Employer's Full Cost of Employee Exceeds Salary by 59%

For every shekel an employee receives in net pay, their employer spends an average of 1.59 shekels, according to a new analysis. This calculation, which does not include additional benefits like a company car, highlights the significant gap between an employee's take-home pay and the total cost to the employer. For an employee earning a gross salary of 18,000 shekels per month, the net amount deposited into their bank account is 13,621 shekels, while the employer's total outlay reaches 21,725 shekels.

Of the 59% difference, 3,749 shekels are directed towards the employee's pension savings and severance pay, while 4,355 shekels are paid to income tax and national insurance and health contributions. The employer also contributes an additional 1,056 shekels for national insurance and health, 1,170 shekels for pension contributions, and 1,499 shekels for severance pay, all of which are costs above the gross salary.

The analysis emphasizes the practical utility of understanding these figures for both employees and employers. Knowing the gross salary allows for the calculation of both the net pay and the total employer cost. Conversely, for those managing recruitment budgets, knowing the total cost enables the determination of an appropriate gross salary offer. The article also details how factors like mandatory pension contributions (defaulting to 6.5% employer, 6% employee, and 8.33% severance) and additional benefits such as study funds can alter these figures.

Furthermore, the calculation of net pay is influenced by tax credits. For instance, a male Israeli resident typically receives 2.25 tax credits, while women receive an additional half credit. These credits, along with tax deductions for pension contributions, can significantly reduce the income tax burden. The article also notes that national insurance contributions are capped, meaning higher earners effectively cost their employers less than 1.59 shekels per net shekel.

Additional benefits not included in the base calculation, such as company cars, travel allowances, vacation pay, and phone stipends, can add thousands of shekels to the monthly cost for certain positions. The value of a company car, in particular, can also create an additional tax liability for the employee. The overall ratio of employer cost to employee net pay is dynamic, influenced by salary level, contribution rates, and tax credit entitlements.