An American company employing Israelis is no longer the rarity it once was. Israelis living and working in the US often want to hire other Israelis. Many companies want to support immigrants and native Israelis. And other companies don’t want to lose good employees when they move to Israel.
Remote work has become the norm around the world and Israel is no exception. This makes it easier for Israelis to accept jobs that are based abroad or bring their job with them when they make the move. So, how can your US company hire Israeli employees?
If your employee is currently working on a W-2 basis, you will likely want to change this. Employing someone with a W-2 requires your company to open a tax file in Israel and brings with it various tax obligations you probably don’t want to deal with.
If your worker is working as a 1099 (independent contractor) or can switch to 1099, your company will not have to open a tax file in Israel. As a 1099, your employee will be responsible for paying Israeli taxes and Israeli Social Security, as well as any tax obligations in the US.
In order to be compliant with Israeli taxes, your worker may register as a freelancer in Israel.
The disadvantages are that if your employee wants to be paid in shekels, you will need to deal with international wire transfers and their accompanying fees. Additionally, being self-employed in Israel means that your employee will have to pay 15% Social Security in the United States. This can be a big burden, on top of paying Bituach Leumi (National Insurance) in Israel, so this is not necessarily the best deal for your employee.
Enter Employer of Record services. EOR companies make employing Israelis a piece of cake. Your employee becomes an employee of the Israeli EOR company and you are billed by them for consulting services. They will send you an invoice each month and you transfer payment to them (in some cases, directly into their American bank account). They then pay the employee, withdrawing taxes and other payments as necessary.
This process is easy to set up and maintain from your perspective. There is a registration and termination fee, as well as a monthly fee, but this is a small price to pay for a happy employee, and likely less expensive than giving your employee a raise to cover all their new expenses as a freelancer.
At Route 38, we specialize in providing EOR services for Israelis working anywhere in the world, and we work with hundreds of US companies paying for consulting services in Israel. We are experts in US and Israeli tax obligations and will guide you and your employee on how to best structure your employment arrangement. Email us at info@route38.co.il to set up a consultation and get personalized advice.