Employer of Record in Israel

Expanding your team into Israel offers access to a highly skilled and innovative workforce, but navigating the local employment landscape requires careful consideration. Companies looking to hire employees in Israel typically have a few primary avenues. Understanding these options is crucial for ensuring compliance and efficient operations, especially given Israel's distinct labor laws and social security requirements.

To hire employees in Israel, you generally have three main options:

• Establishing a local legal entity: This involves incorporating a subsidiary or branch office in Israel, which can be a complex, time-consuming, and costly process, requiring significant administrative overhead and a deep understanding of local corporate and tax laws.
• Utilizing an Employer of Record (EOR): An EOR service, such as Rivermate, allows you to hire employees in Israel without establishing your own legal entity. The EOR acts as the legal employer, handling all compliance, payroll, and HR functions, while your company retains full control over day-to-day management.
• Hiring independent contractors: While seemingly straightforward, engaging individuals as independent contractors carries significant risks of misclassification if the working relationship resembles that of an employee, potentially leading to severe penalties under Israeli labor law.

How an EOR Works in Israel

An Employer of Record simplifies global expansion by taking on the legal and administrative burdens of employing staff in Israel. Specifically, an EOR in Israel handles:

• Payroll processing and tax withholding: This includes calculating and remitting income tax, national insurance (Bituach Leumi), and health insurance contributions in compliance with Israeli regulations.
• Compliance with local labor laws: Managing all aspects of Israeli employment law, including mandatory benefits, severance pay, notice periods, working hours, and holiday entitlements.
• Onboarding and offboarding: Ensuring all hiring and termination processes adhere to Israeli legal requirements, including drafting compliant employment contracts.
• Benefits administration: Providing and managing mandatory employee benefits such as pension contributions, health insurance, and other social security entitlements.
• Visa and work permit sponsorship: Facilitating the necessary permits for foreign employees who require them to work legally in Israel.

Benefits for Companies Looking to Hire in Israel Without Establishing a Local Entity

Engaging an EOR like Rivermate offers distinct advantages for companies aiming to tap into Israel's talent pool without the commitment of setting up a local entity:

• Rapid market entry: Expedite your hiring process and onboard employees in Israel quickly, allowing you to seize market opportunities without delays.
• Reduced legal and compliance risks: Mitigate the complexities and risks associated with navigating Israel's intricate labor laws, tax regulations, and social security system.
• Cost-effective alternative: Avoid the significant financial investment and ongoing administrative costs associated with establishing and maintaining a local subsidiary.
• Access to top Israeli talent: Recruit and retain skilled professionals in Israel, offering them a fully compliant and competitive employment package.
• Simplified HR administration: Delegate all local HR, payroll, and benefits management to experts, allowing your internal teams to focus on strategic growth.

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.

Israeli employers must contribute to social security and payroll taxes for their employees in 2025. The total employer social security contribution is 11.15%, covering National Insurance (7.60%) and Health Insurance (3.55%). Additionally, a payroll tax of 6.5% applies to gross salaries. Employers are responsible for withholding income tax based on progressive brackets, with rates ranging from 10% to 47%, depending on income levels.

Employers must file monthly tax returns (Form 102) by the 15th of the following month and provide annual income statements (Form 106) by March 31. Employees benefit from deductions such as pension contributions, life insurance, charitable donations, and tax credits for children and disabilities. Foreign entities should consider special rules like withholding taxes, permanent establishment implications, and tax treaties to ensure compliance.

Israel's salary landscape in 2025 is heavily influenced by its thriving tech sector, with high demand for skilled professionals such as software engineers, data scientists, and cybersecurity experts. Market rates vary significantly by industry and experience, with tech roles commanding the highest salaries. For example, software engineers earn between ILS 180,000–240,000 at entry-level and up to ILS 450,000–650,000 at senior levels annually.

Minimum wage laws require employers to pay at least ILS 32.30 per hour (approximately ILS 5,880 monthly), with strict compliance enforced. Employers also commonly provide bonuses such as performance incentives (5–20% of salary), holiday bonuses (up to one month’s salary), and benefits like pension contributions, car, meal, and education allowances. The standard payroll cycle is monthly, with payments made via direct deposit and detailed payslips required.

Salary growth is driven by sector expansion, inflation, remote work trends, and skill shortages, prompting higher wages and competitive hiring practices across industries. Employers must stay compliant with evolving regulations and consider offering comprehensive benefits to attract talent in this dynamic market.

Israeli labor law mandates minimum annual vacation based on seniority and workweek length, with employees earning between 14-20 days for 5-day weeks and 16-24 days for 6-day weeks, increasing with years of service. Employees are entitled to full pay during vacation and can accrue days within limits. Public holidays, including Rosh Hashanah, Yom Kippur, Sukkot, Passover, Shavuot, Independence Day, and Labor Day, typically result in paid days off, with additional compensation if worked.

Sick leave accrues at 1.5 days/month up to 90 days, with partial pay on days 2-3 and full pay from day 4 onward, requiring medical certification. Parental leave includes 26 weeks maternity leave (14 weeks if less than 12 months employed), 5 days paternity leave, and adoption leave depending on circumstances. Additional leave types include bereavement, study, sabbatical, and marriage leave, often governed by company policies.

Israel's employment laws mandate essential benefits such as a minimum wage of 5,880.02 NIS/month (2025), a 42-hour workweek, paid annual leave starting at 14 days, sick leave accumulation, and contributions to the National Insurance Institute covering social security, unemployment, disability, and maternity benefits. Mandatory pension contributions from both employer and employee are required, along with severance pay and paid holidays. Employers must also adhere to regulations regarding maternity, paternity, and bereavement leave.

Beyond legal requirements, many employers enhance compensation with optional benefits like private health insurance, professional development, company cars, meal vouchers, stock options, life and disability insurance, wellness programs, flexible work arrangements, and bonuses. Israel's universal healthcare system provides basic coverage through HMOs, but private insurance is common for broader access and faster services, with costs shared between employer and employee.

Benefit packages vary by industry and company size, with tech firms offering comprehensive perks such as stock options, private insurance, and wellness programs, while startups may prioritize stock options and growth opportunities. Large corporations typically provide structured benefits, and SMEs focus on core mandatory benefits plus essentials like private health insurance and professional development. Employers must ensure compliance with Israeli labor laws, and partnering with an Employer of Record (EOR) can facilitate adherence and tailored benefits offerings.

Israeli employment agreements are governed by legislation, collective agreements, and case law, emphasizing compliance with labor laws to protect employees. Employers must provide written employment terms within seven days of start date. Agreements are mainly categorized into fixed-term and indefinite-term contracts, with specific legal restrictions on the use and renewal of fixed-term contracts to prevent misclassification.

Key contractual clauses include job scope, salary, working hours, confidentiality, non-compete, and termination conditions. Fixed-term contracts specify a set duration and end automatically unless renewed, while indefinite contracts continue until legally terminated. Repeated renewal of fixed-term contracts may result in them being deemed indefinite, granting employees additional rights.

Employers should ensure clarity and legal compliance to mitigate disputes and adhere to Israeli labor protections.

Remote work in Israel is expanding, driven by technological advances and changing employee expectations. While there is no specific legislation, existing labor laws apply equally to remote employees, emphasizing clear employment contracts, adherence to working hours, safety, and equal rights. Key legal considerations include defining remote work terms, ensuring statutory rest and overtime, and maintaining employee safety and equal benefits.

Employers are adopting various flexible arrangements such as hybrid work, flextime, compressed workweeks, and job sharing to attract talent. Critical operational areas include data protection (compliance with Privacy Law, secure remote access, encryption, employee training), equipment and expense reimbursement policies, and robust technology infrastructure. Companies should provide reliable communication tools, cloud solutions, IT support, and ensure high-speed internet access, alongside implementing security measures against cyber threats.

In Israel, employee termination requires adherence to strict legal procedures, including providing written notice, conducting a pre-termination hearing, and maintaining detailed documentation. Notice periods vary based on tenure and payment type, ranging from 1 day per month for up to 6 months of employment to 1 month for employees with over three years of service. Employers can fulfill notice obligations through notice or salary payment in lieu.

Severance pay is mandatory, calculated as one month's salary per year of employment, with partial years prorated. It is generally required upon termination unless for gross misconduct, which is subject to legal scrutiny. Terminations can be "without cause" (most common) with full severance, or "with cause" for severe misconduct, where severance may be waived.

Employees are protected against wrongful, discriminatory, or retaliatory dismissals, with legal remedies including reinstatement or compensation. Employers must follow procedural steps to ensure lawful termination, including providing a clear written notice, conducting hearings, and settling final payments to mitigate legal risks.

Israel's independent workforce is expanding, offering businesses flexibility to access specialized skills without long-term commitments. Employers must navigate local regulations to correctly classify workers and structure agreements in compliance with Israeli labor law, mitigating risks like penalties for misclassification. Key distinctions between employees and contractors include personal obligation, integration into business operations, control over work, economic dependence, and financial risk. Courts weigh these factors to determine the true nature of the relationship.

Engaging independent contractors requires detailed service agreements outlining scope, deliverables, payment terms, and IP rights. Contractors must manage their own tax obligations, registering with authorities for income tax, VAT, and national insurance. They typically register as "Osek Patur" or "Osek Murashe," impacting VAT handling. Contractors are responsible for their own insurance and do not receive employee benefits. Common industries utilizing contractors include technology, creative services, consulting, education, and media, where project-based work and specialized skills are prevalent.

Israel's work permit system accommodates various visa types tailored to specific employment needs, with the most common being the B-1 work visa, suitable for general employment requiring employer sponsorship and skills verification. Other key visas include the A-2 for religious workers and expert visas for highly skilled professionals, each with distinct eligibility criteria and documentation requirements.

Employers must ensure compliance with application procedures, which involve demonstrating the necessity of foreign workers and adhering to visa durations. Pathways to permanent residency exist but require meeting specific criteria over time. Additionally, dependent visas are available for family members, facilitating their stay during the employment period.