Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.
For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.
For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.
As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.
While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.
A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.
Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Israel can be expensive, stressful, and time-consuming. It's not for the faint of heart.
To set up a subsidiary in Israel, you have to:
If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Israel.
An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.
An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.
Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.
At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.
Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:
Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.
Paying employees in Israel is not the same as paying workers in your own country. Employees have to be paid using Israel’s employment and payroll standards.
This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.
Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.
After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:
One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.
Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.
Outside of EORs acting as the full admin employer, many also provide remote payroll.
For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.
We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.
A full work week in Israel consists of 42 hours. The work week is Sunday-Thursday.
In general, the first 2 hours of overtime are paid at a rate of 125% of the regular pay, and 150% after that.
It is common practice in Israel to include a clause in the employment agreement that sets forth an arrangement with the employee by which the employee receives a predetermined overtime pay reflecting an estimated amount of overtime hours such employee is expected to work per month, in average (“Global Overtime Payment”).
The said estimated number of overtime hours should be specified in the employment agreement (“Overtime Quota”).
Every employee is entitled to 36 continuous hours of rest per week, which must include the day of rest according to his or her religion (for Jewish employees – ‘Shabbat’).
Employment on the rest day is prohibited unless authorized by the Minister of Labor by a special permit, where working is deemed in the interest of the general public due to security, safety, and economic considerations.
If an employee works during the weekly rest day or during public holidays (according to such permit), the employee shall be entitled to special hourly remuneration at 150% of the usual hourly rate.
According to the labor court’s ruling, with respect to an employee that worked for 42 hours on regular working days, and is required to work on the rest day (subject to the obtaining of a permit by the employer, allowing his employees to work on the rest day), the hours worked on the weekly rest day are considered overtime as of the first hour worked.
As a result, the employee shall be entitled to receive a pay of 175% for the first two hours worked on the rest day, and 200% from the third hour onward.
Payroll cycle in Israel is monthly (with respect to globally paid/monthly employees)
Following the first year of employment all employees are entitled to a Recreation Payment.
The payment is usually made between July and September.
Amounts are determined by law, updated annually and correspond to the number of years of employment.
PTO is calculated by the:
During the first five years of employment full time employees who work five days per work week are entitled to 12 net vacation days (not including the weekly rest day), and then as follows:
The vacation entitlement of employees who work in a part-time capacity is calculated in accordance with the number of actual worked days, all in accordance with a specific calculation mechanism set forth in the applicable law.
There are 6 national holidays in Israel (Rosh Hashana (2 days), Sukkot (2 days), Yom Kippur, Passover (2 days), Shavuot and Independence Day.
Sick leave is accrued at a rate of 1.5 days per month with a maximum of 90 days total.
Upon return, the employee must provide a medical certificate from a doctor.
A woman who has worked less than 1 year with the employer prior to the leave, is entitled to 15 weeks of maternity leave.
A woman who has worked more than 1 year with the employer prior to the leave is entitled to 26 weeks of maternity leave (which includes 15 paid weeks and 11 unpaid weeks).
As of the labor contractions and up to 24 hours after the birth, the spouse or partner of a woman who gave birth is entitled to be absent on account of the accrued sick leave.
In addition, the spouse or partner is entitled to 5 days of paid paternity leave, with respect to the first five calendar days following the birth. The first three days will be on account of the employee’s accrued annual vacation days, and the additional two days will be on account of the employee’s accrued sick leave.
Fathers can take days off after the birth of a child, but these days will be subtracted from the maternity leave.
In the event of a death of a member of the employee’s immediate family, the employee is entitled paid grief days, as customary in his religion, and up to 7 calendar days of paid leave (including the weekly rest day).
The grief period during which the employee was absent from work is fully paid and will not be deducted from the employee’s annual vacation or sick leave allowance. In accordance with applicable law, the entitlement to a grief period depends on completing 3 months of employment.
In Israel, the labor court’s rulings regarding the termination of an employee are strict. An employer is not able to terminate an employee without prior notice.
The employer must give the employee an invitation letter to a hearing and must include the reasons according to which the employer is considering the termination of the employee’s employment with details of the grievances. The employer is required to provide the employee with at least 2 days to prepare (weekends and holidays are not included).
The employee is entitled to represent himself or can have a lawyer or other representation in the hearing.
During the hearing, the employer should only refer to the arguments which were included under the invitation and must allow the employee to counter. It is the duty of the employer to listen and consider the employee’s counterclaims before making a final decision on terminating the employee. In addition, the hearing must be documented and if the employee requests, a copy must be provided to them.
Once the employee completes his/her arguments, the hearing is done, and the person conducting the hearing informs the employee that the employer will now consider all that the employee said and reach a decision with regard to the employee. The employer is not allowed to deliver any decision right after the hearing session ends or during the hearing session itself.
Following the hearing, the employer may not immediately dismiss the employee, but must provide for ample time to deliberate and consider the employee’s case as presented at the hearing.
A decision should be delivered to the employee (preferably in a personal meeting) following a reasonable time from the date of the hearing (while taking in consideration the scope of the employees claims as were raised during the hearing). The decision should be in writing and should include reference to the employee’s arguments during the hearing session and the company’s response to them.
If the termination process is not followed accurately, a labor court may rule that the employee be reinstated or be provided compensation from the employer.
The notice period in Israel is:
If the employer chooses to terminate the employee after the hearing, the employer must provide written notice to the employee which must include the date of dismissal.
During the first six months, one day of notice is accumulated for each month of employment.
In addition to the 6 days accumulated, 2.5 days of notice are accumulated for each month of employment from the sixth month to the end of the first year.
Following the first-year, termination requires a 30-day notice.
Under the Section 14 Arrangement, the employer is required to carry out monthly contributions equivalent to 8.33% of the employee’s monthly salary payment towards the severance pay component, and the accrued amount is to be released to the employee upon termination, even if the employee resigns without circumstances that would entitle the employee to severance pay if he was not subjected to the Section 14 Arrangement.
The amount of severance pay depends on the number of years the employee has been employed. One months’ salary for every year worked is paid as severance. If the employer contributed every month 8.33% to Severance pay, then he won’t need to pay severance in termination.