An extract from The Employment Law Review, 13th edition

Basics of entering an employment relationship

i Employment relationship

Generally, Israeli law does not require a written employment contract, though there are some exceptions. However, employers are required to provide new employees (and existing employees at their request) with a written notification form regarding certain employment terms and to update them in writing regarding any changes thereto.

An employer is not obliged to provide this type of notification if the employee is provided with a written employment agreement that includes all the required details.

Employment contracts may be for a fixed term or an indefinite term, at the parties' discretion. The termination of a fixed-term contract prior to its expiry by one party (the employer) may entitle the other party (the employee) to damages in the amount of the salary for the remaining term.

ii Probationary periods

Probationary periods are permitted by Israeli law, but during such a period, an employee would still be considered a regular employee for all intents and purposes. The minimum statutory written prior notice for a monthly employee5 is one day for each month during the first six months of employment, and two-and-a-half days for every additional month. A monthly employee who has worked for a year or more is entitled to one month's notice.

According to a labour court ruling, during a probationary period, the reasons for termination of an employment agreement may be examined in a more lenient manner.6

iii Establishing a presence

In general, a foreign company can hire employees directly in Israel without being required to officially register a subsidiary company or have a registered branch in Israel. However, it will be required to be registered with the tax authorities as an employer.

A foreign company can also engage individuals as independent contractors or as service providers through manpower companies or service contractors. In principle, a foreign employer who employs individuals directly is required to comply with local employment legislation. In addition, the foreign company has withholding obligations to the tax authorities as the employment income is subject to income tax, social security contributions and health tax.

Generally, the engagement of individuals by a foreign company (whether as independent contractors or as employees) may expose that company to the risk of being regarded as a permanent establishment in Israel. The main outcome of this would be that general income attributed to an Israeli permanent establishment will be subject to Israeli corporate tax.