Overtime Hours

Labour Law

Overtime Hours

Written by: Adv. Kobi Hatan

An employee to whom the provisions of the Hours of Work and Rest Law apply (most employees in Israel — to read about the Hours of Work and Rest Law, click here) is entitled to compensation for working overtime.

For an employee working a five-day working week, overtime hours begin to be counted after 8.6 net hours of work (excluding a break), and on one of the days (the shortened day) after 7.6 hours of work.

For a six-day working week, overtime hours begin to be counted after 8 hours of work.

On a night shift, overtime hours begin to be counted after 7 hours of work.

It should be remembered that overtime is counted both on a daily basis and on a weekly basis (over 42 hours). It is entirely possible that on a daily basis the employee did not work any overtime, but on a weekly basis exceeded 42 working hours, and therefore all hours beyond that will be paid as overtime.

For example: an employee worked six days a week, 7.5 hours each day. On the face of it, on a daily basis the employee did not perform any overtime. But on a weekly basis, the employee worked 45 hours per week (6 × 7.5). Therefore, for 3 hours of work on the sixth day (the hours worked beyond 42 weekly hours), the employee will be entitled to overtime compensation.

How is overtime compensation calculated?

Section 18 of the Hours of Work and Rest Law provides that the “regular wage” for the purpose of calculating overtime includes all the supplements the employee receives. In other words, this is not only the base salary, but every other supplement to the wage.

Payment for overtime is made as follows:

For the first two overtime hours, the employee is entitled to remuneration of 125% of their regular wage.

For every overtime hour beyond that, the employee is entitled to remuneration of 150% of their regular wage.

For example: an employee’s regular wage is 40 NIS per hour (including all supplements). The employee worked a six-day working week and worked 11 hours on one of the days that week. How is the compensation for that day calculated?

11 working hours — 8 regular hours and 3 overtime hours.

8 regular hours — regular wage (100%) — that is: 40 × 8 = 320 NIS

The first two overtime hours — 125% — that is: 40 × 1.25 × 2 = 100 NIS

The third overtime hour — 150% — that is: 40 × 1.5 × 1 = 60 NIS

In other words, for that working day the employee is entitled to compensation of 480 NIS (320 + 100 + 60).

Very important: each day stands on its own and hours cannot be offset between one day and another. That is: it may be that on Sunday the employee worked only 3 hours, while on Monday they worked 12 hours; the employee is still entitled to overtime for the work on Monday, and hours cannot be offset between the days.

For an employee paid on a monthly basis, a global overtime mechanism can be established.

This means a fixed monthly payment of a certain amount for overtime, reflecting an annual average of the overtime the employee is expected to work.

For example: an employer estimates that an employee is expected to work about an hour and a half of overtime on average each day. This is a workplace with a five-day working week, so this amounts to about 33 hours of overtime per month. To be “on the safe side,” the employer decides to pay the employee a fixed remuneration for 35 overtime hours each month.

The employee’s regular wage is 10,000 NIS. From this we derive their hourly wage: 10,000 / 182 = 54.95 NIS per hour (the division by 182 is because a full-time position is 182 monthly hours). Since the employer does not estimate that the employee will be required to stay more than two hours at most at the workplace, the value of an overtime hour will be 54.95 × 1.25 (the first two overtime hours) = 68.68 NIS. We multiply the value of an overtime hour by 35 overtime hours and get 2,404 NIS. This is the global overtime pay.

That employee’s pay slip will have two components:

Regular/base salary — 10,000 NIS

Global overtime — 2,404 NIS

It should be emphasised: it does not matter whether in one month the employee worked 20 overtime hours and in the following month worked 40 overtime hours. The global pay does not change, because it reflects an annual average. Therefore, if the employee did not reach 35 overtime hours in one month, or exceeded the quota of 35 hours in another month, the global overtime pay is neither reduced nor increased. The review should be carried out once a year. If the employer discovers that they overpaid, they may reduce the global pay for the following year, but in any case cannot recover amounts already paid to the employee. Conversely, if the employer discovers that they underpaid, they will have to make up the difference, according to the true average number of hours or according to actual performance.

It is also important to note that there must be correspondence between the overtime pay paid and the actual performance. Thus, for example, if a monthly amount is paid reflecting work of 60 overtime hours, while in practice the employee’s average overtime stands at only 5 overtime hours per month, the Labour Court may find that this is a fictitious allocation of the wage and refuse to recognise it.

In its ruling in Case No. 23402-09-15 Uriel Barad v. Kansto Ltd. (28 February 2017), the National Labour Court defined the conditions for recognising global overtime pay in place of a monthly calculation:

“The option of paying ‘global overtime pay’ was not regulated by the legislature, but in appropriate cases and subject to conditions — which we will expand on below — it has been recognised in the case law as legitimate for more than three decades (see, for example, 34/3-מד (National) David Alon v. Bank of Israel, [published in Nevo] PDA 16, 76 (30 September 1984) (hereinafter: the Alon case)). The conceptual framework governing the use of this model is that the employee’s rights shall not be prejudiced and that the purpose of the Hours of Work and Rest Law shall be realised and not frustrated, and the conditions we will detail below are intended to ensure this. Global overtime pay is made by way of a fixed supplement, separate from the wage, this supplement embodying a monthly average of overtime that, as a whole, is equivalent to the amount that would have been obtained, at the very least, from an arithmetic calculation of the extent of the overtime. The case-law recognition of this form of payment as legitimate was made conditional by the courts on the fulfilment of a number of conditions intended to ensure that it does not serve as a cover for prejudicing the employee while undermining the mandatory arrangement embodied in the Hours of Work and Rest Law. Without purporting to be exhaustive, we note that the main conditions are:

First, this form of payment — and in particular the assumptions regarding the average overtime for which it constitutes compensation — must be reflected in a clear and informed agreement, so that the employee’s consent to this form of payment, together with its assumptions, is knowing and informed.

Second, the rate of pay must be fair and reasonable, in the sense that it is required that ‘on average, and as a whole — the employee receives at least remuneration equivalent to that due to them under the Hours of Work and Rest Law’ (from the remarks of Justice Davidov in Appeal (National) 184-09 Fyodor Kravchenko v. HaShmira Ltd. [published in Nevo] (18 December 2011) (hereinafter: the Fyodor case). Needless to say, if it turns out in the circumstances of a specific case that the pay is not fair — because the order of magnitude of the overtime actually required exceeds the assumptions of the global pay — then it will not be given legal effect, and the calculation of the pay will be carried out under the provisions of the Hours of Work and Rest Law and the Wage Protection Law as amended in Amendment 24.

Third, the employer is required to keep track of the extent of overtime the employee actually worked, in order that the social purpose of the law be realised and in order that the fairness of the global overtime pay as a whole can be examined on an ongoing basis in the circumstances of the case. The duty to monitor was required before Amendment 24 to the Wage Protection Law, and once Amendment 24 was enacted, the monitoring mechanism must meet the standards set out in it, including keeping a record of the extent of overtime in a register and on the pay slip, as prescribed in Amendment 24.

Fourth, the agreement must also be reflected on the pay slip, with a clear separation between the base salary and the global overtime pay. In this way, values of transparency and clarity regarding its rate are realised. Because of this separation, global overtime pay is not caught by the prohibition set out in Section 5 of the Wage Protection Law (see paragraph 3 in the Alon case).

Fifth, each of the separate amounts — namely the wage and the global overtime pay — must independently meet the requirements of protective legislation. In other words, the payment of global overtime pay does not exempt the wage component — which is distinct and separate, by virtue of the fourth condition above, from the global overtime pay — from meeting the requirements of protective legislation, including the Minimum Wage Law. Likewise, the payment of global overtime pay does not exempt the employer from paying other wage supplements that they are obliged to pay under any law.”

When drafting an employment contract for an employee, and in particular an employment contract that includes global remuneration for overtime work, it is important to consult a labour law attorney who specialises in the field and can help formulate the appropriate mechanism.

The above is general information only and does not constitute legal advice; each case is examined on its own merits. © Kobi Hatan, Adv.