Freelancer or Employee in Israel?
The line between “freelancer” and “employee” isn’t always as clear as it seems. In Israel, as in many countries, businesses often engage workers as “independent contractors” to increase flexibility. However, legal rulings have shown that even if both parties sign a freelance contract, the courts may still consider the relationship an employment one — with all the rights and obligations that come with it.
This guide will help you:
- Recognise when a freelancer might legally be considered an employee
- Understand the tests used by Israeli courts and Bituach Leumi (National Insurance)
- Learn how to structure agreements to reduce legal risk
- Apply international equivalents if you’re based in the US or UK
When Freelancers Are Deemed Employees
The courts focus on the substance of the relationship, not the form. If the working relationship operates like a traditional job, it may be classified as such — even if the contract says otherwise.
Key considerations:
- Integration into the business: Is the work core to the employer’s operations?
- Level of independence: Does the worker set their own schedule and work for multiple clients?
- Control: Who decides how, when, and where the work is done?
Israeli labour laws such as the Wage Protection Law, Work Safety Law, and Hours of Work and Rest Law may apply to freelancers reclassified as employees.
The Combined Test
Israeli courts use the Combined (or Composite) Test to determine employment status. This includes:
- The Integration Test:
- Positive: Is the worker part of the company’s regular operations?
- Negative: Does the worker operate as a separate business?
- Other Factors:
- Must the individual perform the work personally?
- Does the employer dictate work hours or location?
- Is equipment provided by the worker or the employer?
- How long and consistently has the work relationship lasted?
- Is the worker financially dependent on the client?
What to Include in a Freelance Agreement
Even though a contract doesn’t guarantee a non-employment status, it helps to clarify expectations and avoid disputes. Ensure it covers:
- Service description
- Timeline or deadlines
- Work location (remote or on-site)
- Pay rates, including overtime or additions
- Payment schedule and method
- Expense reimbursement policies
- Dispute resolution process
Common Dilemma: “The Client Wants an Invoice, But I Don’t Want to Open a Business”
This is a common scenario: a client insists on receiving a tax invoice, but the individual hasn’t registered as self-employed and doesn’t want to.
If the job involves fixed hours, direct supervision, and regular income from one client, it might be an employment relationship — even if paid like a freelancer.
Tip: Consider using an Employer of Record (EOR) service to stay compliant without having to register a business.
Glossary of Terms
| Term | Definition |
| Freelancer | A self-employed individual offering services to clients. |
| Independent Contractor (IC) | US term for a freelancer, usually issued a 1099 tax form. |
| 1099 | US tax form for ICs; indicates self-employment and no tax withholding. |
| W-2 | US tax form for employees; includes benefits and tax withholding. |
| Salaried Employee | A person on a company payroll with full employment rights (UK/US equivalent to W-2). |
| Osek Murshe | Israeli VAT-registered self-employed individual who must issue tax invoices. |
| Osek Patur | Small Israeli business exempt from VAT up to a revenue limit. |
| Atzmai | General Hebrew term for self-employed individual. |
| Bituach Leumi | Israeli National Insurance; assesses eligibility for social benefits. |
| Employer of Record (EOR) | A third-party company that legally employs workers on behalf of another business. |
| Contractor vs Employee | Distinction affects entitlements, tax obligations, and compliance risk. |
Final Thoughts
Whether you’re hiring or offering services, remember: it’s not the title, but the working relationship that matters. Misclassification can result in back pay, fines, and reputational damage.
At CWS Israel, we help international companies navigate these complexities with confidence — offering clarity, structure, and compliant solutions tailored to the Israeli market.
Need help classifying a role or staying compliant with local labour laws?
Speak to our team today.
Disclaimer: CWS Israel is not a legal or tax advisory firm. The information in this article is provided for general understanding only and should not be considered legal or financial advice. We recommend consulting a qualified legal or accounting professional for advice specific to your situation.
