Employing workers by outputPay by results · legal, flexible and performance-based

Q: Is a sales bonus considered wages?

Yes. The Israeli labor court ruled that a sales bonus is treated as wages for all purposes, so social and pension contributions apply to it exactly as they do to base pay.

Want to measure workers by their output and pay generously · but only when there are results? Here is how it works under Israel's Minimum Wage Law and labor law, and how NETO lets you employ a worker as if they were a freelancer · high, performance-based reward, without the worker opening a registered business.

Can you employ a worker and pay strictly by output?

Not entirely. Under Israeli labor law, the Minimum Wage Law and the Wage Protection Law, a worker must be paid wages and social benefits based on the hours actually worked · so the pay for every hour must reach at least the minimum wage. You can certainly reward by results, usually by splitting the wage into a base and bonuses tied to output. With NETO you can also engage a worker as if they were a freelancer · a high, performance-based reward, while the employer receives a lawful tax invoice, and it is entirely legal.

On this page

Why employers want to pay by output
Can you employ strictly by output?
How do you employ by output?
Legal aspects · minimum wage and case law
NETO's solution
Comparison · standard employment vs NETO
Frequently asked questions
Summary

Why employers want to pay by output

Employing workers by output and paying by results sounds great · but it does not suit every business. Some employers want to measure workers by their output and pace, and typically pay generously · but only on condition that there are results, and in line with the results achieved.

This way the employer can reduce financial risk and the amount of supervision and management the worker requires, and secure motivated, high-performing workers with a shared goal and interest · profit. The method is common across industries such as manufacturing, agriculture, logistics and services · for example sales agents, website builders and couriers.

Employing workers by output and paying by results · between labor law and performance-based reward

Can you employ strictly by output?

Not really. The issue is that under Israeli labor law, the Minimum Wage Law and the Wage Protection Law, a worker must be paid wages and social benefits based on the hours actually worked · so a situation can arise where the worker earns and the employer loses.

Of course, once the employer sees that a worker is causing a loss, they will most likely not keep them on · but reality is dynamic and not always clear-cut, with ups and downs and seasonality. That is why it is important to build a reward model that complies with the law while still rewarding performance.

How do you employ a worker by output?

The wage is usually split into a base and bonuses paid according to results. There is one essential point to remember: the Israeli labor court has already ruled that a sales bonus is treated as wages for all purposes, so social and pension contributions apply to it · exactly as they do to base pay.

Minimum wage comes first: even when rewarding by output, the pay for every hour worked must reach at least the minimum hourly wage · even if the worker did not complete enough units in that hour.

Legal aspects · output-based pay in Israel

Output-based pay is a compensation method in which the worker is paid according to the number of units they produce or complete. Before building such a model, it is worth knowing three legal layers:

Minimum Wage Law: the Minimum Wage Law, 5747-2007, sets a minimum hourly wage for every worker in Israel. Output-based pay must guarantee the worker the minimum wage for every hour worked · even if they did not produce or complete enough units.
Collective agreements: many collective agreements in Israel set specific arrangements for output-based pay · a base wage, per-unit rates and wage supplements according to output.
Employment contracts: an individual employment contract may set output-based pay · as long as the guaranteed wage meets the requirements of the Minimum Wage Law and any applicable collective agreement.

The terms "output" and "pay by results" in labor law

The Minimum Wage Law does not explicitly use the terms "output" or "pay by results", yet it sets a minimum hourly wage · which is effectively a minimum payment for a certain output. By contrast, many collective agreements and labor court rulings do use these terms to describe compensation methods in which the worker's wage depends on the number of units they produce or complete.

Legal bottom line: output-based pay is a lawful compensation method in Israel · but it must comply with the Minimum Wage Law, the collective agreements and the employment contracts.

Please note: the information on this page does not constitute legal advice. In specific cases, it is advisable to consult a lawyer who specializes in labor law.

NETO's solution for output-based employment

With the NETO system you can engage a worker as if they were a freelancer · and enjoy the best of all worlds:

1A wider range of workers

You can work even with people who have not opened a registered business · the worker issues an invoice through NETO and is paid via a payslip.

2Flexibility for both sides

Great flexibility for the employer (who orders the service) and the worker (the freelancer) · without the bureaucracy of a traditional manpower company.

3High, performance-based pay

The reward can be high and tied to results · the employer receives a lawful tax invoice and NETO handles all the rest.

Employ a worker as if they were a freelancer

Standard employment vs NETO · comparison

Point	Standard output-based employment	Employment through NETO
Meeting the minimum wage	The employer must verify it every hour	Guaranteed · NETO ensures legal compliance
Worker without a registered business	Not possible · the worker needs an employment framework	Possible · the worker invoices through NETO
Bureaucracy for the employer	Payroll, contributions and reporting	You receive one tax invoice · everything handled
High performance-based reward	Possible · subject to contributions on bonuses	Possible · flexible and tied to results
Social and pension contributions	The employer's responsibility · including on bonuses	Handled within the service

Frequently asked questions

Can you employ a worker strictly by output?

Not entirely. Under Israeli labor law, the Minimum Wage Law and the Wage Protection Law, wages and social benefits must be paid based on the hours actually worked. You may reward by output, but the pay for every hour must reach at least the minimum wage.

How do you legally employ a worker by output?

The wage is usually split into a base and bonuses paid according to results. Note that the labor court ruled that a sales bonus is treated as wages for all purposes, so social and pension contributions apply to it.

What is the minimum hourly wage in Israel?

The Minimum Wage Law, 5747-2007, sets a minimum hourly wage for every worker. Output-based pay must guarantee at least the minimum wage for every hour worked · even if not enough units were completed.

What is NETO's solution for output-based employment?

With NETO you can engage a worker as if they were a freelancer · they issue an invoice and are paid via a payslip, the employer receives a lawful tax invoice, and the reward can be high and performance-based · without opening a registered business.

Is a sales bonus considered wages?

Yes. The labor court ruled that a sales bonus is treated as wages for all purposes, so social and pension contributions apply to it · exactly as they do to base pay.

Which workers is output-based employment suited to?

The method is common in manufacturing, agriculture, logistics and services · for example sales agents, website builders and couriers. Even so, each case should be examined on its merits · here is how to pay a freelancer without a registered business.

Summary

Output-based pay is legal in Israel · but it must comply with the Minimum Wage Law, the collective agreements and the employment contracts.
The wage is usually split into a base and bonuses · and a sales bonus is treated as wages, including social and pension contributions.
With NETO you can engage a worker as if they were a freelancer · high, performance-based reward, without the worker opening a business.
The employer receives a lawful tax invoice and NETO ensures legal compliance · less bureaucracy, more flexibility.

Employ a worker by output · legal, in one click

Register as an employer and start engaging a worker as if they were a freelancer · a high, performance-based reward, without the bureaucracy. Have a question? We are here on WhatsApp.