Interested in more than one career path? Want to freelance without giving up the steady paycheck? Building a business slowly and maintaining another job in the meantime? Whatever the reason is, if you are working as an employee and as a freelancer at the same time, it’s important to understand your rights and obligations.
Bituach Leumi and Bituach Briut
Employees get Bituach Leumi (National Insurance) and Bituach Briut (Health Insurance) deducted from their salaries. Freelancers must pay these mandatory payments independently. If you are registered both as a freelancer and an employee, the Israeli government will automatically take into account your income as an employee before charging you as a freelancer. You need to open a file with Bituch Leumi so that they know to charge you accordingly.
Income tax
Income tax is deducted automatically from your paycheck as an employee but you have to report your income as a freelancer and pay taxes on it independently. In the end of the year report, you report your employee income in addition to your freelance income, as well as expenses that you incurred for the business (but not the other job). So you can claim the internet in your home but not the commute to your job. If you have doubts about what can be claimed and what cannot be claimed, it’s best to consult with an accountant or tax advisor to make sure you are getting it right.
Pension
Anyone who works in Israel must have a pension fund. The company you work for will deposit funds into your pension every month, partially at the expense of the company and partially deducted from your salary. Freelancers are obligated to deposit funds into a pension plan, but if the amount you are required to pay (based on your revenue) is lower or the same as what you are getting from your employer, you will not have to deposit any more.
If you are required to add funds, it is up to you whether you deposit them into the same pension plan your employer uses or whether you maintain two separate plans.
Keren Hishtalmut
A Keren Hishtalmut is a tax-free investment account which is deducted from your income. It is not offered to all employees, but in some workplaces the employer pays for part of it while the rest is paid for by the employee. Freelancers who want to open a Keren Hishtalmut must pay the entire amount themselves. It is not possible to pay into the same account from two different sources, so you will have to maintain two accounts, one from your employer and one from your freelance business.
You will get tax credits for this investment, but the number of credits you get as a freelancer takes into account the amount deposited by your employer into your other account.
Maternity leave
You are eligible for paid maternity leave if you have worked and paid Bituach Leumi for the necessary amount of time before giving birth. If you are eligible both in your freelance and employed work, maternity payment will be given to you according to your combined income. If you are eligible only in one of the incomes, you will receive payment only based on that income. For your freelance work, the maternity leave payment is estimated according to the advance tax payments you are paying. After filing a tax return it will be recalculated.
Unemployment
If you are fired from your job as an employee, you may be eligible for unemployment payments. You can continue to work in your freelance business, but the payments you receive will be lowered to account for your freelance revenue. In general, if you lose your freelance income you are not eligible for unemployment, although there are some professions which are an exception to this rule.
Work grant
If your income is very low you might be eligible for a work grant. This grant can be awarded to a freelancer or an employee. If your combined income from your business and job are low enough, you can receive the work grant while maintaining both streams of income.
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