Hiring in Israel: A Comprehensive Guide for International Employers

Israel stands out as a global tech powerhouse, often referred to as the “Startup Nation.” Its highly skilled, entrepreneurial workforce and robust innovation ecosystem make it a prime destination for international companies seeking top-tier talent. 

With a strong emphasis on technology, science, and engineering, Israel attracts organizations looking for expertise in software development, cybersecurity, AI, and more.

For foreign companies, hiring in Israel offers several strategic advantages:

• Access to a deep pool of skilled professionals, especially in technology and R&D.
• A business-friendly environment with clear legal frameworks for employment.
• Strategic location bridging Europe, Asia, and Africa, facilitating global operations.
• Strong infrastructure supporting remote and hybrid work models.

Whether you’re expanding your team or building a new presence, understanding Israel’s employment landscape is essential for success.

How to Hire Employees in Israel

Assess Your Hiring Needs

Before hiring in Israel, it’s crucial to clarify your business objectives and operational requirements:

• Full-time vs. project-based support: Decide if you need permanent staff or flexible, project-based contractors. This affects your obligations and costs.
• Local compliance requirements: Israeli labor law is comprehensive, covering contracts, benefits, and payroll. Ensure your hiring plan aligns with these regulations.
• Onboarding speed vs. long-term control: Weigh the benefits of fast onboarding (via EOR) against the control and scalability of setting up your own entity.

Hiring Options in Israel

You have two primary routes for hiring in Israel:

• Set Up a Legal Entity: Establish your own company in Israel, register with local authorities, and manage all HR, payroll, and compliance in-house.
• Partner with an Employer of Record (EOR): Engage a third-party provider to hire employees on your behalf, handling all legal, payroll, and compliance matters.

For a deeper dive into EOR models and their advantages, check out Employer of Record: The Complete Guide for Global Employers.

EOR vs. Legal Entity: Side-by-Side Comparison

Feature	Employer of Record (EOR)	Legal Entity Setup
Setup Speed	Fast (days to weeks)	Slow (months)
Compliance	Handled by EOR	Managed internally
Cost Structure	Service fee per employee	Higher upfront and ongoing costs
Control	Less direct control over HR processes	Full control over all operations
Scalability	Ideal for small teams or testing the market	Best for large, long-term operations
Exit Complexity	Simple offboarding through EOR	Complex wind-down process

Explore The Need for EOR, PEO & AOR for Global Expansion and Top 20 Countries Where You Definitely Need an EOR Service.

Understanding Worker Classification

Employees vs. Contractors in Israel

Correctly classifying your workers is critical in Israel. Misclassification can lead to significant legal and financial risks.

Aspect	Employee	Contractor
Control	Employer dictates how, when, and where work is done	Contractor sets their own methods and schedule
Integration	Integral part of company operations	Independent, works for multiple clients
Payment	Regular intervals (monthly)	Paid per project or invoice
Substitution	Must perform work personally	Can subcontract or provide a substitute
Benefits	Entitled to statutory benefits	Not entitled to employee benefits

Legal Implications and Risks of Misclassification

In Israel, misclassifying employees as contractors can result in:

• Liability for unpaid wages, severance, pension, and benefits.
• Back payment of social security and tax contributions.
• Fines and penalties from labor authorities.
• Legal disputes and reputational damage.

Employers must carefully assess each role and document the relationship clearly. 

For more on global worker classification, read W-2 and 1099 Forms: Differences, Usage, and Classification Regulations.

Hiring Costs and Payroll

Hiring Costs Overview

Hiring in Israel involves several mandatory employer contributions:

• Social Security: 3.55% on the first 7,522 ILS; 7.6% on income above that, up to 49,030 ILS.
• Severance Pay: 8.33% of salary.
• Pension Fund: 6.5% of salary.
• Advance Study Fund: 7.5% (capped at 15,712 ILS/month).
• Recreation Payment: Varies by tenure (e.g., 2,090 ILS for first-year employees).

These costs are in addition to gross salaries and must be factored into your hiring budget.

Payroll Setup Steps

To set up payroll in Israel:

1. Register your business with local tax and social security authorities.
2. Collect necessary employee documents (e.g., Form 101).
3. Set up payroll software or engage an EOR.
4. Calculate and withhold all required taxes and contributions.
5. Process monthly payroll and issue payslips.
6. Remit payments to authorities by statutory deadlines.

Income Tax Rates

Israeli employees are subject to progressive income tax rates (10%–50%), plus:

• Social Security: 0.4%–7% (employee share).
• Health Insurance: 3.1%–5% (employee share).
• Pension Fund: 6% (employee share).
• Advance Study Fund: 2.5% (employee share, capped).

Employers must deduct these amounts from salaries and remit them accordingly.

Payment Methods

Common methods for paying employees in Israel include:

• Direct Deposit: Most widely used, in Israeli New Shekels (NIS).
• Bank Transfers: For both local and international payments.
• EOR Payroll: If using an EOR, payments are managed on your behalf.

Check How Tarmack Streamlines Global Payroll and Compliance for Enterprise Growth.

Using Global Payroll Services

A global payroll platform can:

• Automate payroll calculations and tax filings.
• Ensure compliance with local labor laws.
• Integrate with HR and benefits administration.
• Support multi-currency and cross-border payments.

This reduces administrative burden and minimizes compliance risks. 

Learn more in Reducing Payroll Costs in Global Operations: Maximize Employee Satisfaction & Efficiency.

How to Properly Hire and Pay Contractors

When hiring contractors in Israel:

• Draft clear, project-based agreements outlining deliverables and payment terms.
• Ensure contractors invoice for completed work.
• Avoid integrating contractors into core business functions.
• Do not provide employee benefits or dictate work methods.
• Use compliant contractor management platforms to streamline payments and record-keeping.

For additional guidance, check out Freelancers, Independent Contractors & Consultants: Exploring Opportunities & Challenges.

Compliance Risks

Incorrect Payroll Contributions

Failing to calculate or remit correct payroll taxes can result in fines and audits. Employers must stay updated on contribution rates and reporting deadlines.

Permanent Establishment Risk

Hiring employees directly in Israel without a local entity may trigger “permanent establishment” status, leading to corporate tax liabilities. Using an EOR can help mitigate this risk. 

For more information, read Compliance Challenges in Establishing an Entity Overseas: Tips to Overcome.

Statutory Benefits

Mandatory benefits in Israel include:

• Pension contributions
• Severance pay
• Annual leave
• Sick leave
• Recreation payments
• Parental and bereavement leave

Non-compliance can result in legal claims and back payments.

Misclassification Risks

Incorrectly classifying workers exposes your business to:

• Retroactive benefit and tax liabilities
• Labor court disputes
• Penalties for non-compliance

Use tools and legal counsel to assess classification. 

Learn about the Misconceptions About Employers of Record: What You Need to Know.

Provincial/Regional Law Variances

Israel’s employment laws are national, with little regional variation. However, always check for sector-specific collective agreements that may impose additional requirements.

Overview of Intellectual Property Rights for Employers

Employers in Israel can protect company IP through:

• Copyright: Automatic for original works; registration recommended.
• Patents: Register with the Israel Patent Office for inventions.
• Trademarks: Register distinctive marks for brand protection.

Include confidentiality and IP assignment clauses in employment contracts to safeguard company assets. 

For more information, review Managing Intellectual Property (IP) Through EOR: Key Considerations for Businesses.

Onboarding Process

Before Their First Day

• Complete reference checks.
• Have the employee fill out Form 101 (tax/social security).
• Send a compliant employment agreement (in Hebrew or English).
• Prepare for tax withholdings and benefit enrollment.
• Add employee to payroll.
• Order and configure devices.
• Schedule orientation.

On Day 1

• Ensure workspace or remote setup is ready.
• Send a welcome email and agenda.
• Assign an onboarding mentor.
• Tour the office (if applicable) or introduce remote tools.

During Their First 90 Days

• Schedule training sessions.
• Assign initial projects and set performance goals.
• Hold regular check-ins.
• Gather feedback on the onboarding experience.

For more onboarding tips, see Top Eight Best Practices for Onboarding International Employees: How EOR Can Help.

Offer Letter Essentials

A written employment contract is mandatory and should include:

• Job title and description
• Start date, working hours, and probation period
• Compensation details and payment frequency
• Applicable collective agreements
• Termination policy
• Confidentiality and post-termination clauses
• Contact information

NDAs and Confidentiality

Confidentiality clauses are enforceable in Israel when protecting proprietary information. NDAs should be:

• Limited to reasonable timeframes
• Not applicable to public or previously known information
• Compliant with Israeli law

Running Background Checks

Background checks are regulated by privacy laws. Employers must:

• Notify candidates of the purpose and scope of checks
• Obtain consent for processing personal data
• Limit checks to employment history, education, and public social media
• Restrict criminal and credit checks to permitted roles

Remote Employee Management

Managing remote employees in Israel requires careful planning:

• Computer Access: Ship and configure devices before the start date. Use remote management tools to ensure security and updates.
• App Access: Set up secure logins and permissions for all necessary software. Use identity and access management solutions to control access.
• IP Protection: Include IP assignment and confidentiality clauses in contracts. Use secure file-sharing and communication tools.
• Types of IP Rights: Register copyrights, patents, and trademarks as needed. Educate employees on company IP policies.

For more details on remote team management, read How to Manage Employees Remotely and Globally and Building Organizational Culture in Remote Teams: Employee Well-Being & Productivity.

Labor Law Compliance

Key Working Condition Requirements

• Standard Workweek: 42 hours, Sunday to Thursday.
• Overtime: Paid at statutory rates unless included in compensation.
• Minimum Wage: Regularly adjusted; check latest figures.
• Annual Leave: At least 12 days per year, increasing with tenure.
• Sick Leave: 1.5 days accrued per month, up to 90 days.
• Public Holidays: Nine official holidays, with additional recreation payments.

Working Conditions by Employment Type

• Full-Time Employees: Entitled to all statutory benefits.
• Part-Time/Temporary Employees: Pro-rated benefits.
• Contractors: No entitlement to statutory benefits.

No At-Will Employment

Israel does not recognize at-will employment. Termination must follow due process and legal protections.

Trade Unions and Collective Bargaining

Some sectors are governed by collective agreements, which may provide additional benefits or protections. Always check if your industry is affected.

Termination Guidelines

Acceptable Termination Reasons

Terminating employees in Israel must be justified and follow legal procedures. Acceptable reasons include:

• Performance issues (with documentation)
• Redundancy or restructuring
• Misconduct (with evidence)
• End of fixed-term contract

Certain groups (pregnant women, reservists, employees on leave) are protected from dismissal without special permissions.

Notice Periods and Legal Protections

Notice periods depend on tenure:

• Up to 6 months: One day per month of employment
• 6–12 months: 2.5 days per month, plus 6 days
• Over 1 year: 30 days

Employees are entitled to severance pay after one year of service. All terminations require a hearing process, written notice, and consideration of employee responses.

Check out the Suggested Script for Terminating an Employee Professionally & Respectfully.

Benefits of Hiring in Israel

• Highly Skilled Talent Pool: Access to world-class engineers, developers, and R&D professionals.
• Cost Efficiency: Competitive compensation compared to Western Europe and the US.
• Time Zone Advantage: Overlaps with both European and Asian working hours.
• Robust Infrastructure: Advanced digital and physical infrastructure supports remote and hybrid work.
• Innovation Ecosystem: Proximity to leading research institutions and startups.
• Strong IP Protections: Clear legal frameworks for safeguarding company assets.

Expand Globally While Hiring Locally in Israel

Hiring in Israel offers international employers a unique blend of skilled talent, robust legal protections, and strategic advantages. 

By understanding the local employment landscape—worker classification, payroll, compliance, and onboarding—you can build a successful, compliant team that drives your business forward. 

Leveraging the right hiring model, whether through an EOR or a local entity, is key to a smooth market entry and ongoing success.

Ready to simplify your global hiring in Israel?

Contact Tarmack today to streamline your hiring, payroll, and compliance across 150+ countries.