PEO Israel

World Bank Ease of Doing Business Ranking

• DB Rank – 35
• DB Score – 76.7

Rankings on Doing Business topics – Israel

Topic Scores

Global PEO in Israel

Israel has emerged as a compelling destination for Professional Employer Organization (PEO) services, showcasing a dynamic blend of innovation and entrepreneurship. Situated at the crossroads of technological advancement and diverse industries, Israel offers a unique landscape for businesses seeking PEO solutions. With a robust start-up culture and a highly skilled workforce, the country provides a fertile ground for companies to establish their presence. Israel’s PEO services play a pivotal role in navigating the intricacies of employment regulations, managing human resources efficiently, and tapping into the nation’s pool of specialized professionals. As companies look to expand and thrive in this innovation-driven economy, partnering with PEOs in Israel offers a strategic advantage in navigating employment complexities and leveraging the nation’s vibrant business ecosystem.

What Is a PEO?

A PEO, or Professional Employer Organization, is a company that provides a range of HR and payroll services to small and medium-sized businesses. These services can include employee benefits, payroll, compliance with labor laws, and recruiting and training.

PEOs work by entering into a co-employment agreement with the businesses they serve. In this arrangement, the PEO becomes the employer of record for the business’s employees, taking on responsibilities such as payroll, tax withholding, and employee benefits. The business, however, retains control over its day-to-day operations and the supervision of its employees.

PEOs can help businesses streamline their HR and payroll processes, reduce costs, and free up time and resources to focus on their core business activities. They can also provide access to a range of benefits and resources that small businesses may not be able to afford or manage on their own.

PEOs are also understood as employer of record / EOR at times.

Israel – Country Overview

Israel is a “very highly developed” economy according to the UN’s Human Development Index. The major contributing factors for its consistent high rankings over the years in the index include encouragement to economic expansion with a strong protection of property rights, openness to foreign investment and trade, and efficient regulation of business start-ups. Israel boasts the highest concentration of high-tech start-ups in the world. Value of Israel’s total foreign trade, represented by adding up the share in GDP of imports and exports, is 59%. Israel’s economic dynamism has attracted a high level of investment from leading organizations of various countries.

Capital City

Jerusalem

Currency

Israeli New Shekel

Principal Language

Hebrew

Government

Parliamentary Democracy

Major Cities

Tel Aviv, Beersheba

Employment Contracts in Israel

A written employment contract is not mandatory in Israel. In the case of foreign employees, however, employers need to provide their employees with a copy of the employment contract which must be in a language that they understand.

Working Hours in Israel

The regular workweek in Israel typically runs from Sunday to Thursday and comprises 42 hours. The daily work schedule for employees who work for 5 days in a workweek is 8.6 hours. Approval is required from the Ministry of Industry, Trade, and Labor for a work schedule longer than the standard hours.

Additionally, most employees must get a minimum weekly rest of 36 consecutive hours, which must include the Sabbath—sundown Friday to sundown Saturday— Jewish workers, and for non-Jewish workers must include Friday, Saturday or Sunday, whichever is the customary resting day for them.

Overtime

Any additional hours beyond the regular daily hours and more than regular weekly hours are considered to be overtime. Employers must pay 125% of workers’ normal wages for the first 2 hours of overtime in a day and 150% for any hours after that. Those who work on a holiday or Saturday receive 150% of their normal pay as well as an additional vacation day.

Employee Leave in Israel

Holidays

Employers need to provide workers with 9 mandatory paid holidays per year after 3 months of service. These can be the Jewish religious holidays or, in the case of workers of other faiths, holidays related to those religions. Jewish holidays follow a lunar calendar, so the dates of observance vary every year.

Annual Leave

Employers in Israel need to grant employees between 14 and 28 days of paid vacation (based on a 6 day work week), the number of leaves depends on a worker’s duration of service with the same employer:

• 14 days of annual leave for up to 4 years of service
• 16 days for 5 years of service
• 18 days for 6 years of service
• 21 days for 7 years of service
• More than 7 years: 21 days and 1 additional day for every year of service above 7, but up to an upper limit of 28 days of leave.

Maternity Leave

Female employees get 26 weeks of maternity leave after completing 1 year of work for an employer. The National Insurance Institute (NII) pays for the first 15 weeks of maternity leave while the rest of the leave is unpaid. Pregnant employees who have not completed 1 year of work for an employer get only 15 weeks of maternity leave.

Up to 7 weeks of leave may be taken before the estimated date of childbirth. Employees are also entitled to unpaid leave after the end of paid maternity leave for up to 1 year from the date of birth. Employers may not dismiss an employee on maternity leave or within 60 days after its conclusion.

Paternity Leave

Working fathers get 6 days of paid paternity leave after the birth of a child. Out of these, 3 days will be taken out from the father’s sick leave and the rest from his annual leave. In case these leaves are used up or not available to the father yet, those days will be granted as unpaid leaves. A working father can also claim his wife’s leave 1 week after childbirth. After using up all of their paid leave, fathers are allowed up to 12 months of unpaid leave.

Adoption Leave

Adoptive mothers receive the same leave benefit as the biological mothers.

Sick Leave

According to the Sick Pay Law, employees who are absent from work due to illness get paid leave that commences from their second day of absence. The benefit is 50% to 100% of regular salary. Compensation for sick leave is borne by the employer for up to 90 days. After 90 days the leave may be funded by an insurance company, pension fund, disability insurance, or the National Insurance Institute based on the circumstances. Workers can use their accumulated sick leaves to care for an ailing family member.

Taxation

The corporate tax rate is 23% as of 2020. Israel tax rates progress based on income for employees. 

Both employers and employees are responsible for contributions to national insurance and health insurance funds. Employees are taxed at 12% of salary, and employers are taxed at 6.75% of salaries paid. Employers can expect to contribute 8.5% to the national pension fund. 

Employee Benefits in Israel

Social Security and National Health Insurance

The National Insurance Institute provides social security, including disability insurance, health insurance, maternity benefits, child allowances, long-term care, unemployment insurance, and old-age and survivors’ pensions. The law mandates that employers and employees both contribute a percentage of their monthly salary to Social Security. Employer contributions for national insurance are 3.45% to 7.25% of employees’ salaries, while employee contributions are between 0.4% and 7%

Unemployment Insurance

To get unemployment insurance benefit, an unemployed individual needs to fulfill the following requirements:

• Be a resident or temporary resident of Israel
• Be in the age bracket of between 20 and 67, and
• Have been employed for 300 to 360 days out of the previous 540 days with an employer that was making contributions to the National Insurance Institute.

Workers who resign from their jobs due to health/family issues, significant decline in employment conditions, change in the place of residence or the workplace cannot start receiving benefits for 90 days. Also, individuals who reject suitable offers of employment or job training also must wait 90 days before they start receiving benefits.

Pension Fund

After completing 6 months at work, all the employees get the option to choose a pension fund of their preference. The employer’s contribution to this will be up to 6% plus 2.5% disability insurance while employees need to contribute up to 5.5% of their monthly salary.

Work Injury Insurance

Employees who are unable to work for at least 12 days due to a work-related injury or ailment are entitled to the benefit of 75% of their normal wages for up to 13 weeks (91 days) in addition to medical care and rehabilitation. Workers get benefits from the NII, however, employers need to reimburse the NII for the benefits provided for the first 12 days.