The employee works professionally for the client company but is formally employed and paid by the EOR. This separation gives the client access to local talent without having to build an Israeli payroll, HR and compliance operation from the ground up.
What Does EOR Mean?
EOR stands for Employer of Record. The term describes the company officially recorded as the employee’s legal employer.
The EOR signs the employment agreement, places the employee on its payroll and assumes responsibility for administering the local employment relationship. The client company selects the employee, defines the role and directs the person’s professional activity.
In practical terms, the structure includes three parties:
| Party | Main responsibilities |
|---|---|
| Client company | Selects the employee, defines the role, manages performance and directs daily work |
| Employer of Record | Signs the employment agreement, runs payroll and manages local employment compliance |
| Employee | Performs the agreed role for the client company while being legally employed by the EOR |
Companies that are ready to hire can learn more about Human Impact’s EOR services in Israel.
Who Is the Employee Actually Working For?
The EOR is the legal employer, but the employee performs their professional work for the client company.
The client typically controls:
- The employee’s role and responsibilities
- Professional targets and priorities
- Daily assignments
- Reporting relationships
- Performance expectations
- Team integration
- Professional development
The EOR controls and administers the formal employment layer, including contracts, payroll, statutory deductions, pension, benefits and employment documentation.
Important decisions that affect the legal employment relationship should be coordinated between the client and the EOR. These include salary changes, bonuses, extended leave, disciplinary processes and termination.
How Does the EOR Process Work?
A standard EOR process can be divided into five stages.
1. The company selects an employee
The client company identifies the person it wants to hire and agrees on the basic offer terms. These normally include the position, salary, start date, benefits, work location, vacation entitlement, bonus arrangements and reporting line.
2. The company signs an EOR service agreement
The client and EOR sign a commercial agreement defining responsibilities, fees, funding timelines, confidentiality, employment management and termination procedures.
The service agreement is between the client and the EOR. It is separate from the employment agreement signed with the employee.
3. The EOR prepares a local employment agreement
The EOR converts the agreed offer into an employment agreement that reflects Israeli employment requirements. Human Impact can prepare employment documentation in Hebrew and English, allowing both the employee and the foreign HR team to review the terms.
4. Payroll and benefits are established
The EOR collects the employee’s identification, tax, banking and pension information. It then establishes the employee in the local payroll system and coordinates the required benefits and registrations.
5. The employee begins working
The employee starts working for the client company. The EOR processes the monthly salary, produces payslips, manages deductions and contributions, and maintains the employment record.
Human Impact generally targets an onboarding period of 5 to 7 business days after receiving the required information and completed documentation.
What Is Included in an EOR Service?
An EOR service usually covers the full administrative lifecycle of local employment.
Employment contracts
The EOR prepares and signs a locally appropriate employment agreement with the employee. The agreement should clearly define the role, salary, benefits, work arrangements, leave and notice terms.
Monthly payroll
The EOR calculates the employee’s salary, applicable deductions, taxable benefits and employer contributions. In Israel, payroll is generally processed in NIS.
Tax withholding and reporting
The EOR withholds income tax according to the employee’s valid documentation and reports the required payroll information to the relevant authorities.
National Insurance
The EOR administers employee and employer contributions to Bituach Leumi, Israel’s National Insurance Institute, including the relevant health-insurance component.
Pension contributions
The EOR coordinates the employee’s pension arrangement and applies the appropriate contribution timing. The rules can differ depending on whether the employee arrives with an active pension arrangement.
Leave and sick pay
The EOR tracks annual leave, sick leave and other applicable absences based on Israeli law, the employment agreement and any enhanced company policy.
Expense reimbursements
Approved employee expenses can be processed through the local payroll or reimbursement system according to the agreed policy.
Ongoing HR administration
The EOR supports changes to salary, benefits, working arrangements and employment documentation throughout the relationship.
Termination support
Termination in Israel is not based on a simple at-will model. The EOR helps coordinate the required process, notices, final payroll, accrued rights and severance-related calculations.
What Does an EOR Not Do?
An EOR does not usually manage the employee’s professional activity.
The client company remains responsible for:
- Defining the business need
- Selecting the candidate
- Managing professional performance
- Assigning tasks and responsibilities
- Providing the tools needed for the role
- Integrating the employee into the relevant team
- Deciding whether the position continues
The EOR should be involved before a professional decision creates an employment consequence. For example, the client may decide that performance is unsatisfactory, but the EOR should help determine how the matter is documented and handled under Israeli employment requirements.
An EOR is also not a way to avoid employee rights. The model creates a compliant employment relationship. It does not remove mandatory benefits or allow a company to treat employees as disposable contractors.
Why Do Companies Use an EOR?
The main reason is the ability to hire legally without opening a local entity.
Creating a subsidiary can involve incorporation, banking, accounting, tax registrations, payroll setup, ongoing reporting and local professional support. This can be disproportionate when a company only wants to hire one or two employees.
An EOR can be useful when a company wants to:
- Hire its first employee in Israel
- Secure a candidate quickly
- Test the Israeli market
- Build a small local team
- Run a temporary or defined project
- Employ people while an entity is being established
- Enter several countries through one coordinated employment network
- Reduce local payroll and HR administration
For early-stage companies, EOR services for startups can provide a bridge between the first local hire and a future Israeli entity.
EOR vs Independent Contractor
A company may consider engaging the person as an independent contractor instead of using an EOR. This can be appropriate when the relationship is genuinely independent, but the contract title alone does not determine the person’s legal status.
A relationship may look more like employment when the person:
- Works primarily or exclusively for one company
- Operates as part of the company’s internal team
- Has a fixed working schedule
- Reports to a company manager
- Receives ongoing monthly compensation
- Uses company systems and tools
- Has limited commercial independence
- Performs a continuing role rather than a defined external project
If the relationship functions like employment, contractor classification can create claims for pension, leave, severance-related rights and other benefits.
EOR provides a formal employment route when the individual is expected to work as an employee but the client does not have a local entity.
EOR vs PEO
EOR and PEO services can both support payroll, HR administration and compliance, but they are intended for different company structures.
An EOR is generally used when the client does not have a registered entity in the country. The EOR becomes the legal employer.
A PEO is generally used when the client already has a local entity and wants to outsource payroll, HR administration and compliance support. The client’s local entity remains part of the legal employment structure.
| Question | EOR | PEO |
| Is a local client entity required? | No | Yes |
| Who legally employs the worker? | EOR provider | Client’s local entity under the applicable PEO structure |
| Best suited to | Market entry and first hires | Existing local operations |
| Payroll and HR support | Included | Included |
| Daily employee management | Client company | Client company |
Companies that already operate through an Israeli entity can review Human Impact’s PEO services.
How Does EOR Work in Israel?
An EOR in Israel needs to coordinate the local employment requirements that a foreign company may not encounter in its home market.
These can include:
- Salary processing in NIS
- Income tax withholding
- Bituach Leumi contributions
- Mandatory pension administration
- Annual leave and sick leave
- Recuperation pay
- Notice periods
- Hearing procedures before dismissal
- Severance-related obligations
- Protected employment periods
- Locally compliant employment documentation
A foreign employment agreement cannot simply reduce the statutory rights that apply to work performed in Israel. The EOR translates the commercial offer into a local employment framework and administers it throughout the relationship.
Key Facts
- EOR allows a company to hire in Israel without establishing a local entity.
- The EOR is the legal employer.
- The client company continues to manage the employee’s professional work.
- Human Impact targets onboarding within 5 to 7 business days after receiving complete documentation.
- Payroll is generally processed in NIS.
- Human Impact states that it has provided EOR services since 2009 and manages more than 500 employees.
- Global employment support is available through a network covering more than 70 countries.
EOR for Olim and Returning Israelis
Hiring an Oleh Hadash or returning Israeli can involve additional tax, documentation and payroll considerations.
Aliyah status does not mean that all Israeli employment income is exempt from tax. Personal benefits depend on the employee’s circumstances, documentation, income source and date of Aliyah.
Human Impact offers a dedicated EOR service for Olim Hadashim with support in English, Hebrew and Russian.
The EOR can coordinate employment and payroll administration, but employees with foreign income, equity, pensions or complex residency histories may still need personal tax advice.
EOR for International and Middle East Expansion
EOR is not limited to Israel. A company can use local EOR providers to hire employees in several countries without establishing a separate entity in every location.
Human Impact provides access to global employment services through its international network. Each employee remains subject to the employment laws and payroll requirements of the country where they work.
Companies expanding regionally can also use Middle East employment services to coordinate employment in Israel, the UAE, Jordan, Egypt and other supported markets.
There is no single employment law for the entire Middle East. The benefit of a regional EOR model is coordinated management across several separate jurisdictions.
How Much Does an EOR Cost?
EOR pricing usually includes a service fee in addition to the employee’s salary and employment costs.
The total monthly amount can include:
- Gross salary
- Employer payroll contributions
- Pension and statutory benefits
- Contractual benefits
- Expense reimbursements
- EOR service fee
- Any exceptional legal or administrative cost agreed in advance
The service fee may be structured as a fixed monthly amount or a percentage of payroll. Pricing depends on the country, employee package, number of employees, employment complexity and level of support.
An EOR fee should be compared with the full cost of opening and maintaining an entity, not only with the cost of payroll software. Entity accounting, legal support, banking, tax reporting and internal HR time also form part of the comparison.
Can a Company Move From EOR to Direct Employment?
Yes. EOR does not have to be a permanent structure.
A company may begin with EOR, validate the market and later establish an Israeli entity. Once the entity is ready, the employee can transition from the EOR to the client company’s local payroll.
The transition should address:
- Continuity of employment
- Accrued annual leave
- Pension arrangements
- Benefits
- Notice and severance treatment
- Bonus and commission terms
- Equity arrangements
- New employment documentation
- Employee communication
The transfer should be planned before the new agreement is signed. Moving an employee between legal employers is more than a technical payroll change.
How to Choose an EOR Provider
A strong EOR provider should offer more than access to payroll software. The provider becomes part of the legal employment relationship and should be able to support both routine administration and sensitive employment events.
Before selecting an EOR, ask:
- Is the provider legally authorized to employ workers in the country?
- Which local entity will sign the employment agreement?
- Who processes payroll and statutory payments?
- How quickly can onboarding be completed?
- Will the company receive a dedicated account manager?
- Which languages are supported?
- How are salary changes and bonuses handled?
- What support is provided during performance or termination processes?
- Can the provider support a later transition to the client’s entity?
- Does the provider have direct local expertise or only a global software platform?
Human Impact combines local Israeli employment experience with regional Middle East capability and an international network. Companies can contact the Human Impact team to review a role, proposed package and expected start date.
Frequently Asked Questions
Is an EOR the same as a staffing agency?
No. A staffing or recruitment agency generally helps a company find candidates. An EOR legally employs a person selected to work for the client. Recruitment and EOR can be combined, but they are separate services.
Does the employee work for the EOR or the client?
The EOR is the legal employer. The employee performs their professional role for the client company, which manages daily work, responsibilities and performance.
Can an EOR hire one employee?
Yes. EOR is commonly used when a company wants to hire its first or only employee in a country without opening a local entity.
How quickly can an employee start through EOR in Israel?
Human Impact generally targets 5 to 7 business days after receiving the signed service agreement, agreed employment terms and complete employee documentation.
Can an EOR employ both Israeli citizens and Olim?
Yes. The employment and payroll process should be adapted to the individual’s documentation, residency and tax circumstances. Human Impact provides dedicated support for Olim and returning Israelis.
Is EOR legal in Israel?
EOR can provide a lawful employment structure when operated by an appropriately authorized local provider and administered in accordance with Israeli employment, payroll and tax requirements.
Can the client terminate an EOR employee?
The client can decide that it no longer requires the role, but the termination process must be coordinated with the EOR and handled according to Israeli law, the employment agreement and the circumstances.
Hire in Israel Without Opening a Local Entity
An Employer of Record gives a foreign company the local employment infrastructure needed to hire in Israel. The EOR manages contracts, payroll, benefits and compliance, while the client company remains focused on the employee’s work and business results.
For companies making their first hire, testing the Israeli market or expanding across several countries, EOR can provide a faster and more flexible alternative to immediate incorporation.
To review whether EOR is appropriate for your hiring plan, contact Human Impact for a free consultation.