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Israel – Employer of Record

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Capital – Tel Aviv
Currency –  Israeli Shekel (ILS)
GDP –  $527.18 Billion (estimated for 2022)
People/Nationality- Israeli
Language – Hebrew
Major Religion – Jewish and Islam
Population – estimated 8.9 Million as of November 2022

The country where the holy land of Jerusalem is found as well as the world’s most holy sites such as the Western Wall, the Dome of the Rock and the Al Aqsa Mosque, Israel defines itself as a Jewish and democratic state. Supported by a parliamentary system, proportional representation, and universal suffrage. The prime minister serves as head of government, while the Knesset is the unicameral legislature.

Israel is also known to be a vital hub for global business, having Tel Aviv as its technological and economical centre. The prosperity of Israel’s advancement allows the country to have a sophisticated welfare state and modern infrastructure rivalling many Western countries and a high-technology sector competitively on par with Silicon Valley. Some of the world-famous tech companies here are Apple, Google and Microsoft, all contributing to Israel’s fast-growing economy and business profitability. In fact, it is next to the United States when it comes to having the greatest number of start-up companies.

Contract of Employment

The Israeli labour law does not mandate a written employment contract. However, it is strongly recommended to furnish one in place. The employment contract should be in the local language, and spell out the terms of the employee’s compensation, benefits, responsibilities, scope of work, entitlements, working conditions, disciplinary procedures, termination, and severance payments. This, as well as the offer letter and mutual NDA, should always state the compensation amounts in Israeli Shekel instead of a foreign currency.

Main employment contract types are:

1. Indefinite, Open-ended Employment Contracts: The most common type of contract runs without a specified end date. The Notice of Discharge and Resignation Law requires both parties must give notice of dismissal or resignation. All employers and employees are subject to the laws on termination, which is permitted on reasonable grounds, excluding discrimination, if correct procedures are followed.

2. Fixed-term Employment Contract: This is for a specified period or are attached to a specific project. Termination of the contract by the employer before the agreed period entitles the employee to the balance of the salary that would have been paid for the full term.

3. Collective Bargaining Agreements (CBA): The Collective Agreements Law is the main legislation governing CBAs, setting out minimum terms and entitlements for employees, such as wages, sick leave, maternity benefits, paid vacations, and notice periods. CBAs can apply to specific sectors or companies, or generally with a wider scope. This can be extended by the Ministry of Economy to wider groups of employers and employees.

Probation Period

Although there is no law determining the length of a probationary period, there is an expectation that the employer will be reasonable to set one. Typically, the probationary period lasts up to a maximum of six months. If an employee is transferred to a new post internally, 3 months probationary period should suffice. During the probation period, the employee must be treated the same as a full-time employee. The required notice period is one day for each month worked up to six months.

Termination

An employer must state a justified reason for terminating an employee. Employees who have completed less than 1 working year are entitled to 1 day of advance notice for each of the first 6 months of work and 2 and a half days for each additional month. If a longer notice period is stipulated in the employment agreement, the agreement must be followed.

Upon dismissal, the employer must provide a written documentation regarding the commencement and termination of the labour relations. If an employer can’t provide this letter within 14 days from the moment of dismissal or within 7 days from the date of the employee’s written demand, whichever is earlier, it is liable to a monetary fine under the Israeli labour law.

Working Hours

The standard working period in Israel is 42 hours per week with estimated 7-9 hours daily working period. Employees should receive at least 48 hours of rest per week, usually taken on Friday and Saturday, resulting in a working week of Sunday – Thursday.

Overtime

It is illegal to let an employee work for more than 12 hours a day. All working hours above the standard hours per week are to be paid as overtime and are regulated by the employment contract/collective agreements. It must also be mutually agreed upon between the employee and the employer before commencing any overtime working hours.

Overtime pay must be 125% of the worker’s regular pay for the first 2 hours of overtime in a day and 150% for any hours thereafter. Those who work on a holiday or rest days are entitled to 150% of their normal pay and a vacation day.

13^th Month Pay

The 13th-month payment is not mandated in Israel. However, an employee is entitled to a Recreation Payment after 1 year of service. The payment is usually made between the months of July and September. The amount of compensation is determined by the law, updated annually, and must be in line with the number of employment years.

Annual Leave

The duration of the leave, in respect of a working year with the same employer or at the same place of employment shall be as follows. An employee who has a working year with the same employer or at the same place of employment is entitled to leave in the below manner:

For every year for the first 5 years – 16 days
From the sixth year – 18 days
From the seventh year – 21 days
For the 8^th year onward – an additional day for each year of work up to a leave of 28 days

The days of leave shall include not more than 1 weekly rest for 7 days of leave.

Working days are considered consecutive, even if there is a break in work due to reserve service work. The number of annual vacation days determined by law includes the weekly rest days.

Sick leave

An employee is entitled to an accrued sick leave of 1.5 days per month given a maximum of 90 days. The payment of sickness is dependent on the duration:

First day of sick leave – the employee is not entitled to pay.
Second and third day of sick leave – the employee is entitled to 50% of the regular pay.
Fourth day onwards – the employee is entitled to 100% of the regular pay.
The employee must then provide a medical certificate upon returning to work.

Maternity and Paternity Leave

Working mothers are entitled to paid maternity leave for a period of 15 days. The total period of leave for an employee having at least 1 year’s service is 26 weeks which can be split into a period of up to 7 weeks before the due date and the remainder after the delivery.

During the first 15 weeks of maternity leave, the mother is entitled to a birth fee from the National Insurance Institute at a rate of 100% of her salary. The remaining weeks are unpaid, but she may continue to accrue annual leave and pension fund contributions during maternity leave.

On the other hand, fathers are entitled to a paternity leave of 6 calendar days after birth.

VAT / GST:

The standard VAT rate for all other taxable goods and services in Israel is 17%.

Income Tax and Contributions

Employer Contributions:

3.55% Social Security (on the first 6,331 ILS)
7.60% Social Security (on the difference between 6,331 ILS to a maximum of 45,075 ILS)
8.33% Severance Pay
6.50% Pension Fund
2.50% Disability Insurance

Employee Contributions:

0.40% Social Security (on the first 6,331 ILS)
7.00% Social Security (on the difference between 6,331 ILS to a maximum of 45,075 ILS)
3.10% Health Insurance (on the first 6,331 ILS)
5.00% Health Insurance (on the difference between 6,331 ILS to a maximum of 45,075 ILS)
6.00% Pension Fund

Public Holidays

March 17 – Purim
April 16 – Pesach I
April 22 – Pesach VII
May 4 – Memorial Day
May 5 – Independence Day
May 9 – Victory Day
May 29 – Jerusalem Day
June 5 – Pentecost
August 7 – Fast of Ninth of Av
September 26-27 – Rosh Hashanah
October 5 – Day of Atonement
October 10 – Sukkot
October 17 – Simchat Torah
November 1 – Election Day
December 19 – Hanukkah

Severance Pay

Based on the labour law, an employee who has worked for 1 employer for at least a year is entitled to severance pay. It should also be considered in Israel that an employer who decides to terminate an employee close to the very end of the year may be deemed to have done so with the intention of avoiding the obligation to pay compensation. In that case, the employer is liable to pay severance compensation regardless.

The severance pay rate is 1 month’s salary for every year of work. If the employment contract determines the right to severance pay more than that determined by law, then it is calculated as specified in the contract. Calculation of the severance pay starts on the day of termination of employer-employee relations.

Work and Residence Permits (Expatriates)

Foreign employees will need to obtain a B/1 work visa before traveling to Israel. This visa is valid for a 30-day period. To work in Israel beyond 30 days, employees will need to obtain a work permit as well. They can apply for an Israeli work visa and permit at the same time.

Before undergoing an interview with the consulate officials in their country of residence,

The following requirements must be secured:

–  Signed employment contract with a company based in Israel
–  Valid passport
–  2 passport photos
–  Criminal background certificate from the applicant’s country of residence
–  Proof of fingerprints
–  Medical certificate (fit to work status)
–  Completed visa application form

The application process for an Israeli work visa is a collaboration between the employer and the foreign employee. The former needs to submit the application to the Ministry of the Interior in Israel. While the latter must submit the necessary documents to the Israeli consulate in his country of residence. Processing typically takes 4-8 weeks, after which a recommendation will be endorsed to the Ministry of Industry.

Israeli work permits are valid for an initial period of 1 year, and they must be renewed annually if the employee will continue to live and work in the country. To avoid facing fines, penalties, including the possibility of deportation, employees are required to always carry their passport as well as their work permit, whether they’re at work or not.

Some employees may wish to bring family members to Israel with them, spouses and dependents should apply for a B/2 visa at the same time the employee is applying for the B/1 visa. The B/2 visa is valid for temporary residence, and it’s typically issued for the same length of time as the employee’s working visa.

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