An employee worked in a Hi-tech company for 5 years. In the work contract between him and the employer it stated that "the employee is eligible to receive a car for his personal use from a leasing company. If the employee chooses this option his salary will be 10,000 shekels (gross) per month; However, if the employee decides not to receive the car, his salary will be 13,000 shekels (gross) per month".
The employee chose not to receive the car. On his payslip each month were the following items:
Base salary 10,000
waived car 3,000
and other irrelevant return of expenses.
The employee was terminated and the employer calculated his severance pay based on the base salary only. The employee claims that the "car waiver" should be included as well.
Is the employee correct ?
Severance pay regulations dictate that items that are to be taken into account when calculating severance pay will include base pay and any additions paid due to tenure, cost of living or family.
Labor court verdicts rule that "additional payments to base salary are not to be included in calculation of severance pay. However, what institutes an "addition" ? An employer simply naming something an addition on the payslip does not make it such. The essence of the addition is always to be checked before deciding whether an addition is real or fictitious.
The additions that are "fictitious" are to be seen as part of the base salary for all intents and purposes (including severance pay).
In order to determine whether an addition is not "fictitious", there needs to be a condition or changing situation, whereas, if the condition is not met the addition is not paid. For example, an employee who receives a rebate of expenses at a set amount each month, regardless of whether he submits invoices or not – this would be considered fictitious. If the employer changes the amount each month based on the invoices that the employee submits, it would be considered an actual addition.
In our case, the employee received a payslip which itemized the base pay as well as the payment for "waiving the rights to a car". The question is: Did the employee do any action or maintain a certain condition in order to receive this "addition" or not ?
As far as the facts, it is obvious that the answer is no. therefore the "waived car" addition is salary for all purposes and the employer needs to include this "addition" in the calculation of severance pay.
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Moshe Egel-Tal, CSPP
Founder and CEO, Israpay "making payroll simple"
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