Category: Bringing Your Existing Job to Israel

Here at Route 38, we often get asked, “Why can’t I be a W-2 in Israel?” Many olim assume that they can simply work for an American company while living here, in exactly the same way they did before they made aliyah. Unfortunately, this is far from the truth.

What Is a W-2 employee?

A W-2 employee is someone whose employer deducts taxes from their paychecks and reports on this to the government. At the end of every tax year, the employer must send its employees their Form W-2, which delineates all the income earned and taxes withheld. This form is also sent to the IRS. W-2 doesn’t apply to contracted or self-employed workers.

There is no law in the United States against hiring employees in other countries, but the US company would have to comply with Israeli labor law as it relates to taxes, employee rights and other statutory commitments. They would also have to open a payroll tax file with the Israeli Tax Authority.

If you’re a recent oleh and physically work in the US while commuting back and forth to Israel, you can work as an employee of a US company with a W-2. You will need to pay taxes on any income earned while in Israel, but will be exempt from Israeli taxes on money earned while physically in the US.

Sounds simple, right? Unfortunately, the US company now has a potential Israeli tax exposure on its Israeli source profits. Additionally, the company must operate Israeli tax withholding, pay taxes to the Israeli government and register at the VAT office and pay VAT. Most American companies don’t want to take on these responsibilities, so they won’t employ an Israeli on a W-2.  

Alternatives to working as a W-2 employee

You may be wondering, if it’s so complicated to work for a US company, how is it that I know so many Israelis/dual citizens who are doing it? There are three popular alternatives to working as a W-2 employee:

1. Freelancing 
2. Employment by an Israeli Employer of Record service (payroll company)
3. Open your own Israeli company (Chevra Ba’am)

If the company you want to work with is open to both these options, consult with an accountant who understands US and Israeli tax law to figure out which is best for you. It’s possible that you may decide that it’s more beneficial to seek employment with an Israeli company, or you might find a solution that works for you and for the US company, and enjoy a fruitful business relationship with them for the long-term.

Ways to work from Israel for a US-Based company

As you can see, a foreign employer can’t directly employ you overseas without setting up a payroll tax file or legal entity here. Since this opens the company up for tax exposure issues, they are unlikely to want to do this for only one employee. Let’s look more deeply at the other ways that you can work from Israel for a US-based company and consider the pros and cons of each option so you can choose the one that’s best for you.

Become a freelancer

You can set yourself up as a freelancer in Israel and the employer will then contract you as a consultant. 

Freelancing can be a blessing and a curse. If you were a classic freelancer working for more than one client, you would enjoy the advantages of making your own schedule, deciding which clients to work for, setting your own prices and not having a boss-employee relationship to contend with. On the other hand, you wouldn’t get vacation or sick days, you would pay more into Bituach Leumi and you would have no steady income.

When you set yourself up as a freelancer for the purpose of working with an American company, you still have no legal rights such as vacation and sick days, you will have to pay Bituach Leumi as a freelancer and will most likely need an accountant to manage your books. If you are an American citizen, you will also have to pay Social Security taxes in the US. But if you are working for a US company, you likely won’t get to make your own schedule, decide who to work with or be on an even footing with your boss. In some ways, you are taking on the obligations of a freelancer without enjoying the benefits.

Before you take this step, it’s important to weigh the advantages and disadvantages as they pertain to your individual situation.

1. Is the salary being offered to you high enough to offset the extra costs?
2. Is your US company offering you flexibility, such as work during Israeli hours or at any time you choose?
3. Are your bosses bothered by your designation as a freelancer, since it weakens the employee/employer relationship?

Use an Employer of Record service

If freelancing seems like a bum deal to you, but you really do want to work with an American company, you can choose to be employed by an Employer of Record service such as Route 38.

In that scenario, your employer pays Route 38 monthly and Route 38 pays your salary in accordance with Israeli law. This is simple for your employer to set up, since Route 38 takes care of all the bureaucracy. It’s easy for you as well, since you get a pay stub (tlush maskoret) like any other Israeli employee, can get paid in shekels in Israel or dollars in the US and all necessary deductions (pension, health insurance and income tax) are withheld for you.

What is an Employer of Record (EOR) service?

An EOR is a company which takes on the responsibilities of employment for employees who are providing services for other businesses. In the case of Route 38, we employ people working in various fields, usually for companies based abroad. We provide our employees with an Israeli pay stub (tlush maskoret) and we deduct all the legally required deductions. 

How is this different from a Professional Employment Organization (PEO)?

A PEO doesn’t take full responsibility, rather shares responsibility with another employer. This is a solution that only works if the hiring company has an entity in the relevant jurisdiction (in this case, Israel). This is a solution that works well for a company that has 5-10 employees in Israel, although their main office is abroad. It must cover all the employees belonging to that company in the country.

An EOR such as Route 38 takes full responsibilities for the employee. The company doesn’t have to have an entity here in Israel. It can cover some of the employees and doesn’t have to cover them all. There is no minimum number of employees, so this is a great solution for a business which wants to work with only one person in Israel. We take care of HR, taxes, payment terms, payroll funding, workers compensation and unemployment claims.

What are the associated costs?

There are registration and termination fees as well as a flat monthly processing fee. It’s best if you can get your US employer to cover these fees, otherwise it will be deducted from your salary.

Advantages of Working through Route 38

• Easy to get paid by employers abroad. We maintain a US bank account, so it’s easy for the employer to pay invoices. Your salary is then paid directly into your Israeli bank account. You don’t have to deal with the headache of exchange rates and change fees and they are automatically deducted from your salary.
   
• Simple for employers to navigate.
  
• No need to become an Israeli freelancer and deal with the effort and expense of reporting. The disadvantage of freelancing is that you are required to report your income annually or bi-monthly. Most freelancers find that this is complicated to do independently and hire an accountant or tax advisor to assist them with reporting. This is an added expense that comes off their salaries.
  
• Avoid self-employed status in the US and its consequences vis a vis Social Security payments. Self-employed Israelis who are also US citizens are required to deposit 15% of their salaries in Social Security.
  
• Office space. We maintain an office in Jerusalem, where our employees can come to work. Bring your laptop and enjoy our wifi, kitchen and friendly atmosphere. Book our conference room for meetings.
  
• Collaboration opportunities. Because we employ many different types of professionals, you can easily find colleagues to provide services that you need. 

Is it legal? I heard that Bituach Leumi doesn’t like these companies.

In 2014, a key player in the industry in Israel was sued by Bituach Leumi, because its clients were paying lower Bituach Leumi fees as if they were employees, while acting as freelancers. The company lost the court case and had to change its business model as a result. Employer of Record companies which have been established since then follow the new business model which is in accordance with Bituach Leumi’s regulations.

Opening your own business

Another solution is to open your own Israeli company, called a Chevra Ba’am in Hebrew. In this situation, you become an employee of the company and are issued a regular Israeli pay stub. Accounting fees are higher than in the other options, because reporting income to the Israeli government is more complex. If your company is small, a freelance CFO can take care of all financial issues, but this is still a significant expense. The biggest advantage of creating a Chevra Ba’am is that you can scale your business and easily employ others to help you grow and expand.

Getting the right advice

The employment structure you choose will affect your finances as well as your relationship with your employer, so it’s important that you get the right advice in order to make an informed decision. One common mistake many olim make is consulting with an American CPA living in the United States about their finances in Israel. Because the average CPA is, understandably, unfamiliar with Israeli tax laws, their advice is often misguided and can lead to issues later on. The better choice is to consult with an American CPA living and working in Israel, who is an expert both in American and Israeli tax law. It is also possible to consult with a firm which employs both American and Israeli accountants, who work in collaboration with each other to give their clients the service they need. 

We at Route 38 are extremely knowledgeable about tax law in both the US and Israel and we offer paid consultations to people who are trying to figure out how to structure their employment arrangement with an American employer. If relevant, we will suggest our Employer of Record service, but we will also tell you if this is not in your best interest, and you would be better off with a different type of arrangement. Book a consultation with us by emailing info@route38.co.il.

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.
   

3. 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.
   
   
4. 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?

I have a somewhat quiet passion for puzzles. My family just finished a 3,000 piece puzzle. It took around four months and lots of time spent trying to jab pieces into places that just didn’t fit. Some pieces you just know are supposed to go in certain spots and you try dozens of times to make them fit…to no avail. It’s only when the puzzle is complete that you can look back and find those “trouble” pieces and see that they actually belonged somewhere completely different. Sometimes, you can struggle to find one piece for days, and then someone else comes in and in twenty seconds, they say, “Were you looking for this?” With a look mixed with incredulousness and self-doubt you sheepishly respond “Uh, yeah…”

Life is obviously one huge ever growing puzzle that we are constantly trying to get ahead of and complete. There are some challenges that interlock neatly and we are able to move on from quickly and effectively and there are some challenges that we keep on trying to solve the same way over and over and over, until finally, we figure out that our approach was completely wrong. 

Making a living is a challenge that is constantly evolving and requires constant energy and focus. We are given many hundreds of “pieces” – resources and assets – in order to complete the puzzle. They are all multi-colored and many do not seem to fit anywhere and are left unused for long periods of time. We sometimes try to use the same resource, the same mindset over and over again and can’t figure out why it doesn’t “fit.” Oftentimes, we need to stand back and look at the picture from afar to see that we were way off in our assessment and we need to recalibrate.  Many times, we need an outside perspective to come in and direct us to where that piece should have gone the whole time. 

The world is rapidly changing and more and more people are starting to think about coming home. The aliyah process is a ginormous puzzle, with dozens, if not hundreds, of moving parts. One of the biggest sections of that puzzle is making a living in Israel. At Route 38, we can help you recalibrate your focus. Maybe the piece that you have been searching for is right under your nose. 

Could I really, possibly keep my job and just continue to work remotely (now that the pandemic has proven that it’s possible)? What are the ramifications for my employer and for me? How do I report and pay my taxes in either country? How do I approach my employer? What tools do I need to make this happen? If I absolutely cannot bring my job with me, what is the business landscape like in Israel? How do I operate a business? If I am looking for a new job, what do I need to know? What is accepted and how do I know that I am not being taken advantage of? 

There are so many questions. Route 38 has the answers. Our team of experienced American-Israeli professionals can help guide you through these concerns and map out a plan. Our vast network of service providers in dozens of industries can answer your industry-specific questions. We will give you the tools to take a step back and make guided informed decisions in order to complete the backbone of your aliyah parnassah puzzle. Contact us today to schedule an appointment.