Can a non-resident-owned Israeli company hire employees in Israel?

A foreign founder who has set up an Israeli company often assumes hiring the first employee is a simple HR step. It is not — it is a regulatory event. An Israeli company can absolutely employ people no matter where its shareholders and directors live, but the moment it takes on its first worker it becomes an employer in the eyes of two separate authorities, each with its own registration, and it inherits a body of Israeli labour law that is markedly more protective of employees than the systems many foreign owners are used to. Getting this right before the first payslip is far cheaper than fixing it afterwards.

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Detailed Explanation

Employment in Israel is owner-residence-neutral. What matters is that the employing entity is an Israeli company and that it follows Israeli employer rules. There are four pillars.

Employer registration. Before paying anyone, the company must open a deductions file (tik nikuyim) with the Israel Tax Authority and register as an employer with the National Insurance Institute (Bituach Leumi). The tik nikuyim is the mechanism through which the company remits the income tax and National Insurance it withholds from salaries. Operating payroll without it is a compliance failure that surfaces quickly, because employees' own tax records depend on it.

Payroll withholding (PAYE). Israel runs a pay-as-you-earn system. The company must deduct income tax and the employee's share of National Insurance and health-tax contributions at source each month, remit them, and issue compliant payslips and an annual Form 106. The employer also pays its own employer National Insurance contribution on top of gross salary.

Mandatory pension. This catches almost every foreign owner off guard. Under the general Expansion Order for Comprehensive Pension Insurance, virtually every employee in Israel is entitled to a pension arrangement funded by employer and employee contributions, plus an employer contribution toward severance. It is not optional, not negotiable below the statutory floor, and applies from early in the employment relationship.

Severance and termination protections. Under the Severance Pay Law 1963, an employee dismissed after a qualifying period is generally entitled to severance of roughly one month's salary per year of service, much of it pre-funded through the pension arrangement. Dismissal itself is regulated — employees have a right to a hearing (shimua) before termination, and procedural shortcuts invite labour-court claims.

In Practice: Under the general Expansion Order for Comprehensive Pension Insurance, an Israeli employer must contribute to an employee's pension — employer contributions of 6.5% toward pension plus 6% toward severance — alongside a tik nikuyim opened with the Israel Tax Authority (Rashut HaMisim) before the first payroll. Severance under the Severance Pay Law 1963 runs at about one month's salary per year of service, and a wrongful-dismissal claim at the Regional Labour Court (Beit Din Ezori La'Avoda) can take 12–24 months and expose the company to compensation well beyond the unpaid wages.

For a non-resident owner, the practical reality is that this cannot be run informally from abroad. Israeli companies with employees almost always engage a local payroll bureau and bookkeeper to operate the tik nikuyim, calculate pension and withholding, and file monthly. The owner's exposure to getting it wrong is real: directors can face personal consequences for unremitted employee withholdings. If you are still deciding whether to employ staff directly or use contractors — and where the permanent-establishment line sits — start with our guide on registering a company in Israel as a foreigner.

Key Considerations

• An Israeli company can employ staff regardless of where its owners reside.
• Employer registration requires both a tik nikuyim with the Tax Authority and Bituach Leumi registration.
• Mandatory pension contributions under the Expansion Order are not optional and start early in employment.
• Severance under the Severance Pay Law 1963 is roughly one month per year of service, largely pre-funded.
• Dismissal requires a hearing; procedural shortcuts invite labour-court claims.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You are hiring your first employee and need the employer registrations and contracts done correctly.
• You are unsure whether to engage someone as an employee or an independent contractor.
• A termination is contemplated and you need to follow the hearing and severance rules.

A qualified Israeli attorney should draft the employment contract and confirm the registration and pension setup before the first payday.

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Speak With an Israeli Attorney

We set up your Israeli company as a compliant employer — registrations, contracts, pension, and payroll structure — so your first hire does not become your first labour-court claim.

Contact us for a confidential initial consultation.