Contract Workers’ Hourly Wages in Israel

The Law for Increased Enforcement of Labor Laws recently marked one decade since its enactment. Since then, we have waited for the enactment of regulations stipulating service contractors’ obligatory mode of calculation of hourly wages for employees in the security guard, cleaning, and catering sectors. Recently, the Knesset Labor and Welfare Committee finally approved regulations on the wage components comprising contract workers’ hourly wages in various sectors. 

What is the Law for Increased Enforcement?

Inter alia, the Law for Increased Enforcement of Labor Laws imposes responsibility for contract workers’ rights on service recipients. The importance of this law is that it aims to prevent engagements in “loss contracts,” i.e., to prevent engagements with service contractors whose contract price does not cover the minimum hourly wage due to their employees by law. The law defined a mechanism for determining the hourly wages of service contractors’ employees. As stated, this mechanism was inadequate for nearly a decade, and forced service recipients to rely on the methods of other sectors for determining hourly wages (such as the method used in civil service). The new regulations prescribe an orderly mechanism that applies to service recipients, including an hourly wage “calculator.”

What obligations do the new regulations impose on service recipients and on service contractors?

The regulations seek to ensure that the rights of service contractors’ employees are protected over time, and attempt to create relative certainty with regard to the payment of an adequate basic wage to service contractors’ employees, by means of two main obligations:

1. No engagements in loss contracts

Service recipients are responsible for stipulating the wage components in their contracts that the service contractor will pay to its employees, the “minimum cost of the wage” (as defined in the regulations), the service contractor’s declaration of additional costs (including profit margin), and the service recipient’s undertaking that its consideration to the service contractor will not be less than the “minimum cost of the wage” and such additional costs.

2. Account settling between the service recipient and the service contractor during the engagement

Service recipients and service contractors must perform at least quarterly account settling for every employee, with respect to all of the following:

(a)  Wage components affected by the employees’ seniority.

(b) Wage components affected by the actual length of the workday.

(c)  The global sum due for overtime work.

(d)  Wage differentials between the sums paid to each employee and the sums actually due to each employee.

(e)  National insurance contributions to meal subsidies and any additional wage component payable to the employee by law, extension order, or collective bargaining agreement. 

Up until now, salary inspections were performed once every nine months on 10% of the service contractor’s employees. Has this situation changed?

Yes. For engagements entered into on or after January 1, 2024, as well as for renewals or extensions of agreements as of that date, salary inspections must be performed quarterly for all employees of service contractors.

Service recipients may obligate service contractors to present documents attesting that they paid the wage components to their employees.

What is the “minimum cost of the wage”?

The regulations define “minimum cost of the wage” as the “basic hourly wage,” which takes into account the employee’s seniority, the scope of the position, and various other components. The regulations define the “basic hourly wage” separately for each sector (security guard, cleaning, and catering), which includes, inter alia, sick pay, holiday pay, travel reimbursements, provident fund contributions during maternity and parenthood leave, pay for election day, honeymoon leave, days of mourning, and more.

How is the “minimum cost of the wage” calculated?

The regulations specify all of the wage components, the terms of employment, the calculation formulas, and the minimum costs per hour and per overtime hour worked by a service contractor’s employee. Service recipients and service contractors must specify all of the above in their contracts so that they will not be deemed a prohibited “loss contract.”

To make it easier for service contractors and service recipients, the Ministry of Labor will publish the hourly wage calculation pursuant to the regulations via a “calculator” on its website. The calculation will also include future updates to the hourly wage components by virtue of a provision of a law or extension order.

Do I still need to attach a “pricing appendix” to my engagement agreements with service contractors?

Absolutely. Attaching a pricing appendix specifying the various components comprising the value of an hour of work performed by a service contractor’s employee is an essential evidentiary tool for proving the service recipient and the service contractor have agreed on an hourly wage that contains all wage components required by law. 

When will the regulations come into effect?

The regulations come into effect on January 1, 2024, and will apply to engagements entered into on or after that date, as well as to renewals or extensions of agreements as of that date. As of January 1, 2025, the regulations will also apply to engagements by virtue of agreements signed prior to December 31, 2023.

Service recipients engaging with service contractors or expecting to renew such engagements should begin taking action now to update their engagement agreements and ensure compliance with the new regulations.

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Barnea Jaffa Lande’s Employment Department is at your service to assist in this regard. 

Adv. Netta Bromberg heads our firm’s Employment Department.