Do I Need a Local Entity to Hire in Israel?

In Israel, a "local entity" refers to a recognized employing presence, such as a subsidiary or branch office. This setup allows your company to be acknowledged as an employer, enabling compliance with local payroll and employment laws.

Without a local entity, you typically can't manage payroll, fulfill tax obligations, or issue compliant employment contracts. However, an Employer of Record (EOR) can help you navigate these requirements without the need for a local entity.

What is Required to Employ Someone in Israel?

• Local employing entity required to directly employ? Usually yes (unless using an EOR)
• Payroll registration required? Yes (employer registration with the Tax Authority)
• Withholding/tax remittance required? Yes (mandatory payroll tax remittance applies)
• Social contributions required? Yes (employer must pay social security contributions)
• Local employment agreement required? Yes (written agreements are standard practice)
• Mandatory benefits to budget? Yes (includes vacation, sick leave, and pension contributions)
• Works council/collective agreements considerations? Often (certain sectors may require collective agreements)

Best Options If You're Hiring in Israel

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but be cautious about misclassification risks.

While hiring contractors doesn't require a local entity, Israel has strict labor laws that protect workers. Misclassifying a contractor as an independent worker can lead to legal issues if the relationship resembles employment.

• Ensure the contractor operates independently and isn't integrated into your business.
• Avoid exclusive contracts that resemble employment.
• Be mindful of how much control you exert over the contractor's work.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 4–8 weeks to set up an entity in Israel, depending on the type of company and required registrations.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated 3,000–8,000 ILS per month ($800–$2,100)
• Payroll provider: Estimated 500–1,500 ILS per employee per month ($130–$400)
• Employer registrations and recurring compliance: Varies by complexity
• Corporate tax filings and annual reporting: Estimated 20,000–60,000 ILS per year ($5,300–$15,800)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 p/month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions, typically around 20% of gross salary)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Israel

Hiring in Israel can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Israel quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.