Freelance Contractors vs. Employees in Israel
If you are a company or organization operating in Israel, you may need to hire or contract with local workers. Your first quandary is whether to hire company employees or contract with a freelancer. There are advantages and disadvantages to both options. This article by our law firm that specializes in Israeli employment law will help answer some of your questions.
Employee Rights in Israel
Workers employed by a company or organization are entitled to a number of rights under Israeli law. In other articles we have addressed issues like sick leave, severance pay, pension plans, and other employee benefits. If you are planning to employ a worker in the same position for a long period of time, braving the complexities of employee benefits is worth it. You can contact a law firm like ours to help with questions regarding employee rights and contracts. Conversely, you may wish to avoid these complications and contract a freelance worker.
Freelance Contractor Rights in Israel
It’s important to note the distinction between hiring or employing a worker and contracting a freelancer. In theory, freelancers are contractors for a limited period or a specific project and are entitled to no more compensation from the employer than the agreed upon working hours or overall payment for the completed project. Many of the rights and benefits automatically granted to employees are irrelevant to freelance contractors. For instance, they do not receive convalescence pay or paid vacations and are (generally) not entitled to severance pay.
Though common usage refers to a freelance contractor being “hired,” they are in fact contracted. The matter is more than a pedantic triviality as a court may take note of the exact terms used in the contract or official documents.
“Freelance Contractors” Used as Employees
It may occur to an unscrupulous employer to “contract” their working staff as freelancers so as to avoid the necessity of paying employee benefits. Conversely, a well-intentioned employer may rely on a freelance contractor more than is assumed in the original contract. In either case, Israeli labor law and labor courts may disagree with the contract in question.
The Labor Court’s Understanding on a Contractor or Employee
A de jure freelance contractor may be considered to be a de facto full-time employee by the labor court assuming one or more of the following tests proves true: the “contractor” spends an extended period of time working with the same employer, is exclusively or near-exclusively “contracting” with the same employer, is routinely present and involved in company business to the same extent a full-time employee would be, is vital to the functioning of the division in which he works, is directly and constantly supervised by the employer, is dependent on the employer for the means to keep working (tools, expenses), and has no sub-contractors or replacements in his position.
If the contractor is determined to be a de facto employee who was nonetheless paid less in terms of overall benefits based on a contract that defines him as an independent contractor, the court may disregard the terms of the employment contract and force the employer to retroactively grant the employee all the financial benefits associated with the status of a full-time employee – vacation days, pension insurance, severance pay, etc. Conversely, the employer may claim that working as a freelance contractor, the employee received a higher paycheck than a regular employee in the same position and ask to deduct said extra funds from the overall financial benefits owed to the employee.
Contact our law firm for more information about employee rights, employer duties, and issues specific to hiring employees and freelance contractor.