As 2022 has just ended and a new (vacation) year begins, it is good timing for reviewing your vacation policy and whether it is enforced in practice. If changes to the policy are planned, make sure to determine and adopt the lawful process for making those changes.
Entitlement to annual leave is treated in Israel as a social benefit, not as a monetary compensation. Therefore, the default according to law is that an employee is not entitled to redeem unused vacation days during the employment period. Redemption of unused vacation is, generally, only possible upon termination of employment.
Minimum Statutory Quotas
Israeli law sets minimum quotas for vacation days to which employees are entitled, and these quotas increase based on seniority in the same workplace or with the same employer.
Higher quotas may be required by other binding sources, such as extension orders. Each employer should ensure that the quotas provided are not lower than the legal requirement.
There is no automatic legal right to accrual of unused vacation days. However, an employer may agree on accumulation of unused vacation from one year to the next, provided that the employee has used at least seven calendar days during the year and that the remaining quota is used in the following two years.
The Covid pandemic and the rise in working remotely or in hybrid mode have taken their toll when it comes to using vacation days. Employees have taken less time off and, as a result, have accumulated a large number of vacation days. This may impact the wellbeing of employees, as well as the financial obligation arising from the accumulated days.
Employers should therefore evaluate their current policy on accrual of vacation days and the enforcement of that policy, and assess whether changes are needed.
Unlimited vacation policy
Several Israeli companies have chosen to adopt the US concept of unlimited vacation days. It is legally permissible for employers to have such a policy, but it cannot be adopted ‘as is’ in Israel. The policy must be adapted to local law, including the obligation to grant minimum vacation quotas.