Hire, Manage, and Pay Employees in Israel Compliantly

Employer of Record (EOR) vs. entity

If your company doesn’t already have a presence in Israel, the first step is to decide whether to hire employees through an EOR or by setting up a local entity.

• Local entity in Israel: Setting up a legal entity from scratch can be a time-consuming and complex process that typically requires registering your business with local tax and social security authorities, opening a local bank account, consulting with local legal experts to ensure you’re complying with all the right tax and labor requirements, etc.
• Israeli EOR: An Employer of Record (EOR) is a third-party service that hires employees on your behalf and handles all the legal requirements like payroll, employment contracts, and benefits, streamlining the process and ensuring local compliance.

There are pros and cons to each, and deciding between hiring employees via an EOR or via your own entity really depends on your company’s resources, size, and future plans to scale in Israel. EORs are fast and simple to set up, particularly at the outset. It is worth noting that if you plan to expand your business, it is prudent to consider how EOR costs will change as you grow. A local entity takes more time and resources now, but if you plan to expand your business in Israel, it could help you save money down the road.

Classifying Israeli workers: Employees vs. contractors

Another crucial consideration in the early stages of hiring workers in a new country is classification. Like many countries, Israel classifies employees and contractors differently—and puts the onus on employers to ensure they’re following classification rules and treating their workers fairly and correctly.

Here are some of the main ways Israeli courts distinguish between employees and contractors:

Misclassifying workers in Israel can result in being required to pay back wages, plus benefits like pension, severance pay, annual leave, and recuperation pay. Take our free Worker Classification Analyzer to help mitigate business risk by reviewing how your workers are classified in Israel and across the globe.

Work permits for Israeli employees

Before you can proceed with onboarding your Israeli employee, you need to make sure they’re allowed to work in Israel. The Israeli government offers a variety of work visas, but they’re competitive, so it can be difficult for foreign nationals to qualify unless they have highly specialized skills.

New hire onboarding checklist

Once you’ve verified that your new hire can legally work in Israel, it’s time for onboarding. This is your opportunity to create a foundation for a fulfilling work relationship from the beginning—and a successful onboarding experience takes place well beyond a new employee’s first day, so make sure you’re considering more than just day one logistics. Here’s what to keep in mind for each stage of your new employee’s onboarding:

Before their first day

• Complete a reference check 
• Have them complete a Form 101 (which is used for Israeli tax and social security purposes)
• Send an employment agreement (more on that in the next section)
• Prepare for tax withholdings 
• Enroll them in benefits (if applicable)
• Add them to payroll
• Order and configure their devices
• Schedule their orientation

On day one

• Make sure their workspace is ready
• Send a welcome email
• Give them an agenda 
• Schedule a meeting with their onboarding mentor 
• Give them an office tour

During their first 90 days

• Schedule training
• Assign work and help them set goals 
• Schedule regular check-ins
• Seek their feedback on how to improve the experience

What to include in an employment agreement in Israel

A written employment contract is mandatory in Israel, and it’s a good idea to work with qualified legal counsel to make sure you draft an agreement that complies with all necessary local regulations. Employment documents can be in Hebrew (Israel’s official language) or in English.

Here’s a basic checklist of what to include in the agreement, but keep in mind that this isn’t a comprehensive list:

• The position and a job description
• Start date, working days, and hours of work
• Details on the probationary period, if applicable
• Compensation and benefits, including payment frequency and any other relevant details, like whether they’ll be paid in Israeli New Shekels (NIS) or in USD
• Any collective agreements that will apply to the new employee in their role
• Your termination policy
• Confidentiality obligations and post-termination restrictions
• Contact information

Confidentiality and non-disclosure agreements in Israel

Confidentiality and non-disclosure obligations are often part of employment agreements. They can also be included in a standalone agreement called a non-disclosure agreement (NDA), a confidentiality agreement (CA) or a proprietary information agreement (PIA). 

In Israel, confidentiality and non-disclosure obligations are generally considered to be enforceable when they’re used to protect proprietary information in business relationships, and provided they are limited to justifiable time period post-termination. They don’t apply if the information is in the public domain, if a party signing the agreement already had lawful access to the information, or if a court requires the information to be disclosed.

Running background checks on Israeli employees

While many employers want to get their new employees onboarded as quickly as possible, skipping the background check can open your company up to potential threats. In Israel, though, it’s important to understand that there are strict laws governing employee background checks and the limited circumstances when they are legally permitted, including:

• Protection of Privacy Law, 5741-1981 (PPL)
• Basic Law: Human Dignity and Liberty
• Prevention of Employment of Sex Offenders in Certain Institutions
• Employment (Equal Opportunities) Law
• Various labor court judgments

Background checks are legal and allowed as long as they don’t violate any of the regulations set forth in these and other employment and labor laws. Employers are also required to notify job candidates about the reason for background check, how information will be shared and processed, and whether their response is voluntary or they have a legal duty to provide the information being requested.

Here are some of the common and less common background checks used when hiring Israeli employees:

Paying employees in Israel

One of the most complex parts of hiring a global team is figuring out how you’ll pay them. International employers are responsible for knowing and complying with all local regulations—from the currency you use to pay your employees to the taxes and employment costs you deduct from each payroll run.
Using global payroll software is often the most straightforward solution. With Rippling, you can pay all of your employees and contractors around the world without waiting on transfers or conversions—plus, Rippling instantly calculates and files payroll taxes for your employees worldwide.

Employer costs

Employers must pay these taxes for their Israeli employees:

Employee costs

Employees are responsible for these taxes, which employers deduct from their paychecks:

Mandatory employee benefits in Israel

Israel has both mandatory benefits and some that are supplementary but often offered by employers.

Mandatory benefits include:

• Pension fund: Both employees and employers contribute to pension schemes in Israel. The employer’s mandated contribution is 6.5% of each employee’s salary.
• Healthcare: Employers don’t need to provide health insurance directly; this entitlement is part of social security and provided through the country’s National Insurance Institute.
• Annual leave: Employees in Israel are entitled to paid time off that varies depending on their hours and length of service. Full-time employees are guaranteed at least 12 vacation days per year for their first five years of employment up to a maximum of 23 days off after nine years of service. Employees must use 7 days in order to carry over 7. The employer is obligated to make sure the employee takes at least 7 days a year.
• Recreation payment: Employees in Israel are entitled to additional salary payments called recreation payments. These are typically paid in the summer to coincide with traditional holiday periods. The amount of the payment is determined by law and depends on the employee’s length of service.
• Sick leave: Employees accrue sick leave at a rate of 1.5 days per month, up to a maximum of 90 days. When using sick leave, the statutory minimum is for employees to receive no pay for the first day, 50% pay for the second day, and 100% pay for the third and subsequent days—but employers can pay for sick leave from day one if they choose to.
• Advance Study Fund: The only tax-free employee savings plan available in Israel. After six years, contributions become liquid and the employee can use the funds for any reason. Employers contribute 7.5%, while employees contribute 2.5% up to the tax-free limit of 15,712 ILS per month.
• Bereavement leave: After three months of employment, employees are entitled to seven days of unpaid bereavement leave following the loss of a close relative.
• Parental leave: Israeli employees with over one year of service with the same employer are entitled to 26 weeks of maternity leave; those with less than a year of service are entitled to 15 weeks of maternity leave. Payment during maternity leave depends on how long the employee has been paying national insurance taxes. Employees are entitled to five days of paid paternity leave—three days from their annual vacation days and two days from their accrued sick leave.
• Reserve Duty Leave: It is forbidden to terminate an employee due to their service in the reserve forces, during their reserve service and for 30 days after the end of the reserve service, unless a permit is given by the employment committee at the Ministry of Defense (Employees who were absent from work due to service in the reserves exceeding 60 days during the designated period from October 7, 2023, through December 31, 2024, will be protected from dismissal for 60 days after their return from reserve duty). Employers are required to continue paying the reservist's salary, and they are reimbursed by the National Insurance Institute. The employer is required to continue paying social security Benefits during the time the employee is on reserve duty
• Public holidays: Israel recognizes nine official holidays, many of them Jewish holidays. The public holidays are non-working days, while the days before them are half days:
• First Day of Passover
• Seventh Day of Passover
• Yom Ha’atzmaut
• Shavuot
• Rosh Hashanah
• Yom Kippur
• First day of Sukkot
• Shemini Atzeret
• Simchat Torah

Managing remote employees’ computers and apps

If it’s your first time hiring employees in Israel, figuring out how to manage all of their devices remotely can be daunting. There’s a lot to keep track of, from delivering equipment to remote employees (sometimes from the other side of the world), to protecting and updating it from another location—not to mention creating repeatable processes for device and app management across your global teams. 
Rippling can help you instantly set up and secure employees’ accounts from day one. Read about setting up and managing remote employee devices overseas in our guide.

Protecting company IP in Israel

As your new employees gain access to sensitive information and confidential company accounts, protecting your intellectual property (IP) becomes paramount. In Israel, you have several options for obtaining exclusive rights to the IP your company creates, depending on what type of IP it is:

• Copyright registration: The original creator of a work such as literature, music, artistic creations, and computer software automatically has the exclusive rights to reproduce, distribute, and display it under Israeli law. Getting a copyright isn’t strictly necessary, but it can still be a good idea to establish proof of ownership and a public record of the work. Copyrights in Israel are registered with the Israeli Copyright Office.
• Patent applications: Patents give inventors exclusive rights to their inventions for a limited time. In Israel, you can patent a process, tool, or product, as long as it meets standards for innovation and newness. To do so, you’ll need to file an application with the Israel Patent Office (IPO).
• Trademark registration: Trademarks are used in Israel to protect distinctive words, symbols, or logos that identify the goods or services offered by a business. Registering your trademark gives you exclusive rights to use it and prevents other businesses or individuals from using it without authorization or imitating it. Trademarks are registered with the Israel Patent Office (IPO).

Terminating employees in Israel

Terminating employees in Israel is a complex process. Israeli law supplies a long list of obligations the employer must fulfill prior and during the employee’s dismissal procedure. 

Israeli law prohibits the termination of employment for certain groups of employees, such as pregnant women; employees expecting to adopt children, become foster parents or become parents with the assistance of surrogacy; employees undergoing fertility treatment; employees on maternity or paternity leave and for 60 days thereafter; employees on army reserve duty and 30 days thereafter; and employees on sick leave.

Employers first need to send the employee a written invitation to a hearing. This invitation details the claims for which the employer is considering the dismissal. The employee has the option to appoint a lawyer to represent them at the hearing. At the hearing the employee can address the reasons made by the employer for their intention to fire the employee and/or claims against the employees work, ethics, etc. After the hearing, the employer must reassess the need for termination, and should consult with their own legal counsel.

Employers are legally required to consider everything the employee said in the hearing, and send their final decision in writing. 

Employees who have worked for the employer for at least one year are entitled to severance pay of one month’s pay for every year of service. Employees who have worked for less than one year are not entitled to severance (unless they prove the dismissal is unjustified and an attempt to not pay severence). Both employee and employer are required to provide one other with notice periods:

Note that while Israeli law allows probation periods for new employees, probationary employees are entitled to all mandatory rights conferred on employees by law, including notice periods if terminated during this time.

Disclaimer: Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.