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Hiring in Israel.? Read on to find out the employment norms (like taxes, payroll and benefits) and EOR (Employer on Record) norms in Israel..
Employment Norms in Israel.
Israel is the most advanced country in Western Asia. It has a high growth rate and its ranking in global competitive indexes has increased over the years. Israel also hosts a phenomenal startup culture and ranks high in ease of doing business. The employer-employee relationship in Israel is determined by the employment agreement and local laws, which shall be discussed here.
General Information:
- Isreal's currency is New Shekel ILS.
- Jerusalem is the capital of Israel
- English, Arabic and Hebrew are the official language of Isreal and market practice are to draft all documents in the official language only unless otherwise stated clearly.
- As of 2022, the GDP of Israel was reported to be 527.18 billion dollars (nominal) and 496.84 billion dollars(PPP)
The employment relations in Israel are an amalgamation of the:
- the constitution rights
- basic laws of labor
- statutory rights
- the precedent set by the National Labour court
- ILO conventions
- EU standards of labor.
Table of Contents
- Agreements
- Onboarding Process
- Visa
- Minimum Wage
- Payroll Cycle
- Annual Bonus
- Health Benefits
- Working Hours and Overtime
- Leaves
- Social Security
- Taxes for Employers
- Taxes for Employees
- Probation
- Termination
- Severance Pay
- Employees or Contractors
- Final Words
AgreementsOnboarding ProcessVisaMinimum WagePayroll CycleAnnual BonusHealth BenefitsWorking Hours and OvertimeLeavesSocial SecurityTaxes for EmployersTaxes for EmployeesProbationTerminationSeverance PayEmployees or ContractorsFinal Words
Agreements
- There are two types of employment contracts in Israel- Indeterminate contracts(revoked at will) and fixed-term contracts (for specified time or project). The businesses can choose the type of contract based on their requirements.
- The employer and the employee need to sign a contract within 30 days of starting the work.
- The written contract should contain detailed information regarding working hours, salary range, terms of work, insurance, leaves, and unemployment compensation.
- The written contract is usually drafted in Hebrew but the English translation is also included.
Onboarding Process
The market practice is to finish the onboarding process within 2-6 days. The onboarding process should get completed within 2 days as soon as the SOW is signed by the client.
Following is the documentation for the onboarding process:
- National ID/ Passport
- Work permit/ VISA
- Tofes 101 Income tax forms
- Income tax certificate
- Immigrant certificate
- 119 form for employees with a Master's degree
Visa
- Foreign employees will need to obtain a B/1 work visa, which is valid for 30 days period.
- To work beyond 30 days, employees will need a work permit.
- The documents needed for a work permit are:
- Signed employment contract with a company based in Israel.
- Valid Visa application
- Valid passport
- A medical certificate certifying medical fitness
- Background check
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Minimum Wage
The national minimum wage in Israel is 5300 to 5400 ILS per month. The amount of minimum wage sometimes may be mentioned in the hourly rate also- such as 29.013 ILS per hour, for 186 hours a month.
Payroll Cycle
A monthly payroll cycle is followed in Israel.
Annual Bonus
Though it is not mandatory for the employer to pay the 13-month pay to the employee, most of the employers do provide the same to their employees.
- The conditions and amounts of the bonus must be mentioned in the contract.
- Employees are entitled to annual claims only when they have completed the full 12 months with the same organization.
Health Benefits
- The Ministry of Health provides a universal healthcare system in Israel.
- The system is financed via health-specific payroll taxes and general taxation.
- It is also financed by private voluntary health insurance.
- Beneficiaries need to invest some amount in the scheme, either through their employers or through the voluntary private medium.
Working Hours and Overtime
- Work hours:Israel. The official working hours in Israel are 42 hours per week. The employee has to work 5 days a week starting from Sunday to Thursday.
- Break: Employees are generally provided with a 1-hour break each day.
- Overtime: Employers cannot engage employees in overtime for more than 12 hours a day. Weekly overtime cannot exceed the limit of 16 hours. 125% of the employee's hourly wage is paid for the first two hours of their overtime and after that 150% of the hourly wage is paid for every hour.
Leaves
Sick Leaves
- In Israel, employees get 1.5 days per month, for 18 days. The first day of the sick leave goes unpaid, which is termed the qualifying period.
Parental leaves
- Maternity leaves
- Mothers who have worked for full 12 months in the same organization get 26 weeks of paid leaves.
- Mothers who have worked for less than 12 months under the same employer get paid maternity leaves of 15 weeks.
Employees did not get a paid salary but a Maternity Allowance from the National Insurance Insititute. It is based on the contribution to national insurance.- If the employee has contributed for 6 months out of 14 months in national insurance taxes she can get a maternity allowance for 8 weeks.
- If the beneficiary has contributed for 10 months out of 14 months in national insurance tax she can get the allowance for 15 weeks.
- If the beneficiary has contributed for 15 months out of 22 months, she can get the allowance for 15 weeks.
- Paternity leaves
- If a second spouse other than the mother wishes to seek paternity leaves he/she is entitled if they have worked for 12 months with the same employer.
- Paternity leave is 1 month of paid leave, out of which 1 week should overlap with the mother's leave, and the rest should be taken when the mother joins back.
Annual leaves
The number of annual leaves in Israel is determined by the number of years of employment.
- The employees who work 6 days per week get 14 days off annual leaves.
- The employees who work for 5 days per week get 12 days of leave annually.
Bereavement leaves
After three months of employment, an employee become eligible for bereavement leave. This leave can be taken a maximum of 7 days and not deducted from the employee's sick leave or annual vacation leave.
Public Holidays (for the Calendar year 2023)
- Passover Day 1 (6th April)
- Passover Day 7 (7th April)
- Independence Day (26th April)
- Shavuot (26th May)
- Rosh Hashona (16th September)
- Rosh Hashona, Day 2 (17th September)
- Yom Kippur (25th September)
- Sukkot, Day 1 (30th September)
- Simchat Torah (7th October)
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Taxes for Employers
- Residents and non-residents contribute differently based on the various tax rates.
- Contribution to National Insurance may increase or decrease with income.
- The Employer's contribution to the National Insurance(for residents) ranges from 3.55-7.6%.
- The Employer's contribution for National Insurance(for non-residents) ranges from 0.59%-2.65%.
- The employer's contribution to the pension fund is 6.50% to 8.33%.
- The employer's contribution to the disability fund is 2.50%.
- The employer's contribution to the study fund amounts to 7.50%.
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Taxes for Employees
The Employees pay taxes either through contribution, which is deducted from their salaries or through income taxes.
- The employee's contribution to National Insurance for residents ranges from 0.4-07%, and for non-residents ranges from 0.04-0.87%.
- The employee's contribution to the pension fund is 6%.
- The health levy contribution from the employee's side is 3.1-5.0%.
- Employees' contribution to the study funds is 2.5%.
Following are the Individual income tax slabs:
- 10% tax rates for an annual income of 75,960 ILS
- 14% tax rates for 75,961-108,960 ILS
- 20% tax rates for 108,961-174,960 ILS
- 31% tax rates for 174,961-243,120 ILS
- 35% tax rates for 243,121-505,920 ILS
- 47% tax rates for 505,921-651,900 ILS
- 50% tax rates for income over 651,600 ILS
Probation
- The probation period in Israel can range anything in between 1-3 months.
- The probation period is determined by the contract between the parties and also by the relevant collective agreement.
- An employee is considered a full-time employee during the probation period.
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Termination
Termination in Israel should be based on a reasonable cause. It will be considered unreasonable if termination is due to do:
- Discrimination based on age, parenthood, race, sex, and nationality
- If the employee is absent due to a calling by the security forces for a national emergency.
- If there is no reasonable cause for termination.
The Notice period in Israel is determined by the duration of the employment.
- If the employee has worked for 1-6 months, then the notice period is 1 day for each month worked.
- If the employee has worked for 6-12 months, then the notice period is for 2.5 days for each month worked.
- If the employee has worked for more than 12 months, then the notice period is for 1 month.
Severance Pay
The severance pay in Israel is calculated as 8.33% of the salary for each year of employment.
Employees or Contractors
- It is important to draw distinctions between the employee and the contractor as per Israeli labor law.
- The misclassification will invite heavy penalties. although the distinction is somewhat clear while hiring, it can be further clarified through an iron-clad employment agreement.
- Under Israeli Law, an Independent contractor is not obliged to:-
- work under legally binding supervision
- perform work for a specified time of the day, as long as deadlines are met
- follow the organization's internal disciplinary procedures
- work exclusively with just one organization
- A contractor in Israel must register as self-employed with the National Insurance Institute.
To understand the difference between the employees and the independent contractor, the distinction can be made based on:
- control of the work
- ownership of the tool
- charge of profits
- profit/loss sharing
- regularity of employment.
Final Words
Israel is a leading hub in technology startups that offer great opportunities for a skilled workforce. Navigating the labor issues in Israel can be a difficult task. Any business looking to expand, cannot afford to slip up in HR-related compliance. Knowing all EOR-related terms will help the business to conduct its activities smoothly.
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