If you are hiring employees in Israel, you will find that there is a wide array of benefits that are available. Many benefits like pensions, annual leave or severance areRead More
Israeli labor law applies to employees located in Israel and is comprised of a set of cogent statutory rules, regulations, and case law. In addition, there are collective agreements and expansion orders which apply to all or certain sectors of the labor market.
There are several key areas to be aware of within the Israel employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.
|Statutory Working Hours ?||
The law establishes that an employee shall not be paid less than the minimum wage as established from time to time. As of November 2015 the minimum monthly wage for a full time position is NIS 4,650 and the minimum hourly wage is NIS 25.
(a) A working day shall not exceed eight working hours.
(b) a working day shall not exceed seven working hours in night work on the day preceding the weekly rest and on the day preceding a festival on which an employee is not employed, whether by law or by agreement or custom.
A working week shall not exceed forty-five working hours.
Variation of working day or working week:
(a) The Minister of Labour and Social Affairs may, by regulations, prescribe
(1) A working day shorter than that prescribed in section 2 or a working week shorter than that prescribed in section 3, in respect of particular types of employment if he deems it necessary for reasons connected with the employee’s health or the circumstances of such employment;
(2) a working day longer than that prescribed in section 2 or a working week longer than that prescribed in section 2 –
(i) in respect of particular classes of agricultural employment or employment directly connected with the care of animals;
(ii) in respect of employment in places for the care of the sick, pharmacies, convalescent homes and institutions for the care of the aged or of children;
(iii) in respect of employment in restaurants, hotels and cafes;
(iv) in respect of all or any persons in non-industrial employment in the service of the State or local authorities, whose employment is, in the opinion of the Minster of Labour and Social Affairs, essential to the public and is prescribed by regulations provided that a working day shall not exceed ten working hours and a working week shall not exceed on average, over a period prescribed by regulations, forty-five working hours.
(b) Notwithstanding the provisions of section 2, the working day of a monthly employee in private domestic service, not being a part-time employee, shall not exceed 10 working hours; and a working day under this subsection shall be deemed a working day under section 2.
|Working on Sundays ?||
An employee’s weekly rest shall be not less than 36 consecutive hours in the week.
The weekly rest shall include:
An employee shall not be employed during his weekly rest, unless such employment has been permitted.
|Employee Protection and Anti-discrimination Rights ?||
An employer shall not discriminate among his employees or among persons seeking employment on account of their:
|Time Off Work ?||
The duration of the annual leave, in respect of a working year with the same employer or at the same place of employment shall be as follows:
The days of leave shall include not more than one weekly rest for seven days of leave.
|Medical Leave ?||
A worker absent from work in consequence of sickness shall, subject to the maximum period of entitlement, be entitled to receive from his employer:
|Resignation / End of Service Payment ?||
Where a woman resigns from her employment, within nine months after giving birth, in order to take care of her child, her resignation shall for the purposes of this Law, be deemed to be dismissal. The same shall apply to a woman who, either alone or jointly with her husband, had received a child under thirteen years of age for adoption and who resigns, within nine months from receiving the child for adoption in order to take care of him, provided that an adoption order is made either before or after the resignation.
The above provisions shall apply, mutatis mutandis, to a male employee if he meets one of the following requirements:
|Severance / Redundancy Pay ?||
A person who has been employed continuously for one year or, in the case of a seasonal employee, has been employed for two seasons in two consecutive years, by the same employer or at the same place of employment and has been dismissed is entitled to receive severance pay from the employer who has dismissed him.
Where, after an employee had passed from one place of employment to another under the same employer, the employers have changed at this present place of employment, such employee shall be entitled to receive severance pay from the previous employer in respect of his period of employment with him, or at the previous place of employment, as if he had been dismissed on the date of the change of employers.
If the new employer, by a written undertaking to the employee, has assumed responsibility for the severance pay which the employee would have been entitled to receive from the previous employer, the previous employer shall be exempt from the payment of severance pay, and the employee’s period of employment with the previous employer or at the previous place of employment shall, for the purposes of this Law, be deemed to have been a period of employment at the present place of employment.
|Termination of Employment ?||
The minimal statutory period of prior notice for dismissal and for resignation of employees whose salaries are paid on a monthly basis is one day during the first six months of employment; 2.5 days during the following six months of employment; and 30 days after completion of the first year of employment. The prior notice period cannot overlap with annual vacation.
The basic requirements for termination of employment are the following:
GEO Solutions or DIY Employment
Companies entering Israel must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or Israel Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Israel entity established that can run payroll.Learn how we've helped clients with employees in Israel in this case article!
A DIY approach will typically take 6-9 months until there is a properly incorporated WFOE ready to run payroll and cost up to 6 figures if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally, Shield GEO is responsible for all compliance issues related to the employment.
|Income Tax Rates||
Self employed individuals pay income tax on taxable income at rates ranging from 10% to 49%, plus national insurance up to 16.23% on the first NIS 35, 760 of monthly income. However, 52% of these national insurance payments are deductible for income tax purposes in the year they are paid, resulting in an effective combined maximum 57.3%, decreasing to 49% beyond NIS 35, 760. Taxes of up to 50% are levied on most domestic Israeli expenses, unless the recipient holds confirmation from the Israeli Tax Authority allowing a lower rate.
|Tax Returns Supplied||
In both 2015 and 2016, Israel made paying taxes more costly for companies by increasing the profit tax rate and by increasing the corporate income tax rate, the rate for social security contributions paid by employers for the upper wage bracket and municipal taxes.Here's our most recent article on running payroll and taxes in Israel.
|Remote Payroll ?||
A remote payroll system is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Israel. Under Israeli Law, companies registered in other countries are allowed to obtain a license to do business and have employees in the country.
|Local Payroll Administration ?||
In some cases, a company will register their business in Israel under one of the forms available: Private Limited companies, Public companies and Branches; but prefer to have another company administering its payroll. This can be accomplished through a payroll provider.
It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
|Internal Payroll ?||
Larger companies with a commitment to Israel may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Israeli payroll, and can fulfil all tax, withholding, and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Israeli employment laws.
|Fully Outsourced Payroll & Employment ?||
Companies can outsource the employment and payroll of their staff in Israel to a GEO, like Shield GEO. This is possible for both foreign workers and Israeli nationals. This is the easiest, fastest and safest way to payroll staff in Israel.
Shield GEO manages all aspects of payroll for workers in Israel, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.
Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.
Read more about outsourced payroll and employment through Shield GEO.
|Currency ?||NIS (Approx. 0.26 USD)|
|Employee Information Required ?||
The information required to register a new start are as follow:
|Social Security Registration ?||
Payment rates of national insurance are calculated according to the insured’s earned and unearned income, and according to their work status (employee, self-employed, unemployed, student, etc.).
Payments will not be less than the minimum specified by law and will not be more than the maximum income ceiling for insurance contributions. A resident who does not work and has no income will pay the minimum insurance contribution of NIS 166 (as of 01.01.2014) per month.
An insured person is obligated to pay insurance contributions for any period he/she is temporarily absent from Israel.
|Documentation Required for New Employees ?||
A contract shall contain all the mandatory data by law;
|Corporate Income Tax ?||
25% on taxable profits, effective January 1, 2016.
|Income Tax Rate ?||
|Sales Tax ?||
|Withholding Tax ?||
Subject to any foreign tax treaty, the standard dividend withholding tax is 20% for shareholders who hold under 10% of the company and 25% for 10%-or-more “material shareholders.” Dividends payable to Israeli companies are tax-exempt.
|Time to prepare and Pay Taxes ?||
|Time required to start a Business ?||
|Frequency of Salary Payment ?||
In Israel, employees are paid monthly. Since there are 52 weeks per year, but only 12 months, some employers pay a 13th month salary.
|Invoice / Payslips required ?||
It is mandatory to issue payslips to all employees, regardless of the amount paid to them, their work location (in regard to the main office) or their status (permanent, temporary). The payslip must include:
|Minimum Wage ?||
“The minimum wage” per month means 47.5 percent of the average wage as on the 2nd Nisan, 5747 (1st April, 1987), updated and increased by Law.
Daily wage for worker employed 5 days a week: NIS 214.62 (as of Apr 01, 2015) .
Companies entering Israel must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or Israeli Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have an Israeli entity established that can run payroll.
A DIY approach will typically be delayed until there is a properly incorporated company ready to run payroll and may be a costly option. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.
Israel has visa exemption agreements with many countries – for visits of up to 90 days. Before going to the mission, check whether you need to obtain a visa to visit Israel.
Applying for work permits in Israel requires multiple steps and it is important to renew the permits annually.
To receive an Israeli work permit, it is necessary, together with the employer, to apply to different branches of the Israeli government. Have copies of all travel documents, educational certificates and employer contracts, and make sure the employer also has those documents.
The employer acts as an official sponsor for the work permit, and they submit an initial permit application to the Ministry of Trade, Industry and Labor. The application includes information about the desired prospective position and salary with the company. The Ministry will process the application in 4-8 weeks.
If the employee is approved by the Ministry of Trade, Industry and Labor, they will send a letter of recommendation to the Ministry of Industry. At this point in time, the employee must apply to his/her consulate for a work permit. The nearest consulate will evaluate additional documents and also recommend the employee to the Ministry of Industry for a work permit. If the employee is approved by these branches of government, his/her consulate will issue a work permit.
It is important to apply for a work visa at the same time as the work permit. Work visas allow employees to enter the country. Within 30 days of arriving in Israel, it is necessary to apply for an extended work visa. This extended visa is valid for a year and allows for multiple entries into Israel.
Once you get in touch with us, one of our consultants will take all the work off your hands, coordinate with our local partners to get all the required permits organised, provide the processing time, costs, document-checklist and keep you informed through the process. Contact us to know more.
|Category||Description of Visa|
|B/1 Work visa||
This visa is for a person whose stay in Israel is approved for a limited period of time for the purpose of work. This visa is given to experts and artists, among others, and is granted solely with the approval of the Ministry of the Interior.
The fee is paid by the applicant when the application is submitted to one of the population administration offices of the Ministry of the Interior. Upon receipt of approval from the Ministry of the Interior, the mission will issue the B/1 Work visa after interviewing the applicant and obtaining from him the following documents:
• A verified certificate of good conduct
Note: The Consul may request additional documents.
The validity of the B/1 Work visa will be in accordance with Ministry of Interior guidelines. The worker must enter Israel within the period of time specified in the visa and stay in the country as specified in the visa. A person who receives such a visa may apply to one of the population administration offices of the Ministry of the Interior to extend the visa.
Processing Time: 12-14 weeks
Please contact us for a quote.
|B/2 Visitor's visa||
A B/2 visa is granted to someone who wishes to stay in Israel for only a short time (for a visit, tourism, a business meeting or study in a Hebrew ulpan). A person who enters Israel on a B/2 visa is not allowed to work in the State of Israel.
A B/2 visa is valid for up to three months from the date of issue. The duration of the stay in Israel will be determined by the Border Police. A visitor who wishes to extend his visit may submit an application at one of the regional population administration offices of the Ministry of the Interior.
The process to be handled at the mission:
• Presentation of a travel document that is valid for at least six months beyond the period of the stay in Israel
Processing Time: Approx. 14-20 weeks
Please contact us for a quote.
When setting up a company you may want to consider these factors:
In 2014 Israel made starting a business easier by reducing the time required for registration at the Income Tax Department and the National Insurance Institute. Israel presents a strong spirit of entrepreneurialism, supported by low investment costs and a large degree of IP being developed in the country (targeting fin-tech, cyber-tech, medical devices and IoT).
The Israeli government is willing to provide R&D grants that range from 20% to 50% of the total approved expenditures; with additional grants (up to 10%) for R&D projects conducted in certain development areas. This funding encourages and provides new entrepreneurs with support for their business ventures.
The country also provides an advisory service support ecosystem for early stage companies and businesses operating within Israeli-based accelerator programs.
The Israeli Companies Ordinance (ICO) defines a company as a corporation formed and registered in Israel, in accordance with Israeli law.
The Israeli Company Law 5759-1999 mentions the following as the main types of companies that can be established in the country:
A private company, consisting of 1-50 shareholders, and one director, may not offer or sell debentures or shares to the public and its Articles of Incorporation must contain restrictions on the transferability of its shares.
Obtain company registration documents certified by an attorney
The following company certification documents must be certified by an attorney:
The company’s initial Articles of Association must be signed by the initial shareholders and their signature needs to be authenticated by an attorney.
File with the registrar of companies, Ministry of Justice
To register a company, the promoter must:
1) File the articles of association;
2) The directors must sign a declaration stating that they have the capacity to serve and their signatures must be authenticated by an attorney;
3) The shareholders must also sign a declaration stating that they have the capacity to hold shares in a company and their signatures must be authenticated by an attorney.
Register for taxes at Ministry of Finance, Income Tax Department
To register for company taxation, the promoter must file the company deed and identity certificate of registration. Final registration confirmation may take up to 28 days.
Register for VAT at Ministry of Finance, Customs and VAT Department
The regional VAT office also operates under Ministry of Finance. To register for VAT, the promoter must file the certificate of incorporation, identity documents for all directors, a lease agreement, and other information. The VAT authority generally asks for a bank account for VAT refund purposes (or for VAT payment). It takes a few minutes to open a bank account, assuming that the company provided all required documents, including a company resolution to open the account and the rights of signature. There are no fees to open the account, but bank commissions may vary according to the bank and bank account features.
Register with the National Insurance Institute
The National Insurance Institute program covers all gainfully employed individuals, with provisions including social security, unemployment insurance, severance payment, training funds, health insurance, and pensions.
Processing time: Approx. 2 weeks
Cost: USD 1,128
A public company is a company whose shares are listed for trading on a stock exchange, or have been offered to the public pursuant to a prospectus as defined in the Securities Law, and are held by the public.
If a public company have only offered its shares to the public in Israel or have them traded on a stock exchange in Israel, then it only shall hold its general meeting in Israel.
A public company whose shares have been offered to the public outside Israel only or that are listed for trading on a stock exchange outside Israel only shall file reports with the Registrar of Companies as if they were private companies, with such alterations as the Minister may prescribe.
Voting at General Meeting
A shareholder in a public company may vote by himself or by a proxy, as well as by way of a voting paper under Article G of the CL.
Chairman of Board of Directors
The board of directors of a public company shall elect one of their number to act as chairman of the board of directors, unless another method of appointment is prescribed in the articles of association.
The General Manager
A public company shall appoint a general manager, and may appoint more than one general manager.
Administration of the Company
Without derogating from the provisions of any law, a company shall keep the following documents at its registered office:
A company may keep the said documents by using electronic means, provided that those entitled to inspect them are enabled to receive copies of such documents.
A public company shall have a register of substantial shareholders in addition to the register of shareholders.
Reporting by Public Company
A public company shall report to the Securities Authority, to the stock exchange on which the company’s securities are listed for trading, and to the Companies Registry as required by this Law, by the Securities Law or by any other law.
A public company shall report to the Registrar only regarding the following matters:
Internal Auditor in a Public Company
The board of directors of a public company shall appoint an internal auditor; the internal auditor shall be appointed at the proposal of the audit committee.
A person who has an interest in the company, who is an office holder in the company or is a relative of any of these, as well as the auditor or any person acting on his behalf shall not act as internal auditor of the company.
A public company shall keep accounts, and shall also prepare financial reports pursuant to the Securities Law.
A shareholder in a public company is any of the following:
Two outside directors shall hold office in a public company.
Alteration of Class of Corporation
A private company that has become a public company or a public company that has become a private company shall give notice thereof to the Registrar of Companies within fourteen days of the date of change.
A foreign company shall not keep a place of business in Israel, and in particular shall not maintain an office for the transfer of shares or for the registration of shares, unless registered as a foreign company under the provisions of this section and unless it pays the registration and publication fees prescribed by the Minister under this section.
The application for registration shall be submitted to the Registrar within one month of setting up a place of business and the following documents shall be attached thereto:
(1) a copy and translation into Hebrew, confirmed in the manner prescribed by the Minister, of the documents under which the company is incorporated or pursuant to which it operates, as required under the laws of the country in which it is incorporated, including its articles of association, if any;
(2) a list of the directors of the company;
(3) the name and address of a person resident in Israel who is authorised to receive judicial documents on behalf of the company, and to receive notices issued to the company;
(4) a copy certified in the manner prescribed by the Minister, of a power of attorney authorizing a person normally resident in Israel to act on behalf of the company in Israel.
Where an alteration occurs in a document or a change of the directors or the name or address of one of the persons referred to in paragraphs (3) and (4) is altered, the company shall give notice thereof to the Registrar within fourteen days of the date of the change.
The Minister may prescribe additional documents that a foreign company must attach to an application for registration and must notify the Registrar of any changes therein.
A judicial document or notice required to be served on a foreign company registered in Israel shall be considered to have been served in accordance with the law if addressed to the authorized person notified to the Registrar as referred to in section 346 and left at the address notified as aforesaid, or sent there by mail.
A foreign company shall file, once a year, an annual report as prescribed by the Minister.
Cost: Approx. NIS 2,450 (USD 570)
Whether to incorporate in Israel, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.
If the company intends to have staff in Israel they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities. A GEO Employer of Record solution is an attractive alternative where
– the company is looking to setup an office quickly
– the company wants to work within a defined budget
– the company wants to limit its initial commitment in Israel
– the company needs help with tax, employment, immigration and payroll compliance in Israel
The complexity of employment regulations in Israel makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.
Shield GEO provides a comprehensive service in Israel allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in Israel.
Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Israel. Read more about outsourced employment through Shield GEO.
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