal status. It is important to note that asylum seekers are not entitled to income tax credits, leading to higher tax payments. Additionally, employers may deduct the worker’s share of National Insurance contributions, except for caregiving workers employed in the patient’s home, where such deductions are prohibited.
Another legally permissible deduction is the worker’s pension insurance contribution, up to 6% of their salary. However, these funds must be transferred to a pension fund, provident fund, or manager’s insurance. If deposited into another savings plan, the employer must cover the full amount without deducting from the worker’s salary.
Discretionary Deductions
In addition to mandatory deductions, employers may deduct additional amounts from the worker’s salary, provided the total does not exceed 25% of the monthly wage. These discretionary deductions include the worker’s contribution to health insurance costs. For workers outside the caregiving sector, employers can deduct up to one-third of the health insurance cost, capped at 138.96 ILS per month as of January 2024. For caregiving workers, deductions can reach up to half of the insurance cost, not exceeding 159.45 ILS per month for the same period.
Employers may also deduct housing costs and related expenses such as electricity, water, and property tax. Additional permissible deductions include union membership fees or organizational dues if established by an extension order or collective agreement. Furthermore, if the employer pays fees for extending the worker’s employment permit or re-entry visa, these amounts may be deducted with the worker’s prior written consent. Notably, deductions for employer levies or application fees for foreign worker employment permits are prohibited.
Employer Obligations Regarding Deductions
Employers must transfer all deducted amounts to the relevant authorities, such as the National Insurance Institute or the Tax Authority, by the deadlines specified by law. Failure to transfer payments on time constitutes a criminal offense that can result in severe penalties, including imprisonment and fines. Similarly, excessive or unauthorized deductions may lead to criminal charges punishable by up to one year in prison or significant financial penalties.
Employers are also required to inform workers in advance about all wage deductions and include these details in the employment agreement, drafted in a language the worker understands. Failing to provide a written employment agreement in a comprehensible language constitutes a criminal offense, distinguishing this obligation from those applying to Israeli citizens. Additionally, employers cannot retroactively deduct amounts they failed to deduct on time. Workers subjected to rights violations or unlawful deductions may file a complaint with the Commissioner for Foreign Workers’ Rights at the Ministry of Labor.
Ensuring Compliance and Fair Employment
In conclusion, wage deductions for foreign workers require strict adherence to legal provisions. Both employers and workers must be aware of their rights and obligations to ensure fair and lawful employment practices.
At Kan-Tor & Acco, we have extensive experience in foreign worker employment and provide professional guidance to employers and staffing agencies seeking to fully comply with legal requirements. Our expertise helps employers meet statutory obligations, avoid errors, and save significant costs in managing foreign workers.
