Get ready for quarterly account-settling between service contractors and service recipients in Israel
As we advised earlier, on January 1, 2024, regulations came into effect in Israel to increase the enforcement of labor laws (the wage components comprising the value of an hour of work by a contract employee) (“the Regulations”). See our previous update providing more details about the Regulations here.
The Regulations obligate service recipients to complete at least quarterly account-settling with the contractor providing the services in relation to payments to all of the contractor’s employees who are assigned to work at the service recipient (services in this regard are cleaning, guarding and security and catering services).
Considering the effective date of the Regulations, such accounting-settling must be completed by the end of the first quarter of 2025, i.e., in April 2025.
What does the accounting-settling include?
The account-settling must include wage components affected by an employee’s seniority, wage components that depend upon actual work (such as overtime or work on the weekly day of rest), and wage components that depend upon qualifying events. This means that service recipients must also verify that the service contractor has indeed paid its employees all payments due to them.
The regulations require account-settling in respect of qualifying events. What is a “qualifying event”?
A qualifying event is an event that occurred that entitles employees to special remuneration by law. Wage components that depend upon qualifying events vary depending upon the service sector:
In the guarding and security sector: sick pay, holiday pay, reimbursement of travel expenses and payment to a provident fund , contributions to a provident fund during the period of maternity and parenthood leave or during the period of entitlement to a high-risk pregnancy benefit pursuant to the Employment of Women Law, contributions to a provident fund during tours of duty in the military reserves, election day, memorial day, honeymoon leave, mourning, leave for a son or daughter’s wedding, leave due to the birth of a son or daughter, holiday gift and, if such service is provided to a public body as defined in the Employment of Employees at Public Bodies by Service Contractors in the Guarding and Cleaning Sectors Law, also a performance bonus.
In the cleaning sector: sick pay, holiday pay, reimbursement of travel expenses and payment to a provident fund for travel expenses, contributions to a provident fund during the period of maternity and parenthood leave or during the period of entitlement to a high-risk pregnancy benefit pursuant to the Employment of Women Law, contributions to a provident fund during tours of duty in the military reserves, election day, honeymoon leave, mourning, memorial day, holiday gift and, if such service is provided to a public body as defined in the Employment of Employees at Public Bodies by Service Contractors in the Guarding and Cleaning Sectors Law, also a performance bonus.
In the catering sector: sick pay, holiday pay, reimbursement of travel expenses, supplementary severance pay, contributions to a provident fund during maternity and parenthood leave or during the period of entitlement to a high-risk pregnancy benefit pursuant to the Employment of Women Law, contributions to a provident fund during tours of duty in the military reserves, election day, memorial day and mourning.
Can payment for qualifying events be included in the fixed payment to the contractor?
A service recipient can stipulate in the engagement agreement with the service contractor that the value of the contract employee’s basic work hour will also include components that depend upon qualifying events and, in such instance, the value of an hour of work will be calculated as specified in the relevant section of the Regulations. If additional qualifying events arise that were not included in the payment (such as seniority, days of mourning, performance bonuses), then as stated, account-settling must be performed on a quarterly basis.
What is the accounting-settling procedure?
The service recipient should contact the service contractor prior to the date of the account-settling to request information about the quarterly account-settling, if it is necessary to perform it. In this case, the service contractor sends an account-settling notice to the service recipient, specifying the additional payment that it is entitled to receive, if any (if qualifying events actually occurred in relation to any and all contract employees assigned to the service recipient).
After examining the contractor’s notice and its own attendance records for the contract employees, the service recipient should collect all qualifying events that have been approved for payment and transfer payment in respect thereof to the contractor, in conformity with the agreement signed between them.
After receiving the information from the contractor, the service-recipient should verify whether the payment was actually paid to the contract employees (by way of an internal examination by the service recipient, and not necessarily through the payroll inspector).
As part of this verification, the service recipient may request supporting documentation from the contractor attesting to the actual payments to the contract employees, such as pay slips, confirmations of deposits, an accountant’s confirmation of the execution of the various payments, etc.
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Adv. Lior Girshevitz and Adv. Nofar Perel are associates in our firm’s labor law department.
Barnea Jaffa Lande’s Employment Department is at your service in this regard and in relation to any other labor law issue.