Understanding Payroll Options for Businesses in Israel: What Every Employer Should Know

SZ Shvarts Zedkia
Oct 31
4 min read

Updated: 14 hours ago

Payroll is one of the most critical parts of running a business in Israel. And understanding payroll options and available payroll services is important to operating efficiently and accurately. Because payroll impacts compliance, employee satisfaction, and long-term growth.

Many employers choose to outsource payroll processing in Israel, and leave the salary management to outside firms that specialize in payroll service for SMBs, startups, and international companies with employees in Israel.

The Payroll Landscape in Israel

The payroll process in Israel is unique because it involves a lot of mandatory deductions, and complex, ever-changing tax regulations. Deductions include Income Tax, National Insurance (Bituach Leumi), and Pension. Accuracy matters for purposes of compliance, but also to build employee trust and satisfaction.

More and more businesses are outsourcing in Israel due to the rising demand among startups and SMBs. It offers many benefits that allows new companies to focus on growth, not admin. And with increasing internationalization, foreign firms are using Israel as a talent hub. Especially to hire skilled workers in technology related industries.

Payroll Options Available to Businesses in Israel

There are various scenarios an Israeli company can consider for handling payroll to its employees.

1) In-house payroll management allows for control and visibility, but it requires expertise and is often not realistic for a new startup or SMB where filling other roles are a higher priority.

2) Outsourced payroll offers highly specialized services and the upside of saving time, supporting compliance, and reducing errors.

3) Employer of Record (EOR) is a model that is ideal for international firms hiring in Israel without a local entity, and is becoming increasingly popular as many companies have an internationally distributed workforce. And lastly

4) Cloud Payroll & HR software is growing along with the adoption of AI tools and automations.

SZ Shvarts Zedkia offers companies the option to outsource its payroll management to our highly skilled staff of professionals, and additionally we offer an EOR Employer of Record model to international companies with remote workers in Israel who need local support for payroll compliance.

Factors to Consider When Choosing a Payroll Option

There are various considerations for any operation that is determining its payroll setup. These include business size and growth stage (startup vs. established SMB). Whether there is a significant Israeli vs. International workforce. What are the compliance risks and regulatory complexities. How severe is the cost and administrative burden. And how seamless can the integration be with bookkeeping and accounting.

Common Questions Employers Ask About Payroll in Israel

What payroll taxes are mandatory in Israel?
- Income Tax, National Insurance (Bituach Leumi) which includes Health Insurance, and Pension Fund contributions are all mandatory taxes applied to payroll in Israel.
Do startups really need outsourced payroll?
- Most startups in Israel rely on outsourced payroll in their early growth stages, because otherwise hiring an in-house payroll manager requires too much time and expertise. It’s the best way to ensure that salaries, deductions, and filings are done accurately and on time, minimizing the risk of penalties and allowing founders to focus on growing their companies.
Can a U.S. company manage payroll in Israel remotely?
- An American company can manage payroll remotely in Israel either by creating a local entity, or by hiring an outsourced payroll service that is registered with the Israeli tax authority. At SZ Shvarts Zedkia, we work with a lot of international companies that want to hire and pay remote workers in Israel. This can be done under an Employer of Record (EOR) model where SZ Shvarts Zedkia acts as the official employer in Israel and handles the process on behalf of the US company.
Is outsourcing cheaper than hiring in-house staff?
- It is almost always less expensive to outsource payroll management than to hire in-house for it, especially in the scenario where it is a new startup, small or medium sized business that is still growing and does not yet need a full time hire.
What is an Employer of Record (EOR) and when is it useful?
- EOR is when a local company legally employs workers on behalf of a foreign business that does not have an entity located there. The EOR can manage all processes related to payroll, tax withholding, benefits, contracts, and compliance with labor laws and regulatory authorities. Meanwhile the foreign company directs the employee’s day-to-day work. In Israel, SZ Shvarts Zedkia can act as an EOR to legally hire employees on behalf of international companies. It allows foreign businesses to expand quickly into Israel, and hire remote talent without navigating complex setup processes. In Israel, an EOR like SZ Shvarts Zedkia takes care of issuing payslips, complying with local regulations, and reducing the burden on the international company.

Payroll as a Strategic Business Decision

Payroll is more than salary processing — it’s what powers a company’s compliance, efficiency, and trust with employees. Choosing the right payroll option is critical for SMBs and startups in Israel.

Looking for flexible payroll services in Israel? Our team at SZ Shvarts Zedkia helps businesses stay compliant, cut admin time, and manage payroll with complete accuracy.