Reading Time: 9 minutes
As a high-income country with a growing, technologically advanced market economy and exceptionally well-educated workforce, Israel is an excellent location for international growth.
As your company pursues new opportunities there, you’ll need to consider how to optimize your hiring. To help you, we’ve developed this guide to hiring employees in Israel. You can use it to deepen your knowledge of Israeli labor laws and to gain tips for building teams in this exciting country.
What to know before hiring in Israel
Before you begin, your company will need insider knowledge of topics like contracts, termination, payroll taxes, working hours, benefits, and the job market in Israel overall.
1. Contracts and termination
Employment contracts in Israel can be either written or verbal. At Globalization Partners, we highly recommend putting a strong written contract in place for each employee. Verbal contracts are legally binding, but their provisions are much more challenging to prove and uphold.
Employment contracts must contain clauses about items governed by Israeli labor law, including compensation, benefits, vacation, and sick leave.
Israel does not have at-will employment, so termination generally comes at a cost for the employer. Termination is possible as long as the company provides one to four weeks of written notice or offers compensation for the length of the notice period.
Dismissed employees who have worked for your company for at least one year are entitled to additional severance pay. Severance is typically equal to one month’s salary per year of employment.
2. Payroll and taxes
In Israel, national insurance contributions are mandatory paycheck withholdings, and both employers and employees must contribute. Participation in the national insurance program grants employees numerous benefits, including unemployment provisions, maternity leave, disability pensions, old-age pensions, and assistance with funeral expenses.
As of January 2019, the full rate of taxation is 19.6 percent for Israeli employees who are 18 or over and below retirement age. Employees pay 12 percent, and the employer pays 7.6 percent. The full rate applies to employees making more than 60 percent of the average wage in Israel, and a reduced rate applies to employees making 60 percent of the average wage or less. The reduced rate is 7.05 percent — employees pay 3.5 percent, and the employer pays 3.55 percent.
Employees pay an additional full rate of 5 percent for national health insurance coverage or a reduced rate of 3.1 percent. Employers do not contribute to the national health insurance fund on their employees’ behalf.
Your company is also responsible for corporate income taxes, which are currently 23 percent for most businesses. Technology companies receive lower rates. The tax rate for dividends is 25 to 33 percent.
3. Wages and working hours
The minimum wage in Israel is currently ILS 5,300 per month. The minimum daily wage for an employee working five days per week is ILS 244.62. For an employee working six days per week, it is ILS 212.
The minimum hourly wage is either ILS 29.12 or ILS 28.48. It depends on whether the employee works 182 or 186 hours per month respectively — that is, 43- or 45-hour workweeks.
The minimum wage is a fixed percentage of the average wage in Israel, and it changes periodically. Your company should keep an eye on the news to remain apprised of the latest minimum wage increases.
Israeli labor law stipulates that employees working five days per week can work up to nine hours per day, whereas employees working six days per week can work only eight hours per day. The Israeli workweek is often 43 hours long, but some agreements call for 45-hour workweeks.
Overtime is permissible as long as employees receive 125 percent compensation for the first two hours and 150 percent for any overtime worked beyond that. Employees in positions that require being on-call or are designated as hazardous often receive special bonuses as compensation.
By law, Jewish employees generally have the sabbath, or Shabbat, as one of their rest days. Shabbat falls on Saturday. Non-Jewish employees can take their rest days on Friday or Saturday or both.
4. Leave and benefits
Employees in Israel should receive a paid day off for each of the country’s eight legal and national holidays:
- Rosh Hashana
- Yom Kippur
- The first day of Sukkot
- Simchat Torah
- The first and seventh days of Pessach
- Yom Ha’atzmaut (Independence Day)
For the middle stretches of Pessach and Sukkot, many employees have shortened work hours. Some take the days off.
Employees in Israel are also entitled to paid vacation. The amount can range from several days to several weeks. The law requires all employees who have worked at their jobs for at least a year to receive vacation allowances, even if they elect not to take any vacation.
Below are a few additional types of leave employees receive in Israel:
- Sick leave: Employees who are ill and cannot work are entitled to sick leave if they provide documentation from a physician. The law does not require compensation for the first day of leave, but the employee must receive 50 percent compensation for the second and third days and full compensation for any additional days. In practice, many employers compensate their employees in full from the first day of illness. National insurance covers these costs after the employee’s accumulated sick leave through the employer runs out.
- Maternity leave: Pregnant employees generally receive 15 weeks of paid maternity leave as long as they have worked at least 10 of the preceding 14 months or 15 of the preceding 22 months. Eight weeks of paid maternity leave are possible for employees who have worked at least six of the preceding 14 months.
- Parental care leave: Parents can take eight days of leave per year to care for a sick child as long as the other spouse does not do so at the same time. Single parents can take 12 days per year. Parental leave can extend to 60 days for certain illnesses. Employees can also take up to six days of leave per year to care for a parent or a parent-in-law.
- Bereavement leave: Employees can generally take seven days of leave after the death of a close family member.
Israeli residents have universal health coverage through the National Insurance Institute (NII), so employers are not responsible for providing health insurance for their employees. Some companies may offer supplemental health insurance if they choose.
Many companies in Israel offer retirement pension options for their employees. Both employers and employees usually contribute to these plans. Some employees also pay into a provident fund through a bank or insurance company.
5. Job market and workforce education
The job market in Israel is stable and strong. The unemployment rate has fallen steadily for the past decade, reaching a low of 3.8 percent in 2019 before rising modestly in response to the Covid-19 pandemic.
The overall labor force participation rate for Israelis aged 15 to 64 is about 72 percent. Women, who have long trailed Israeli men in workforce participation, have closed the gap in recent years. As of 2021, 65.1 percent of men and 58.6 percent of women are part of the workforce.
Overall, the Israeli workforce is young and highly educated. Among countries that participate in the Organisation for Economic Co-operation and Development (OECD), Israel is tied for second place in the percentage of residents aged 25 to 64 — 42 percent — that have completed an educational qualification beyond the secondary level. In the same age bracket, 83 percent of residents have completed at least a secondary education.
If your company is looking for new employees with high-level educational qualifications, Israel is uniquely positioned to help you build strong teams.
6. Language in Israel
Israel has two official languages — Hebrew and Arabic. About 49 percent of the population speaks Hebrew, and about 18 percent speaks Arabic.
Israel is home to about 34 indigenous and non-indigenous languages, including French, which about 20 percent of Israeli residents speak, and Russian, which about 15 percent speak. Yiddish and Spanish speakers also live in the country.
English was once Israel’s official language, and many schools still teach it. The language is relatively common in the business world, especially among tech companies. If your company communicates in English, you will likely find job candidates who speak it well.
Cost of hiring an employee in Israel
The cost of hiring someone in Israel depends on several factors, including your approach to compensation, benefits, and other perks. If your policy is to offer competitive salary and benefits packages to attract the most qualified new hires, your costs will increase — but you’ll likely see higher retention and a more engaged team in the long term.
A few of the direct and indirect costs your company should keep in mind include:
- Company registration procedures
- Job advertisements
- Partnerships with recruitment agencies
- Applicant-management software
- Interview travel
- Background checks
- Payroll taxes
- Any bonuses provided
Hiring practices in Israel
As you start building teams, be sure to adhere to a few key hiring practices. That way, you can comply with the law while attracting and retaining talented people. Here are a few tips to help you get started:
- Comply with anti-discrimination laws: Israeli law prohibits hiring and employment discrimination based on protected characteristics such as age, gender, race, nationality, religion, sexual orientation, country of origin, political beliefs, disability, family status, or pregnancy or parenthood status. Your company cannot consider these factors in hiring decisions and should limit these topics in interviews to avoid even the appearance of bias. The law also prohibits companies from requesting or discriminating on the basis of an employee’s military profile.
- Use the local language and currency: Remember to provide all compensation figures and other monetary amounts in Israeli new shekels rather than your home country’s currency. You should also put important documents, including offer letters and employment contracts, in Hebrew to aid your new employees’ understanding, reduce the risk of miscommunication, and bolster the documents’ usefulness in court.
- Prioritize comprehensive onboarding: Your new employees will become productive much more quickly if your company takes the time to train them and make them feel welcome. Consider starting with the basics, such as setting them up with the accounts and workspaces they need. Then proceed to orientation sessions that help them meet their teammates and learn about your company’s culture and goals. Give your new employees plenty of opportunities to ask questions and express their thoughts on what they’ve learned.
What does a company need to hire employees in Israel?
Your company will need a legal framework for hiring new employees in Israel. One common option is establishing a subsidiary. This method involves setting up a local extension of your company that remains under your parent company’s control.
Israel offers a few different incorporation structures, including private companies, public companies, branches, or cooperatives. Private companies can be limited liability companies (LLCs) that minimize their members’ liability. Many international companies decide to incorporate as LLCs since they offer an ideal combination of familiarity, opportunity, and personal protection from liability.
If you decide to set up an LLC subsidiary, be prepared to complete a list of required tasks that will enable you to register formally with Israel’s Register of Companies:
- Compiling a list of the company’s directors and their passport numbers
- Completing a form granting power of attorney to an Israeli representative
- Providing the name, address, and identification of another representative responsible for receiving legal communications for the company
- Drafting and notarizing formal articles of incorporation, along with a Hebrew translation
- Obtaining a signed certificate of company incorporation from your country of origin
- Obtaining a Hebrew translation of the certificate of incorporation
- Procuring a status approval document from your country of origin and obtaining a Hebrew translation
- Paying the registration fee of NIS 2,614 and providing proof of payment
To complete the subsidiary setup, your company must also register with the NII and the Israel Tax Authority.
Establishing a subsidiary comes with some drawbacks. The process is generally costly, labor-intensive, and time-consuming. It can take weeks or even months, and it makes the steps to hiring in Israel much more complicated. For these reasons, working with an Employer of Record is an excellent alternative.
A global Employer of Record like Globalization Partners already has a formal entity set up. By leveraging our global employment platform, you can easily hire employees in Israel and pay them with just a few clicks no matter where you are.
Hiring remote employees in Israel
As a company with an international presence, you likely rely on remote hiring to build teams worldwide. Remote technology makes the process simpler, more effective, and more manageable. Here are a few tips for hiring remotely:
- Streamline scheduling: You can improve your candidates’ experience and bolster your company’s reputation by making remote interview scheduling as convenient as possible. Consider using scheduling software to let applicants select from a few interview times that work for you and your team. You’ll minimize the time spent sending emails back and forth and give candidates a positive impression of your company.
- Develop a backup plan: Imagine you have an interview set up with one of your top applicants, only to discover at the time of the interview that your video platform isn’t working. If you have a backup plan in place, you can switch gears with minimal disruption. Be sure to communicate your alternate plans to your candidates so they know what to expect if technical difficulties arise.
- Provide a clear and efficient timeline: Ideally, your company should give itself enough time to get to know candidates and make the right decision while condensing the hiring timeline as efficiently as possible. Let your remote candidates know how long the process should take and what feedback they can expect at each step. You’ll boost your productivity with new hires sooner. You’ll also be able to give your remote candidates quick answers, reducing the risk of losing a qualified applicant to a competing job offer.
Streamline international hiring with Globalization Partners’ global employment platform
Globalization Partners is ready to support you as you pursue growth in Israel. Using our fully automated, full-stack Global Growth Platform™, you can minimize the challenges of international hiring and start realizing your business goals faster.
Leverage our technology to hire, onboard, and pay new employees from anywhere in the world. Our in-country tax and employment law professionals are always here to consult with you and help keep your company compliant with local regulations.