Employer of Record in Israel

An Employer of Record (EOR) in Israel is a company that legally hires employees on your behalf. This means you can build a team in Israel without setting up a local legal entity. The EOR handles all the official employment tasks like payroll, taxes, benefits, and compliance with Israeli labor laws, while you manage your team's day-to-day work. For companies looking to hire in Israel, an EOR provider like Rivermate simplifies the process.

How an Employer of Record (EOR) Works in Israel

Using an EOR in Israel allows you to hire talent quickly and compliantly. The process is straightforward.

• You Find the Talent: You identify the candidate you want to hire in Israel.
• The EOR Hires Them: The EOR legally hires the employee through its own local Israeli entity.
• Compliant Contracts: The EOR drafts an employment contract that complies with all Israeli labor laws, covering terms, compensation, and benefits.
• Onboarding: The EOR manages the onboarding process, including gathering necessary documents and setting up payroll.
• HR and Payroll Management: The EOR handles all HR administrative tasks. This includes processing salaries, withholding taxes, and managing social security contributions to Bituach Leumi (National Insurance).
• You Manage Your Team: You direct your employee's daily tasks and responsibilities, just like any other member of your team.

Why use an Employer of Record in Israel

Using an EOR in Israel helps you navigate a complex regulatory environment and saves you significant time and resources. Instead of facing the legal and financial hurdles of establishing a subsidiary, you can enter the market quickly and efficiently.

• Avoid Setting Up a Legal Entity: You can hire in Israel without the months of work and high costs associated with creating your own local company.
• Ensure Legal Compliance: EORs are experts in Israeli labor law. They manage the complexities of mandatory pension contributions, health insurance, and paid leave, protecting you from legal risks.
• Simplify HR and Payroll: The EOR takes on the administrative burden of payroll, tax withholding, and benefits administration.
• Enter the Market Faster: An EOR allows you to onboard new employees in a fraction of the time it would take to set up your own entity, giving you access to Israel's deep talent pool right away.
• Reduce Risk: The EOR, as the legal employer, assumes many of the statutory obligations and liabilities, reducing your company's exposure to compliance issues.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Israel includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Israel.

Hiring in Israel means tapping into a workforce known for its innovation and advanced skills. The job market is strong, especially in the tech sector. To hire employees, you need to understand local labor laws, which cover everything from employment contracts to termination procedures.

Employment contracts & must-have clauses

While you can have a verbal agreement, a written employment contract is highly recommended. In fact, for foreign workers, a written contract is required. At a minimum, you must provide employees with a written notice of their key employment terms.

Your employment contracts should include:

• Employee and employer details: Full names and identification numbers.
• Job description: The employee's title and main responsibilities.
• Start date: The official first day of employment.
• Working hours: The standard daily and weekly hours.
• Salary and benefits: Include the base salary, payment schedule, and details on social benefits like pension funds.
• Leave entitlements: Information on annual vacation and sick leave.
• Termination notice: The required notice period for both parties.

Probation periods

Probationary periods are common in Israel and typically last from three to six months. During this time, both you and the employee can assess if the role is a good fit. Employees on probation are still entitled to all statutory benefits, like minimum wage and social insurance contributions.

Even during probation, you must follow a formal hearing process before ending the employment relationship. However, the notice period for termination during the first year is shorter than for long-term employees.

Working hours & overtime

The standard workweek in Israel is 42 hours. For those working a five-day week, a typical workday is 8.6 hours. Any work beyond these hours is considered overtime.

Here’s how overtime pay works:

Public & regional holidays

Employees in Israel are entitled to paid time off for public holidays. There are 9 official Jewish holidays each year.

Here is a list of the main public holidays:

• Rosh Hashanah (2 days)
• Yom Kippur
• Sukkot (first day)
• Simchat Torah
• Passover (first and seventh days)
• Independence Day
• Shavuot

Non-Jewish employees can choose to take paid leave on their own religious holidays instead of the Jewish holidays.

Hiring contractors in Israel

You can hire independent contractors in Israel for project-based or specialized work. This offers flexibility and can be cost-effective since you don't have to provide the same benefits as you would for employees. Contractors manage their own taxes and social security contributions.

However, it's crucial to classify workers correctly. If a contractor's work relationship looks more like a traditional employment arrangement, you risk misclassification. This can lead to serious consequences, including being required to retroactively pay for employee benefits and facing fines.

An Employer of Record (EOR) can help you avoid these risks. An EOR acts as the legal employer for your team members in Israel. They handle all the legal and HR tasks, like payroll, taxes, and benefits, ensuring you comply with local labor laws. This lets you focus on managing your team's day-to-day work without the legal complexities of international hiring.

In Israel, your payroll is more than just a transaction. It reflects a unique system governed by a collection of laws rather than a single code. You pay your employees monthly. Staying compliant means understanding various components, from social contributions to specific annual payments. This guide breaks down what you need to know.

Payroll cycles & wage structure

You process payroll in Israel on a monthly cycle. Employees must receive their pay at least once a month. The payslip is typically detailed, showing gross pay and all deductions.

Beyond the base salary, your employee's compensation can include other payments.

• Bonuses and Commissions: You must report and tax any extra payments like bonuses or commissions within the pay cycle they are paid.
• Recreation Payment (Dmei Havraa): After an employee completes one year with your company, you are required to pay them an annual recreation payment. The amount depends on their seniority and is typically paid in the summer months.

Overtime & minimums

You must pay employees at least the national minimum wage. As of April 2024, the minimum wage is NIS 5,880.02 per month.

For any hours an employee works beyond their standard day, you must pay overtime.

• First two hours: Pay 125% of the employee's regular hourly rate.
• After two hours: Pay 150% of their regular rate for any additional hours.

Employer taxes and contributions

As an employer, you contribute a percentage of the employee's salary to social security and pension funds. These payments are mandatory. The total employer cost is typically between 20.8% and 24.33% of an employee's salary.

Employee taxes and deductions

Employees also contribute to social security and health insurance from their gross salary. You must deduct these amounts and pay them to the government.

In Israel, employee benefits and leave are a mix of legal requirements and common practices. You'll find a solid foundation of statutory leave and benefits. Many companies, especially in the tech sector, offer extra perks to attract and keep top talent. This creates a competitive landscape where benefits play a big role.

Statutory leave

Here's a breakdown of the legally required leave you must provide:

• Annual Leave: The amount of paid vacation your employees get increases with their seniority. For the first five years, the minimum is 12 working days for employees on a five-day work week. This entitlement grows to 14 days in the sixth year and 15 in the seventh, with an additional day for each subsequent year up to a maximum.
• Sick Leave: Employees accumulate 1.5 sick days for each month of work, with a cap of 90 days. You don't pay for the first day of sickness. For the second and third days, you pay 50% of their regular wage, and from the fourth day on, it's 100%.
• Maternity Leave: An employee who has worked for you for at least a year is entitled to 26 weeks of maternity leave. The National Insurance Institute pays for 15 of these weeks. For employees with less than a year of service, the leave is 15 weeks.

Public holidays & regional holidays

Your employees are entitled to paid leave for public holidays. The number of days can vary based on the employee's religion. Here are the main public holidays in Israel:

Typical supplemental benefits

To stay competitive, many companies offer more than the legal minimum. Here’s a look at statutory versus common non-statutory benefits:

How an EOR can help with setting up benefits

Setting up a benefits plan in a new country can be complex. An Employer of Record (EOR) simplifies this process for you.

An EOR already has a legal entity in Israel. This means you don't have to go through the time and expense of setting one up yourself. They handle all the legal and HR responsibilities that come with hiring employees.

Here's how an EOR can help you with benefits:

• Compliance: An EOR ensures your benefits package complies with all of Israel's labor laws. This saves you from having to become an expert in local regulations.
• Speed: You can hire and onboard employees in a fraction of the time it would take to do it on your own.
• Benchmarking: An EOR can provide insights into what other companies in your industry are offering. This helps you create a competitive benefits package that attracts top talent.
• Administration: The EOR manages the day-to-day tasks of benefits administration. This includes everything from enrolling employees in plans to handling payroll deductions.

By partnering with an EOR, you can offer your employees in Israel a comprehensive and compliant benefits package from day one.

Ending employment in Israel is a structured process with clear legal steps. It is not as simple as giving a notice and a final paycheck. Israeli labor law protects employees, and you must follow specific procedures. If you misstep, you could face financial penalties and legal trouble. A key part of this process is the pre-termination hearing, known as a "shimu'a". This hearing is a legal requirement where you present your reasons for considering termination, and the employee has a right to respond.

Notice periods

You must provide employees with written notice before termination. The length of the notice period depends on how long the employee has worked for you.

For salaried employees:

• First 6 months: 1 day of notice for each month of work.
• Months 7 to 12: 6 days of notice, plus an additional 2.5 days for each month worked after the sixth month.
• After 1 year: 1 full month of notice.

For hourly employees, the notice period is:

• First year: 1 day for each month worked.
• Second year: 14 days, plus 2 days for every two months of work.
• Third year: 21 days, plus 1 day for every two months of work.
• After three years: 1 full month of notice.

Severance pay

Terminated employees in Israel are generally entitled to severance pay. The standard is one month's salary for each year of service. The calculation uses the employee's average pay over the last 12 months. Some employers contribute a portion of the employee's monthly salary to a severance fund, which can offset this cost.

How Rivermate handles compliant exits

At Rivermate, we manage the entire offboarding process to ensure you comply with Israeli law. We take a clear and structured approach to every employee exit.

Our process includes:

• Pre-termination Hearing: We guide you through the mandatory "shimu'a" hearing. We help you prepare the written invitation with the reasons for the potential termination and ensure the employee has adequate time to prepare.
• Documentation: We handle all necessary paperwork. This includes the final decision letter and any settlement agreements. We make sure everything is clear and properly documented.
• Final Payments: We calculate and process all final payments. This includes the employee's last salary, unused vacation days, and any severance pay they are owed.
• Pension Fund Release: We ensure a prompt release of the employee's pension funds.
• Company Property: We coordinate the return of all company property, such as laptops and phones.

Getting the right visas and work permits in Israel can be complex. The process requires close cooperation between you and your employee. It's important to understand the different visa types and what's practical for your business. Planning ahead is key to a smooth process.

Employment visas & sponsorship realities

The most common route for foreign workers is the B/1 work visa. This visa is for individuals who have a job offer in Israel and have obtained a work permit. The B/1 visa is typically valid for one year and can be renewed.

Here is a breakdown of the process:

• Employer's Role: You, as the employer, must start the process by applying for a work permit from the Ministry of Interior.
• Employee's Role: Once the permit is approved, your employee applies for the B/1 visa in their home country.
• Arrival in Israel: Upon arrival, the employee must register with the local authorities to finalize the process.

An Employer of Record (EOR) can help you navigate this process. They can manage the paperwork and ensure compliance with local laws. However, the Israeli government has not fully established regulations for EORs to sponsor work visas. This means that applications submitted by an EOR may face extra questions and scrutiny. The authorities prefer the company where the employee will physically work to be the direct sponsor.

The most practical route to obtaining a work permit is through direct sponsorship by your company if you have a legal entity in Israel. If you do not have a local entity, an EOR can still be a valuable partner, but you should be aware of the potential challenges.

Business travel compliance

For short-term business trips, many nationalities can enter Israel for up to 90 days without a visa for activities like meetings and negotiations. However, any "productive work," such as hands-on repairs or active consulting, requires a work visa, regardless of the trip's length.

Starting in January 2025, visitors from visa-exempt countries will need an Electronic Travel Authorization (ETA-IL) before traveling to Israel. This authorization is for stays up to 90 days.

For short-term work assignments, the Short-Term Employment Authorization (SEA) offers a faster alternative to the standard B/1 visa process. The SEA program allows for work in Israel for up to 45 days in a calendar year. The application process is quicker, taking about 6-10 working days for approval.