Categories
Business in Israel

Business Culture in Israel

If you’ve owned a business in another country or seen firsthand how a foreign business is managed, you may be surprised at some of the business practices which are common in Israel.

Payment Terms

One of the most surprising (and challenging) aspects of doing business in Israel is the concept of shotef plus – delayed payment. Many organizations and businesses don’t pay immediately upon receipt of an invoice. In 2017, a law was passed in the Knesset requiring most institutions and businesses to pay up to 45 days from receipt of an invoice. If you expect payment sooner, this should be included in your service agreement/contract, but don’t be surprised if you are told that the institution simply can’t pay earlier. These payment terms are usually based on cash flow issues (i.e. they are also being paid late), so you may have to accept these terms if you want to work with certain clients.

Acceptable forms of payment are cash, bank transfer and checks. Checks have become less popular in recent years and they aren’t worth the hassle if you can avoid them. Your clients may want to pay with Paypal, Paybox or Bit. Check fees and ease of use to decide which of these you choose to accept. You can also sign up for a paid credit card processing app and accept payments through it. Keep in mind that the easier you make it for clients to pay you, the sooner you will receive the money.

Becoming a Supplier

If you supply services or goods to another business, they might ask you for your Nikui Mas BaMakor and Ishur Nihul Sefarim. The Ishur Nihul Sefarim states that you keep your books according to the regulations of the Israeli Tax Authority. Nikui Mas BaMakor instructs the paying entity whether they are required to withhold tax and at what percentage. These documents can be obtained from your accountant or via the Israeli Tax Authority website.

Communication

In keeping with the informality prevalent in Israeli culture, business culture can be pretty informal too. Clients often prefer to communicate via WhatsApp or Facebook Messenger and some eschew use of email entirely. If you find that this way of communicating wreaks havoc on your business processes and organization, consider signing up for a task management system. There are lots of free options out there, and you can keep everything organized in one place, regardless of the form of communication utilized by your clients.

Price Haggling

Haggling over price is a time-honored Middle Eastern tradition and Israelis are well-versed in the art. You can choose not to work with clients who bargain or you can quote a higher price and expect to lower it in negotiations. In either case, you don’t want to lower your price below what your work is worth or to an amount that doesn’t leave you enough profit after taxes and expenses. A strategy that reduces the chance that a client will haggle is to let them know what they are getting for this price so that suddenly the amount seems low. 

Meetings

Meetings at coffee shops are totally acceptable in Israeli business culture. It’s understood that you may work from home or have an office space that’s not set up for hosting and your client or colleague may be in a similar situation. Etiquette requires that if you are the one who has asked for the meeting, you pay for the drinks or meals. Location should be closer to the person who was invited to the meeting and the initiator should check about dietary restrictions, including kashrut, before choosing a cafe or restaurant.

Invoices

Most clients will ask you for an invoice before they send payment for a service. An official invoice is called cheshbonit mas, and it obligates the business owner to pay VAT once issued.  Therefore, many business owners will send a “drishat tashlum” or “cheshbon iska” which is not an official document, in order to avoid getting stuck with a VAT expense before receiving payment. However, your client may fear making a payment and then getting stuck tracking the official cheshbonit mas. They are allowed by law to request the official, numbered cheshbonit mas before issuing payment and you must provide it.   

Some clients are prompt in their payments but others may need a little nudging. Sometimes clients will even ask to pay in installments or reduce the payment that was already agreed on. Stand firm when necessary and choose clients wisely to avoid these issues as much as possible.

Receipts

Once payment is made, if you are an Osek Patur, a receipt (kabala) is issued. If you are an Osek Murshe, you will need to issue a cheshbonit mas, which is a legal document and must be numbered. The ORIGINAL is what has value, so when using officially printed books the original document must be given to the payee. A digital copy is not enough for the payee to claim the VAT back on the expense.

In many cases, especially when funds are exchanged at the time services are provided, these documents are issued together in what’s called a cheshbonit mas kabala.

If you are using an electronic invoicing system, it’s easiest to create the payment request in the system and transform it into a receipt once payment has arrived.

Receipts are legal documents and it’s important to use a government-approved electronic system or an official printed booklet. Clients generally prefer to receive receipts electronically, so if you use a printed book, take a picture or scan it to send immediately and then send the paper one in the mail afterwards.

Professionalism and Extenuating Circumstances

In some countries, the lines between work and life are sharply defined, but they are a bit blurrier in Israel. Business owners may tell you why they can’t provide a service as quickly as they usually do – for example, they are taking a vacation, their baby is sick or they are dealing with a family crisis. It is assumed that you will be understanding, and that, if your project isn’t urgent, you will wait a little longer. If you feel comfortable, you can also let clients know how life events affect your productivity. Constant excuses won’t go over well, but an occasional hiccup is understood and accepted.

Categories
Employment in Israel

Working Two Jobs in Israel: Everything You Need to Know

One of the things you learn quickly in Israel is flexibility. Plans tend to change at the last minute, rules aren’t necessarily law and the food tastes nothing like it did in your home country. At the beginning of life here, these things can be frustrating, but soon you will start to see the benefits of agility and adjustment. 

One of the ways in which Israelis are flexible is in the definition of their careers. There are many Israelis who have one conventional career and stick to it, of course. But there are also a lot of Israelis who work more than one job in order to make a living. There’s the office worker who teaches exercise classes in the evening, the teacher who tutors on the side and the translator who also runs a marketing business, to name a few.

When you have two (or more) jobs, there are some Israeli laws you need to be aware of.

Coordination of Income Tax

If you are a salaried employee, the Income Tax Authority (Mas Hachnasah) provides guidelines to your employer for how much tax to withhold from your salary. Without instruction from Mas Hachnasa, when your employer becomes aware that you are receiving another salary, they are obligated to withhold the maximum amount of taxes.

In order to prevent most of your income going to taxes, you need to coordinate your income tax in a process called Teum Mas. You can apply for a Teum Mas online by providing information about your income sources, although it may be worth your while to stop by your local Mas Hachnasa office and walk it through with an agent. This may take more time, but oftentimes saves headache down the road due to misunderstandings or typos. You will need certain details from your employers, such as their Mispar Tik Nikuim (payroll tax number) and your expected annual income. Register at the Income Tax Authority in order to access the form for Teum Mas. The Teum Mas will arrive within a week or two of applying and you should then send this report to your payroll or HR department so they know the proper amount of taxes to be withheld.

In some cases, you may also need to communicate your dual income to Bituach Leumi. If you didn’t do so and you overpaid, you can request a return.

Unemployment Benefits

Working a second job doesn’t disqualify you from unemployment benefits. If you worked for two employers and one of them laid you off, you can continue to work at the second job and collect unemployment from the first one if you qualify. Your benefits will, of course, be lower than if you were laid off from your only job and were no longer working at all. You’ll need to submit pay stubs from your employer each month.

Entrepreneur with Multiple Clients

If you have multiple clients and don’t receive a salary, you must open a business with independent contractor files at the VAT office, Income Tax Authority and Bituach Leumi. You report your income and pay income tax, Bituach Leumi and VAT (if relevant) according to your total income from all your clients. This involves paperwork and it is recommended that you hire a tax consultant (Yoetz Mas) or accountant to help you with this. 

It is also possible to receive a salary from an Employer of Record such as Route 38. In that case, the clients pay the EOR and you receive a salary based on revenue collected. Payments and taxes are automatically withheld, just like they are for every other salaried employee.

Employee and Entrepreneur

If you’re supplementing a salaried job with a side business, you need to open files with the VAT office, the Income Tax Authority and Bituach Leumi. Your payments to Bituach Leumi will be deducted automatically from your salary and additional payments will be owed from your freelance income, taking into account what you have already paid as a salaried employee. 

As a freelancer, you are required to report your income to the Income Tax Authority. There is no need for a Teum Mas, unless you have more than one salaried position in addition to your freelance earnings. When filing your end of the year report, include your income as a salaried employee so your income tax is calculated correctly. This report should also include funds deducted from both the job and the business for pension or Keren Hishtalmut (education savings fund), as they will reduce your taxable income.

Categories
Employment in Israel

Benefits for Pregnant Women

Israeli employment law protects pregnant women in several ways. In fact, there are some benefits that start even before pregnancy if a woman is undergoing fertility treatments. Full days off for fertility treatment are treated as sick days and individual hours can also be deducted (up to 40 hours a year for a full time employee). A woman cannot be fired or have her salary changed during an absence due to fertility treatments.

A woman is obligated to inform her employer of her pregnancy during her fifth month. Likewise, a woman who is hired at a new job while pregnant doesn’t have to disclose her pregnancy prior to accepting the job, unless she has reached month 5. Some women choose to let their employer know earlier, either because they are feeling sick and may not be performing at optimal level or in order to give their bosses more time to find a maternity leave replacement. The law allowing women to wait till five months protects them against discrimination, so each employee should consider carefully when the best time to disclose a pregnancy is.

Discrimination against pregnant women, in the hiring process or in the workplace, is illegal. A woman who was discriminated against can sue her employer in the labor court. This includes a prohibition of firing a pregnant woman because she is pregnant. If a company wants to fire a pregnant woman for a different reason, and that woman has worked at the company for more than 6 months, the employer must obtain special permission to fire her. A common case would be a company that is laying off many workers due to budget cuts and wants to include a pregnant woman in the general layoff. If a pregnant woman was fired without special permission, it is considered as if she was never fired.

Employers are also prohibited from lowering the salary or work scope of a pregnant woman, regardless of how long she has worked at the company. 

It is prohibited to require a pregnant woman to work overtime or night shifts. However, she can work overtime if she has consented in writing and provided a letter from her OB/GYN that there is no need to refrain from overtime. A woman can be asked to work at night (at least two hours between 10 PM and 6 AM) but she is within her rights to refuse in writing. 

If a woman has a documented high-risk pregnancy and is absent from work for 30 days or more, she is entitled to a Bed Rest Benefit from Bituach Leumi.

A pregnant woman can be absent from work for routine pregnancy tests for up to 40 hours (for a full time employee). These hours are paid for by the employer as if she worked.  A part time employee is entitled to this benefit as well, relative to the number of hours she works on a regular basis.

The spouse of a pregnant woman is entitled to use 7 days of their sick days due to her pregnancy or childbirth. This includes accompanying her to appointments and being present for childbirth. He can also utilize 3 vacation days after the birth of the child. If he wishes to take 4 or 5 days, those extra two days can be considered sick days. These days are not considered maternity leave and don’t negate the spouse’s right to split maternity leave with his wife.

For more information on the rights of pregnant women in the workplace, see the Kol Zchut website.

Categories
Rosh Hashanah

The Joy of Repentance

In his incredible commentary on Rav Kook’s Orot HaTeshuvah, “Song of Teshuvah,” Rav Moshe Weinberger brings to light Rav Avraham Yitzchak HaKohen Kook’s groundbreaking approach to the concept and process of repentance. Rav Weinberger cites over and over again Rav Kook’s message that repentance is not intended to be a burdensome process, rather a joyous, restorative process. As our Sages state, the creation of repentance preceded the creation of the world and represents our soul’s desire and yearning to return to that point, to a place in time where there is an understanding and appreciation for Truth, to a place and time before the veil of the physical world shrouded us and obscured us from that Truth. It’s a healing process and not a punitive process. Kaparah is classically translated as atonement, but it literally means to wipe away. We are literally cleaning our souls and we should approach the repentance process not with trepidation, but with enthusiasm. It is a hard and rigorous process, but it should be embarked upon with a sense of renewal and hope. 

Additionally, a person’s desire to make the world a better place and specifically any activism, advocacy and efforts in the advancement of the Jewish people is a form of repentance. The Jewish people are different from any other nation. We are made up of individuals, but our heart also beats as one. When any part of the nation is suffering, we all suffer. We see examples of this all the time. Therefore, when one takes the lead in improving the lot of the nation, in any way, they are actively engaged in bringing us back to our original pure state, which is the essence of repentance. Every person who leaves his or her home country, makes aliyah to Israel and contributes to the welfare of the Jewish people and its homeland is engaging in a form of repentance.

The beauty is that Hashem created lots of us, each with our own personalities, character, strengths and weaknesses. We see this clearly in the myriad ways that you – our clients – choose to serve the Jewish people and boost the Israeli economy. No matter how you look at yourself, as long as your focus is on doing good, you can take whichever approach fits you best. Or, more practically, blend of approaches. As long as we recognize our True purpose in this world, we can then go about the process of working on ourselves in whichever way speaks to each of us. 

5780 was really challenging. COVID hit us like a brick wall. We had hoped for better in 5781. And in some ways it was. Because we learned to cope with this ever changing pandemic. But we also suffered tremendously as a nation. The losses that we endured this year were obviously meant as messages to us. Without a prophet, there is no way to know what that message is, but it’s clear that we have lots of work to do. If everyone takes upon themselves to make 5782 a year of repentance, step by step, day by day, baby steps each day – a year of positivity, a year of growth, a year of unity – not just 10 days or one month, but an entire year, then hopefully we can stand together on the eve of 5783 with a real call for everyone to return to our home in the land of Israel. 

We wish you a shanah tovah umetukah, a year of blessings and success, a year of health, of endless nachas from our families and only joy, a year in which all our wishes come true. 

The Route 38 Team

Categories
Employment in Israel

Should I freelance, open a business or work as an employee?

One of the great things about living in Israel is that there are endless ways of making a living. Olim are often surprised to discover that their new neighbors are working in many different types of jobs and that they are not necessarily working full-time jobs at established companies. They may be freelancers, small business owners or founders of start-ups. The Israeli economy and social structure promote creativity, flexibility and out-of-the-box thinking about careers.

You don’t always have a choice on how to structure your career path, but there are some circumstances in which you will have to choose whether to be an employee, a freelancer or a business owner:

  • The Israeli company you work for wants to hire you as a freelancer
  • You work for a foreign company with no Israeli office
  • You work for multiple clients in Israel or abroad
  • You are starting your own company

Here are the some of the differences between employees, freelancers and business owners:

EmployeeFreelancer (atzma’i – osek patur or osek murshe)Business owner (b’am)
Taxes and social benefit obligations are deducted automaticallyTaxes and social benefit obligations are paid independentlyTaxes and social benefit obligation payments are set up as automatic deductions by the company accountant 
Minimum sick days and vacation days provided by lawNo sick days or vacation daysYou are your own boss. You make the rules.
Keren hishtalmut savings plan may be includedKeren hishtalmut savings plan can be set up independently Keren hishtalmut savings plan can be set up via the business
US citizens will not owe a 15% Social Security (FICA) tax for filing as an independent contractorUS citizens will be taxed 15% of their income to Social SecurityUS citizens will not owe Social Security
No accountant needed to file an annual return, assuming no other reportable incomeAccountant strongly recommended for the end of the year report. Osek murshe has additional, periodic reporting requirements over the course of the year (best done with an accountant).High accounting fees. Monthly, bi-monthly and annual reporting requirements
No additional administrative or accounting responsibilitiesMinimum level of administrative responsibilities in addition to tax reporting responsibilities indicated aboveSignificant additional administrative responsibilities and required understanding of Israeli corporate income tax requirements in addition to tax reporting responsibilities indicated above
Receives maternity leave and maternity payment (after accrual of minimum required months on payroll)Receives maternity leave and maternity payment (after accrual of minimum required months reported)Receives maternity leave and maternity payment (after accrual of minimum required months on payroll)
Work schedule determined by employerSelf-determined work scheduleSelf-determined work schedule
Payment generally deposited directly into employee’s bank accountPayment collected directly from client(s)Payment collected directly from client(s)

One of the reasons that we founded Route 38 was because being an employee in Israel is legally and financially simpler than being a freelancer or opening up a company. We are the employer of record for people who work for foreign companies or provide services to clients and are not employed by another Israeli company. Our solution allows people to focus on their work without spending time and resources on collection of funds, paperwork and government reporting. In many cases, the employees retain control over their schedule and choose which projects they want to work on, while enjoying the benefits of an Israeli pay stub.

There are career paths which don’t lend themselves to the Route 38 employer of record service. In fact, every case is different, and professional advice is highly recommended before making a choice that has long-term effects. We provide objective and professional advice to help you make the choice that’s best for you. Email us at info@route38.co.il with information about your situation and we will get back to you as soon as possible.

Categories
Employment in Israel

How Do I File for Maternity Leave in Israel?

Mazel tov on your new baby! In between changing diapers and feeding this adorable munchkin, you may be worried about how you receive your maternity leave benefits. The good news is that you probably don’t have to do anything to make that happen, but of course, there are some exceptions.

Eligibility for Maternity Leave

Maternity leave refers to the amount of time your employer is obligated to hold your job for you. If you have worked for a year for the same company, you are entitled to a maternity leave of 26 weeks, only some of which is paid. If you have worked for your current company for less than 12 months, you are entitled to 15 weeks of maternity leave, all or some of which is paid. Your employer cannot prevent you from taking maternity leave or begin the termination process for a period of 60 days after your return. 

If you were employed by the same employer for a year before becoming pregnant, you will have pensions contributed on your behalf for the first 5 weeks of maternity leave. You must also deposit 6% during this time (usually laid out by the employer and deducted from your pay upon your return to work).

If you’re self-employed, you don’t need anyone to hold your job, so this is not relevant to you, but you do receive maternity pay from Bituach Leumi.

Maternity Pay

A woman who worked 10 out of 14 months or 15 out of 22 months prior to her birth is eligible for 15 weeks paid maternity leave from Bituach Leumi. A woman who worked 6 out of 14 months prior to her birth is eligible for 8 weeks paid leave.

According to the Kol Zchut website, “The maternity allowance is computed per day according to the gross salary of the employee in the three months preceding the first of the month in which the leave began, divided by 90, or according to the total income in the six months which preceded that day, divided by 180 (whichever is higher, up to the maximum established amount).”

If you’re self-employed, payment is based on the three months preceding your maternity leave or the same three months in the previous year, whichever is higher. If you’re both a salaried worker and self-employed, maternity pay will be based on both incomes.

How to File for Maternity Pay

If you’re a salaried worker and your employer has an arrangement with Bituach Leumi, you will automatically receive your maternity pay in a one time payment during your maternity leave. If you are self-employed, you will get a payment based on your advance payments to Bituach Leumi and adjustments will be made later if necessary. If you were receiving bed rest benefits or unemployment, you will also receive your maternity pay automatically.

If you don’t fall into any of these categories or you gave birth at home and not in the hospital, you will need to file a claim with Bituach Leumi. This can be done up to 9 weeks before the due date by mail, fax or at a local branch, or after birth online. These are some of the documents you may need:

  • Confirmation of birth from the hospital (if you gave birth abroad)
  • Newborn registration at Ministry of Interior (if baby was not born in a hospital)
  • Permit from the Ministry of Health or Ministry of Economy (if you received vocational training from the government)
  • Reserves book and certificate of discharge (if you are a newly released soldier)
  • Proof of National Service (if you have just completed it)
  • Bank account information (if you are a foreign worker or foreign passport holder)
  • A completed Form 355 from Bituach Leumi. Sections 8, 9 and 10 of this form must be completed and signed by your employer.

In most cases, maternity pay arrives automatically in a new mother’s bank account. If you fall into one of the categories that require filing, the process is fairly transparent and shouldn’t be too difficult. You’ll have plenty of time to focus on yourself and your new baby.

Categories
Employment in Israel

How Do Pensions in Israel Work?

Financial advisors will tell you that pensions are just as important as salaries, and for good reason. Although it seems counter-intuitive, retirement expenses are just as high if not higher than what you are spending now. This is because of new expenses such as medicine and medical treatments and increased spending on things like transportation and food. Taxis often replace driving, busing or walking and the ability to get to discount stores may be curtailed. Some retirees are still marrying off children or helping out their young adult kids. And basics like phones, electricity and home maintenance don’t change.

That’s why smart financial planning includes planning for retirement and luckily, the Israeli government has regulated this so that every citizen has some form of pension.

Bituach Leumi

All citizens who have contributed to Bituach Leumi for 12 years are eligible for a state pension. Israeli residents start paying into Bituach Leumi at the age of 18 (unless they are in the army or National Service). If you are working, this payment is deducted automatically from your paycheck. If you are a business owner, the government collects this payment from you directly. The basic pension starts at 1,558 NIS a month per person and 2,430 NIS for a couple, so while this is a nice amount to have, it’s not going to go very far in covering your living expenses. Furthermore, the amounts paid out by Bituach Leumi might be reduced due to actuarial issues.

Private Pensions

Your employer is obligated to set aside at least 6.5% of your salary or the average wage in the economy (whichever is lower) every month for pension insurance. You also pay into the insurance, at the rate of 6% of your salary. 

Your employer is also obligated to set aside severance pay to the amount of 6%, or 8.33% if you have signed a Chapter 14 clause. A Chapter 14 clause states that the employee is entitled to receive exactly what is in the fund (no more and no less) at the time of termination, regardless of whether the parting of ways was initiated by the employee or the employer. If you don’t use your severance pay, it becomes part of the pension paid out to you in retirement.

Just like Bituach Leumi, employees have their pension deducted automatically from their paychecks, while business owners have to set this up on their own.

Multiple Pensions

Many companies choose a pension provider for their employees and this may result in one person having several pension plans. In recent years, the government has mandated that an employee can choose which plan he wants to contribute to, regardless of the company’s official provider. So if you get a new job but already have an existing plan, you can continue to contribute to it and don’t have to open a new one.

If you do have multiple pensions, check whether you are paying fees on each one. If that’s the case, you may be better off consolidating them into one, although there are cases where it makes sense to keep them separate. If you merge the plans, make sure that your pension is now being paid into the consolidated plan.

Catching Mistakes

It’s important to check that your pension is actually being deducted, because if a mistake is made you may find yourself suddenly losing most of your salary to a retroactive pension payment. 

In general, we recommend looking at your payment stub (tlush maskoret) carefully each month, to check that everything is in order. Payroll mistakes can happen and if you’re only looking at the final number at the bottom, you may miss them.

How to Choose a Pension Plan

There are many pension providers and it can be extremely confusing to understand the differences between them. Revenues, management fees,  level of investment aggression, annuity vs. lump sum payments, various insurances connected with the policies and more differences need to be taken into account when choosing a plan. To complicate matters further, insurance agents are often representatives of one specific company, so they aren’t giving you objective advice. 

If you’re starting fresh or want to switch pension companies, it is advisable to consult with an independent insurance agent who can explain what your options are and recommend a plan that meets your needs.

Thank you to Motty Handler, registered insurance agent, hmotty@gmail.com, for his help in writing this article.

Categories
Outsourcing to Israel

Pros and Cons of Outsourcing to Israel

As telecommuting has become more prevalent around the world, more American companies have begun to hire people in Israel to join their staff. There are four main reasons why companies choose to do this.

Tapping into Israeli talent

Israel is called the Start Up Nation because of the ingenuity and talent of its best and brightest. Many Israelis have learned specialized skills during their army service and have been taught to think out of the box and dream big. Companies looking for exceptional talent will often find it in Israel. This is especially true in the hi-tech industry but by no means limited to it.

Savings on salary

Israeli salaries tend to be slightly lower than American ones, so it can sometimes be less expensive to hire someone in Israel to do the same job. Of course, salary is very much dependent on industry and experience, and not every Israeli will work for a lower salary than his or her American counterpart.

Night workers

Certain industries, such as medicine and customer support, require staff to work overnight. Israel is 7 hours ahead of the US, so an Israeli employee can provide services during his daylight hours while his American colleagues get a good night’s sleep.

For instance, JTA reported that Dr. Warren Isakow, an intensive care physician, works from 4 AM to 4 PM Israel time for hospitals around the US. Using software developed for this purpose, he directs procedures from his home office in Modiin, Israel, half a world away.

Existing employees

Another reason that American companies employ Israeli workers is that they had an excellent employee who wanted to move to Israel and they didn’t want to lose him or her. Instead of giving up on an outstanding asset, searching for and training someone new, they prefer to switch to a remote work arrangement with their current staff member. This arrangement is often mutually beneficial to both employer and employee and can last for many years.

Outsourcing to Israel has all the advantages listed above but it also comes with challenges. These are some of the issues to consider:

Employer’s obligation to the Israeli government

An American company hiring an Israeli must take into consideration that the Israeli government may call this an Israeli office and tax the company accordingly. Some companies solve this by having the employee set himself up as an independent contractor or business owner in Israel, with the American company billed as a client.

Employee’s obligations to the Israeli government

An arrangement where the employee becomes an independent contractor is beneficial to the American company, but it comes with serious drawbacks for the employee. This is because American citizens residing outside of the US are still obligated to file taxes and will have to pay 15% Social Security as independent contractors. Many dual citizens will balk at this arrangement and prefer to work for an Israeli employer in order to avoid these payments. 

A less expensive and more efficient solution to this problem is to hire Route 38 to provide services to the American company. A dual citizen wishing to work for this company becomes an employee of Route 38, which pays his salary and deducts all the taxes and payments required by the Israeli government. This is a win-win, because the employee doesn’t owe Social Security to the US government and has a smoother transition into Israeli life, while the American company doesn’t have to open an entity in Israel, with all its implications.

Communication challenges

Remote work is a different animal than office work. Particularly at the beginning, it may be difficult to communicate effectively in order to get things done efficiently and well. This problem is exacerbated by the time difference. Luckily, technology has advanced enough that task management software, virtual meeting platforms and social media make it easier to stay in touch. The 7-10 hour time difference does allow for some overlap between American and Israeli work hours, and Israelis are often flexible with their schedules in order to accommodate their overseas colleagues.

Is outsourcing to Israel a good idea? If the last few years have taught us anything, it’s that agility and flexibility are key to a successful business. If a company can tap into new talent pools, save money, cover nighttime hours or keep a good employee, outsourcing to Israel is certainly an excellent option.

Categories
Uncategorized

Pros and Cons of Working Remotely in Israel

The 9-5 office of the past has gradually transformed into a much more fluid work environment, in which remote working has a place of honor. There are, of course, jobs that can’t be done remotely, and employers who don’t allow it even though it could technically work, so remote working in Israel isn’t an option for everyone.

But if you’re thinking about aliyah or are considering a career change in Israel, remote work might be on your radar. Let’s start with the ways it can be awesome:

  1. If you already have a job outside Israel and you’re pretty happy with it, remote work can be a great solution that allows you to move to Israel and continue working for your American company. If set up correctly, your employer doesn’t have to create an entity in Israel in order to employ you. You can keep doing what you know how to do at a company that appreciates you while enjoying life in Israel.

  2. Work/life balance is often off-kilter in a traditional office job, with much more time and energy spent on work than on life. But when you work remotely, you tend to have more flexibility with your schedule and find it easier to establish boundaries where you need them. Even if you’re working set American hours, you will find that having the mornings off for children, errands, chores or a leisurely breakfast out with friends can make a huge difference in your happiness.
  1. American companies tend to pay higher salaries and consulting fees than their Israeli counterparts. Working remotely in Israel means that you can enjoy better pay for the same type of work you’re already doing or want to do. You can also work for more than one client and for companies around the world and take home more money at the end of the month. Of course, a higher gross salary outside of Israel may end up not being so lucrative once exchange rates, bituach leumi and taxes are taken into account, so you need to investigate this on a case-by-case basis.

  2. Depending on your level of fluency in Hebrew and familiarity with Israeli culture, you may find it easier to work remotely in your home country.

Not everything is rosy in the world of remote working, of course. Here are some things to consider that make working remotely a little less attractive:

  1. Israeli companies deduct taxes automatically from their employee’s salaries, so there’s usually no filing necessary. If you’re working remotely, you are officially considered a freelancer in Israel and that means that you need to file taxes and pay them separately. Some remote workers in Israel prefer to be employed by an Israeli payroll company which deducts taxes for them in order to avoid this pitfall.

  2. Israeli employers are required by law to provide certain social benefits such as sick days and a minimum number of vacation days. Many companies also add extra benefits, like a tax-free savings fund (Keren Hishtalmut) or a leased company car. Freelance remote workers are generally not eligible for these benefits and must fend for themselves.

  3. When you’re not working in an office, you don’t get to chat with colleagues while making coffee in the morning or start a brainstorming session by walking past someone’s desk. You may find it harder to get quick answers to small questions (although WhatsApp or a task management system may help with this). And you might get left out of meetings and important updates. Of course, with some extra effort you can be a vital member of any team, even if you’re far away.

  4. If you’re working American hours (which are evening hours here in Israel) you may find the late evenings a challenge, especially if you don’t have the ability to sleep later in the morning. Work will also conflict with social events such as weddings, concerts and dinners out with friends who work during the day.

We’d love to hear from you. If you decided to work remotely, what were the deciding factors? What do you miss about working in an office and what aspects are you glad to be rid of?

Categories
Uncategorized

Your Employee Wants to Move to Israel — Now What?

The change in lifestyle and culture that the pandemic has brought to the world has brought much chaos and challenge to the world. But change also creates opportunity. One such opportunity that now exists is for employees to follow their dreams and move to locales never before possible while continuing to work remotely and provide even better service to their employers with a  balanced work/life model that fits their needs and keeps them satisfied and eager to prove themselves. Working remotely from Israel with a 7-10 hour time difference to the States has now become acceptable and brings about a preferred lifestyle for many.

If your employee would like to move to Israel, there are three ways that this can be accomplished.

The first option is that the employee continues to work for their US employers as a W-2. This option would require the employer to open a tax file in Israel – not a highly recommended course of action for any company who does not want to create nexus in a foreign country.

The second and more feasible option is for your employee to open a personal tax file as an independent contractor, requiring the service provider to hire an accountant to open the files with the relevant authorities and file an annual return, along with a small handful of other possible other reporting obligations. It’s pretty straightforward and may not take much time, but it can still be a burden on your employee. The financial downside to this approach for Americans is that, as they are reporting as an independent contractor, they will be required to report as such in the US as well, kicking in a 15% flat Social Security tax, that is not covered by the US-Israeli tax treaty, nor can any deductions be taken. Your employee may very well be reluctant to choose this option, due to the burden of reporting in Israel and paying Social Security in both countries.

The third way to continue to employ an Israeli resident is through our payroll service. Our service allows your employee to continue to work for you, but as an employee of our company, Route 38 Professional Services LTD. The benefits are that we take care of all of their accounting requirements here in Israel, helping them to continue to work seamlessly with you. Additionally, as an employee of our company (even though it is a foreign company) when the individual files their US return, they will no longer be liable for the Social Security tax. 

Our association with your organization will be through our US company, Route 38 LLC. This allows us to have a completely domestic relationship and act as a straight 1099. We invoice on a monthly basis and you can pay us via our BOA account using most electronic means. 

A brief run-down on mandatory Israeli employer costs might give you some reference point on the cost of employing someone in Israel. They are as follows:

 – National insurance  – approximately 7%-9% of gross salary

 – Pension – 6.5% of gross salary

 – Severance – 8.33% of gross salary

There are also a couple of optional benefit options, primarily a study fund benefit in which you could add an additional 7.5% of gross salary for funds to be deposited in an investment vehicle that can be tapped into after 6 years. 

You should also be aware of certain differences in employment law in Israel versus the US – specifically protections for employees for termination (a hearing needs to be proposed and happen and only after that can an up to 30 day notice period start) and maternity (pregnant women can almost never be terminated, job must be available upon return from leave and employer cannot start the termination process with the employee for at least 60 days upon return.) 

If there is any other information that we can provide, feel free to reach out to us at Route 38: info@route38.co.il. We look forward to hearing from you.