Expats payroll in Israel isn’t too complicated, but there are certainly various elements one must consider, when employing foreign workers in Israel. Israel allow expatriates to come and work in the various sectors of the economy including education, science, and technology, military ware and medicine. However, to be employed as an expat in Israel, an organisation must demonstrate that your expertise cannot be obtained locally.
Setting up payroll for contractors in Israel can sometimes get complicated. This is because of the various financial considerations that must be factored on top of the traditional financial obligations like income tax, insurance, and social security. These considerations both affect the employer (enterprise) and the employee (contractor). So what are some of the things you must consider when preparing payroll for expats in Israel?
Registered Local Entity
The first and most important thing to do as an enterprise is to have a registered entity with the relevant Israeli authorities; the Registrar of Companies and Tax as a Limited, Public or Private company.
You can either use an existing local company for your payroll requirements, or register a new entity (which might prove tricky, as you’d need to prove financial stability during the application process). During the application process, you will have to file documents that explain your company details, name and objectives of the company. Just like in other nations, the Articles of Incorporation will stipulate the conduct of the company. A practicing and registered lawyer in Israel will then verify the paperwork before you can register it with the relevant Tax authorities.
The market in Israel operates from 8 am to 5 pm from Sunday to Thursday each week. The standard work-week entails 43-45 hours per week for people above the age of 18. There has to be a 36-hour rest period from Friday and over the weekend. Religion plays an integral role in deciding when people should work and when they should rest. This means that if you are to employ workers or contractors, you must ensure that you comply with the various obligations regarding rest periods.
Probation periods are between 1-6 or 12 months depending on a collective agreement. However, this can be extended under special circumstances as long as you agree with your employees, but no longer than 2 years.
Standard employment rights and obligation apply to expats too, yet there are some differences worth noting: Although the remuneration package is agreed between the enterprise and the employee, you’d need to consider that the minimum salary in Israel is about NIS 5,115 per month. However, when it comes to expats, you will have to pay them a minimum of double the average salary in the market. At the time of writing, that minimum remuneration package cannot be less than 20,416 NIS per month. It is vital to state that as an employer, you are required by law to compensate your expat employees at the ongoing wage rate based on their experience and skills, and provide all additional benefits your local employees enjoy.
As an employer, you are obligated by law to deduct the income tax from all your employees’ salaries including expatriates and pay those deductions to the Tax Authorities on a monthly basis. The income tax (Mas Hachnasa), social security (Bituach Le’umi), and insurance (Bituach and Kupot Gemel) are based on the employee’s salary and they can range in percentages. For expats payroll, it is necessary to point out that the National Insurance in Israel takes away a percentage of the salary to cater for various health concerns. On top of that, other deductions like housing and health insurance can also be deducted. When preparing an expats payroll in Israel you must file company tax instalments, National Insurance, VAT (Ma’am) and other withholdings on a monthly basis.
Holiday, maternity and sick leave
Both the locals and expatriate employees are entitled to 12-14 days of leave in the first two years of employment. Vacation allowances are given to the local workers which commence after 12 months of working for a single employer. A new mother is given up 14 weeks off while new fathers take leave only if the mother decides to go back to work before the 14-weeks period elapses. The Social Security Institute (Hamossad Le’Bituach Le’Umi) steps in to pay for the maternity leave.
When preparing an expats payroll in Israel as an enterprise, you must consider all the above factors as well as other minor factors. This will ensure that you comply with the set laws and regulations, and prevent costly audits and fines.