Your employee has decided to move to Israel, but neither of you wants to end your working relationship. Thankfully, modern technology makes working remotely a cinch. But what happens to health insurance, PTO and other benefits when your US employee becomes an Israeli resident?
Payroll and benefits
Once your employee becomes a resident of Israel, their employment is governed by Israeli law, not US law. That means your US payroll, benefits and tax withholdings can’t just keep running as usual.
There are three ways to employ an Israeli:
- Hire them through an Israeli Employer of Record (EOR) service, which handles Israeli payroll and compliance for you. An EOR will charge a fee that can be paid either by your company or by the employee.
- Reclassify them as an independent contractor. This option may not be in the best interest of your worker and may cause a shift in your work dynamic.
- Open a local entity and employ them directly under Israeli law. This option makes sense if you are planning an expansion into Israel and expect to employ multiple people.
Whatever path you pick, their benefits package needs to fit the Israeli system.
Health insurance
In Israel, every resident is automatically covered by the national health system. Premiums aren’t paid through your company’s group plan; they’re handled through Bituach Leumi (Israel’s National Insurance). This means that you no longer have to provide a US health plan. In fact, since your worker isn’t a US resident, they don’t qualify for American health insurance. But don’t worry, their basic healthcare is covered through Israel’s system. Supplemental private insurance is available in Israel, and you can choose to contribute to that if you wish.
Paid time off
Israel’s labor laws regulate vacation and sick days quite clearly (and generously by US standards):
- Vacation: Minimum of 12 paid days per year, increasing with seniority.
- Sick leave: Earned at 1.5 days per month (up to 90 days).
- Public holidays: 9 per year, based on Jewish and national holidays.
- Weekend: Friday and Saturday.
These laws are relevant for employees, so they would apply if you go the EOR route. But if you choose to hire them as a consultant, they would be responsible for their own sick days and vacation days.
Pensions, severance and Social Security
Israel has a few benefits that aren’t optional if you’re working through an EOR. If you’re hiring them as 1099 consultants, they are officially responsible for all these payments themselves:
- Pension contributions: You contribute about 6.5% of salary, they contribute about 6%, and the funds go into a regulated Israeli pension plan.
- Severance pay: You set aside 8.33% of salary monthly toward severance, which is payable if they leave or are terminated.
- Social security (Bituach Leumi): Both you and the employee pay into Israel’s national insurance system.
There’s no totalization agreement between the US and Israel, so you won’t continue paying US Social Security or Medicare once they move. (If you’ve chosen the 1099 route, your consultant will have to pay Social Security as a self-employed person.)
Parental leave and sick pay
If your female employee decides to start a family in Israel, she will be eligible for up to 15 weeks of paid maternity leave, with the option to extend unpaid leave afterward. (Paternal leave for fathers can be taken only under certain conditions.) The employer doesn’t pay for maternity leave, since that is paid out by National Insurance, but does continue to contribute toward pension and severance.
Sick pay, too, is guaranteed by law, and accrued automatically. It is paid directly by the employer.
While this might sound expensive, it’s actually easier for you, because the obligations are clearly defined. You don’t have to negotiate custom leave policies; you just follow the rulebook.
When your employee moves to Israel, their benefits don’t vanish, they just change shape. And with the right setup, your employee stays happy, legal and productive even from 6,000 miles away.
