Hire employees in Israel using an Employer of Record

You need someone in Israel by next quarter. Your lawyer just said entity setup takes 6 months minimum. The math doesn't work.

Meanwhile, your perfect candidate is fielding other offers. They can't wait half a year for you to get your paperwork sorted. And honestly, you shouldn't have to choose between speed and compliance when expanding into one of the world's most dynamic tech markets.

Here's the reality: you've got three ways to hire in Israel, each with very different costs, timelines, and headaches.

Option 1: Set up your own entity

• Cost: €15,000-50,000+ upfront, €8,000-15,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: Full tax registration, payroll system, legal compliance, HR infrastructure
• Makes sense when: Hiring 20+ people long-term, permanent market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: Misclassification fines (€50,000+), back taxes, legal disputes
• Makes sense when: Short projects (< 6 months), specialized skills
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: None - we handle everything
• Makes sense when: 1-50 employees, testing markets, multi-country teams

If you're hiring 1-10 people, entity setup costs more than 3-4 years of EOR fees ($179/month = $2,148/year per employee vs €15,000+ upfront plus ongoing maintenance). An EOR like Hire with Columbus handles employment contracts, payroll, taxes, benefits, and compliance updates so you can focus on growing your team, not managing Israeli labor law.

Ready to hire in Israel without the headaches? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in Israel, and the costs couldn't be more different. Entity setup runs €25,000+ upfront, while an EOR costs $179/month per employee. Let's break down when each makes sense.

How can you hire in Israel?

Here's your decision framework with real numbers:

Set up your own entity

You're looking at €25,000-35,000 just to get started in Israel. That covers incorporation fees, legal setup, tax registration, and initial compliance costs.

The timeline? Four to six months before you can legally pay anyone. Then you'll need ongoing accounting, payroll systems, HR infrastructure, and annual compliance fees running €3,500-4,200 monthly for a small team.

This makes sense if you're planning 20+ employees long-term and want full control over your Israeli operations. But most companies hiring 1-10 people find the math doesn't work.

Hire contractors/freelancers

Contractors can start immediately, which sounds tempting. But Israel's labor courts are aggressive about reclassification, and the penalties hurt.

If someone works regular hours, uses your equipment, or follows your processes, they're probably an employee legally. Misclassification fines start at €15,000 per person, plus back taxes and social security contributions.

Use contractors only for genuine project work under six months with specialized skills. For everyone else, you're playing with fire.

Use an employer of record (recommended)

Here's how it works: Hire with Columbus becomes the legal employer in Israel while you manage the day-to-day work and performance. We handle contracts, payroll, taxes, benefits, and compliance.

Cost is $179/month per employee. Timeline is 2-3 days from decision to signed contract. For five employees, you're paying $895/month instead of €25,000+ upfront plus ongoing entity costs.

The math gets better as you scale. Ten employees through an EOR costs $1,790/month. Setting up an entity for ten people? You're still looking at the same €25,000+ setup plus €4,000+ monthly overhead.

Employment contract types in Israel

Once you've decided on EOR (smart choice), you need to pick the right contract type. Israel recognizes several options, each with different rules.

Permanent contracts (indefinite term)

This is your standard full-time employment contract with no end date. Most companies use these for core team members they plan to keep long-term.

Permanent employees get full benefits, job security protections, and higher severance entitlements. After nine months, termination becomes much more complex and expensive.

Hire with Columbus handles all the permanent contract paperwork and ensures you're compliant with Israel's extensive employee protections.

Fixed-term contracts

These have specific end dates and work well for project-based roles or maternity leave coverage. But Israel limits how you can use them.

You can't renew a fixed-term contract more than twice. After that, it automatically becomes permanent. The maximum total duration is three years across all renewals.

Fixed-term employees get the same benefits and protections as permanent staff. The only difference is the built-in end date, assuming you don't hit the renewal limits.

Part-time contracts

Part-time employees (under 32 hours weekly) get prorated benefits and the same hourly protections as full-time staff. They're entitled to overtime pay, vacation days, and social security coverage.

Many companies use part-time contracts for specialized roles or when testing out new team members before offering full-time positions.

Probationary periods

All contracts can include probationary periods up to six months. During probation, you can terminate with shorter notice and lower severance costs.

After probation ends, you're subject to Israel's full employment protections. This includes complex termination procedures and higher severance calculations.

We typically recommend six-month probationary periods for permanent contracts. It gives you flexibility while the employee proves their fit with your team and role requirements.

How does payroll and taxation work?

Your €60,000 employee actually costs €84,600 per year in Israel. Here's the breakdown that catches most companies off guard.

Israel's employer contributions add 41% to base salary costs. That's before you factor in vacation allowances, 13th month payments, and the complex web of social insurance contributions that change based on salary levels.

Income tax brackets

Israeli employees pay progressive income tax plus national insurance. The rates jumped in 2025 after tax reform aimed at high earners.

Plus national insurance at 0.4% to 12% depending on income level. Your payroll system needs to calculate both simultaneously - mess this up and you're liable for the shortfall.

Social security and employer contributions

This is where costs explode. Israel requires employers to contribute across multiple funds, and the rates aren't negotiable.

The severance fund alone costs 8.33% of every salary. That's ₪4,165 monthly on a ₪50,000 salary, and it never stops accumulating.

Payment schedule and bonuses

Israeli employees expect monthly salaries paid by the 10th of the following month. Miss this deadline and labor courts get involved fast.

You'll also need to budget for:

• Recreation allowance: 2.5 days salary annually, paid in June
• 13th month bonus: Common in many sectors, especially tech
• Holiday bonuses: Expected before Rosh Hashanah and Passover
• Overtime premiums: 125% for first 2 hours, 150% after that

The recreation allowance isn't optional - it's required by law for most employees. Budget an extra month's salary spread across the year for these additions.

Total employment cost example

Here's what a €60,000 software developer actually costs you in Israel:

Base salary: €60,000

• National Insurance (employer): €3,600
• Health Insurance: €1,800
• Severance Fund: €4,998
• Pension contributions: €4,200
• Other social contributions: €540
• Recreation allowance: €1,250
• Holiday bonuses: €3,000
• Payroll processing: €2,400

Total annual cost: €81,788

That's a 36% markup on base salary, and this assumes no overtime or performance bonuses. Tech salaries often push into higher tax brackets where employer costs hit 45% markups.

Payroll cycle and deadlines

Israel's payroll calendar is strict. Here's what you're juggling monthly:

By 10th of month: Salary payments to employees By 15th of month: National insurance and tax withholding submissions By 20th of month: Pension and severance fund transfers Quarterly: VAT returns if applicable Annually: Form 106 income reporting by March 31st

Miss the 15th and you're looking at 4% monthly penalties on unpaid amounts. The tax authority doesn't send reminders - they send fines.

Your payroll system needs to handle multiple currencies if you're paying bonuses in USD, track vacation accruals that vary by tenure, and calculate overtime that changes rates mid-calculation.

Common payroll mistakes

Most international companies mess up these specific areas:

Severance calculations: The 8.33% rate applies to total compensation, not just base salary. Include car allowances, phone stipends, and bonuses in the calculation.

Vacation pay timing: Israeli law requires paying vacation allowances before the vacation starts, not in the regular payroll cycle.

Pension fund delays: Transfers must happen within 15 days of salary payment. Late transfers trigger employee complaints and regulatory attention.

Tax bracket errors: The progressive system means a ₪1,000 raise can cost ₪1,470 in total employer expenses due to bracket jumps.

Holiday bonus miscalculations: Religious holidays follow the Hebrew calendar, not the Gregorian one. Plan payments around Tishrei and Nissan, not September and April.

We see companies lose €15,000+ annually just on penalty fees from these mistakes. The Israeli tax authority collected ₪2.1 billion in payroll penalties in 2025 - most from international employers who underestimated the complexity.

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Setting up payroll in Israel yourself:

• Local accounting firm: €800-1,200/month
• Payroll software licensing: €300/month
• Compliance risk: Fines up to €25,000 for calculation errors
• HR expertise needed: €65,000+ annual salary for someone who knows Israeli labor law

With Hire with Columbus: $179/month per employee, fully compliant, zero penalty risk. We handle the tax calculations, fund transfers, and regulatory filings while you focus on growing your team.

What benefits and leave are required?

Israel employees get 14 vacation days minimum in their first year, jumping to 18 days after five years of service. These days don't expire at year-end – employees can carry them over or must be paid out if they leave.

Beyond vacation, you're looking at mandatory health insurance, pension contributions, and unemployment insurance that add about 25% to base salary costs. Miss any of these and you'll face penalties starting at ₪10,000 per violation, plus back payments with interest.

Annual vacation leave

Every employee earns vacation days based on tenure. First-year employees get 14 days, which increases to 18 days after five years and caps at 28 days for long-term employees.

Vacation days accrue monthly – roughly 1.17 days per month for new hires. Employees can carry over unused days indefinitely, but many companies set internal limits to avoid massive vacation liabilities.

When someone quits or gets terminated, you must pay out all unused vacation days at their current salary rate. This can get expensive if you've got employees hoarding weeks of time off.

Sick leave entitlements

Employees can take up to 18 sick days per year without a doctor's note for the first three days. After that, they need medical certification for any additional time off.

You pay full salary for the first day of sick leave. From day two onward, the National Insurance Institute covers the cost through sick pay benefits – currently 75% of daily wage up to a maximum of ₪371 per day.

Employees with chronic conditions or serious illnesses can extend sick leave up to 90 days per year, with National Insurance covering most costs after the first day.

Parental leave breakdown

Maternity leave: 15 weeks total – 6 weeks before birth and 9 weeks after. National Insurance pays 100% of salary up to ₪12,415 per month.

Paternity leave: Fathers get 6 days of paid leave during the first month after birth. They can also take an additional 7 weeks of the mother's maternity leave if she returns to work early.

Adoption leave: Same entitlements as biological parents – 15 weeks for the primary caregiver, 6 days for the partner.

The key thing: National Insurance handles the payments, but you'll need to coordinate the paperwork and maintain the employee's position during leave.

Public holidays 2025

Employees who work on public holidays earn double pay – regular salary plus holiday premium. Most businesses close completely on Yom Kippur and Rosh Hashanah.

Religious holidays follow the Hebrew calendar, so dates shift each year. Plan your project timelines with this in mind.

Mandatory benefits breakdown

Health insurance: Employees contribute 3.1% of salary, employers add 3% up to ₪47,030 monthly salary cap.

Pension contributions: Total 18.5% of salary – employee pays 7%, employer covers 11.5%. This includes both pension savings and disability insurance.

Unemployment insurance: 0.25% employee contribution, 0.25% employer match on salary up to ₪47,030 per month.

Study fund: 7.5% of salary goes into an educational savings account – 2.5% from employee, 5% from employer. Employees can withdraw after 6 years for approved education or training.

Competitive benefits beyond minimums

Most tech companies offer private health insurance on top of the mandatory coverage. This typically costs ₪200-400 per employee monthly but covers dental, vision, and faster access to specialists.

Meal vouchers are hugely popular – you can provide up to ₪2,500 monthly tax-free. Recreation benefits (gym memberships, cultural events) get similar tax treatment up to ₪2,400 annually.

Car allowances or company cars are common for senior roles, though the tax implications get complex. Many companies opt for transportation stipends instead.

Common benefit administration mistakes

Missing study fund contributions: This one catches many international companies off-guard. The 5% employer contribution is mandatory, and penalties compound quickly.

Incorrect pension provider setup: You need contracts with approved pension funds and insurance companies. Using the wrong provider means contributions don't count, and you'll pay twice.

Holiday pay miscalculations: Double-time for holiday work includes all salary components – base pay, car allowances, phone stipends. Missing these details triggers labor court complaints.

Vacation payout errors: When calculating final pay, use the employee's current salary rate, not what they earned when the vacation was accrued. This trips up companies with employees who've had raises.

Administering these benefits correctly requires local HR expertise (₪300,000+ annual salary), benefits software (₪2,000/month), and legal review (₪50,000/year). Risk of errors can cost ₪100,000+ in fines and back payments.

Hire with Columbus handles all benefit administration, compliance, and payments for $179/month per employee. We maintain relationships with all major pension funds and insurance providers, so your team gets proper coverage from day one.

What are the compliance requirements?

Employment contracts in Israel must be signed within 30 days of start date or you'll face penalties up to ₪5,000 per violation. Get the mandatory clauses wrong and the entire agreement can be voided, leaving you exposed to back payment claims.

Here's what you need to know to stay compliant.

Employment contract requirements

Written contracts are mandatory for all employees in Israel. Verbal agreements don't count legally and expose you to significant claims risk.

Required contract elements:

• Employee's full name and ID number
• Job title and detailed description of duties
• Workplace address and reporting location
• Start date and contract duration (if fixed-term)
• Base salary amount and payment frequency
• Working hours and overtime arrangements
• Vacation entitlement and calculation method
• Notice periods for both parties
• Pension and insurance arrangements

Language requirements:

Contracts must be provided in Hebrew. If your employee doesn't read Hebrew fluently, you'll also need an Arabic or English translation, but the Hebrew version governs legally.

Missing any mandatory clause can void the entire contract. Israeli labor courts consistently rule that incomplete contracts favor the employee's version of terms.

Probation periods

Standard probation in Israel runs 3 months for most positions. You can extend to 6 months maximum with explicit written agreement from the employee.

During probation, either party can terminate with just 1 day's notice (or payment in lieu). After probation ends, full employment protections kick in immediately.

Key probation rules:

• Must be clearly stated in the employment contract
• Cannot exceed 6 months under any circumstances
• No severance pay required during probation
• Employee gets full benefits from day one (vacation accrual, sick leave, etc.)

Many companies mistakenly think they can extend probation beyond 6 months. You can't - and attempting to do so makes the employee permanent immediately.

Working time regulations

Maximum 43 hours per week, typically spread over 5.5 days. Daily maximum is 8 hours with mandatory 45-minute break after 6 hours worked.

Overtime rules:

• First 2 hours daily: 125% of regular wage
• Beyond 2 hours daily: 150% of regular wage
• Weekly rest day work: 150% for first 4 hours, 200% thereafter

Record-keeping requirements:

You must maintain detailed time records for all employees, including start/end times, breaks, and overtime hours. Records must be kept for 3 years and available for labor inspection.

Failing to maintain proper time records results in ₪10,000 fines per employee, plus you'll lose any overtime disputes automatically.

Notice periods

Notice requirements depend on length of service and who initiates termination:

Important exceptions:

• Immediate dismissal for cause requires documented serious misconduct
• Mass layoffs (10+ employees) require 60 days advance notice to employees and Ministry of Labor
• Senior employees (managers, executives) may have longer contractual notice periods

Termination process

You cannot terminate employees without just cause after probation ends. Valid reasons include economic necessity, unsatisfactory performance (with documented improvement attempts), or serious misconduct.

Required termination steps:

1. Provide written warning with improvement timeline (except for serious misconduct)
2. Allow reasonable time for improvement (typically 30 days minimum)
3. Document all performance issues and improvement attempts
4. Provide written termination notice with specific reasons
5. Pay all outstanding wages, vacation, and severance immediately

Consultation requirements:

Companies with employee representatives or unions must consult before individual dismissals. Mass layoffs require formal consultation with employee committees and Ministry of Labor approval.

Skip these steps and you'll face wrongful dismissal claims averaging ₪50,000-150,000 in compensation plus potential reinstatement orders.

Severance pay

Severance is required for all dismissals except resignation or termination for serious cause during probation.

Calculation basis:

Severance calculates on average monthly salary including overtime, bonuses, and benefits from the last 3 months worked.

Payment timing:

Severance must be paid with final wages. Delays beyond 30 days trigger interest charges at Bank of Israel rate plus 4%.

Data protection requirements

Israel follows GDPR-equivalent privacy laws under the Privacy Protection Law 2025. Employee data handling requires explicit consent and documented purposes.

Key obligations:

• Obtain written consent for data collection beyond basic employment needs
• Implement technical safeguards for employee data storage
• Provide data access rights to employees upon request
• Report data breaches to Privacy Protection Authority within 72 hours
• Maintain data processing records and impact assessments

Cross-border transfers:

Transferring employee data outside Israel requires adequacy decisions or standard contractual clauses. EU and US transfers are generally permitted with proper safeguards.

Violations carry fines up to ₪2.3 million or 2% of annual turnover for serious breaches.

Common compliance mistakes

Invalid employment contracts: Missing mandatory clauses voids the entire agreement. Cost: Contract reconstruction, back payments, potential ₪5,000 penalty per missing element.

Wrong termination process: Firing without proper warnings and documentation. Cost: ₪50,000-150,000 wrongful dismissal compensation plus legal fees and potential reinstatement.

Improper overtime calculations: Using wrong rates or failing to pay premium rates. Cost: Back payment of all unpaid overtime plus 25% penalty, typically ₪15,000-40,000 per employee.

Inadequate time records: Missing or incomplete working time documentation. Cost: ₪10,000 fine per employee plus automatic loss of any overtime disputes.

Delayed final payments: Not paying wages and severance immediately upon termination. Cost: Interest charges plus ₪5,000 administrative penalty.

Penalties for violations

Employment law violations:

• Invalid contract terms: ₪5,000 per violation + contract void
• Improper dismissal: ₪50,000-150,000 compensation + reinstatement risk
• Unpaid wages/overtime: Full back payment + 25% penalty + interest
• Missing time records: ₪10,000 per employee + automatic overtime liability

Privacy violations:

• Minor data breaches: ₪232,000 base fine
• Serious violations: ₪2.3 million or 2% annual turnover
• Cross-border transfer violations: ₪116,000-580,000 depending on scope

Labor inspection penalties:

• Workplace safety violations: ₪5,000-25,000 per incident
• Discrimination violations: ₪50,000-200,000 plus compensation
• Union interference: ₪25,000-100,000 plus reinstatement orders

How Hire with Columbus handles compliance:

We ensure every employment contract includes all mandatory clauses in proper Hebrew translation. Our legal team handles termination procedures, maintains compliant time records, and manages data protection requirements automatically.

When you need to dismiss someone, we handle the documentation, consultation requirements, and severance calculations. No guessing about notice periods or severance formulas - we manage the entire process according to Israeli labor law.

Our compliance system flags issues before they become violations, saving you from ₪50,000+ wrongful dismissal claims and regulatory penalties.

What has changed recently?

The war that started in October 2023 has completely changed how hiring works in Israel throughout 2025. Reserve duty call-ups now affect about 15% of workers at any time, creating serious staffing headaches for companies everywhere.

New reserve duty protections

The Knesset passed emergency laws in early 2025 that extended job protection for reservists called to active duty. You can't fire employees during reserve service or for 90 days after they return (it used to be just 30 days).

You're also required to pay reservists their full salary for the first 30 days of service. That's up from 8 days before. The good news? The government covers 75% of this cost through expanded reimbursement programs.

Companies with over 50 employees must now designate a "reserve duty coordinator" to handle all this. It's one more thing to manage, but it beats scrambling every time someone gets called up.

Remote work regulations finalized

After years of back-and-forth, Israel's new Remote Work Law kicked in during March 2025. If your employees work from home more than two days per week, you need a written remote work agreement. This has to cover equipment, work hours, and expense reimbursements.

The law requires you to provide ergonomic home office equipment worth up to ₪3,000 per employee and reimburse internet costs at ₪150 monthly. Companies face ₪50,000 fines for missing remote work documentation requirements.

Minimum wage and tax changes

Israel's minimum wage jumped to ₪6,450 monthly in January 2025. That's a 12% increase from 2024. The government also added a new tax bracket for high earners, with income over ₪750,000 annually now taxed at 52%.

Social security contribution rates went up slightly. Employers now pay 7.8% instead of 7.5% for most benefits. The ceiling for social security contributions rose to ₪48,240 monthly, which hits higher-paid employees hard.

Expanded parental leave

New parents got much better leave policies starting in 2025. Maternity leave extended to 26 weeks from 15, with fathers entitled to 12 weeks of paternal leave instead of 7 days. Both parents can take an additional 12 weeks of unpaid leave with job protection.

Companies with EOR partners like Hire with Columbus ($179/month per employee) automatically get these policy updates handled. You don't need to track legislative changes or update employment contracts manually.