Almost all of us here in Israel are aware of the phenomenon of illegal employment of foreign workers and foreign experts. One of the reasons for illegal employment is, undoubtedly, the attempt to reduce the employer’s expenses. In this article we shall discuss the various costs to the employer for legally employing foreign experts and how such costs are affected by the Israeli Foreign Employees Act, 1991 (hereinafter: “Foreign Workers Act”) and the regulations derived from that Act. Additionally, we will evaluate the consequences and the expected employer costs of illegally hiring foreign experts, while also taking into consideration the Israeli government’s policy to increase the enforcement of the Foreign Workers Act (which focuses on reducing the volume of foreign illegal employment). This policy is reflected through the Foreign Workers Bill, which is aimed at organizations who illegally hire foreign workers and by execution of the Government Enforcement Operation for locating Israeli citizens, private organizations and companies, illegally employing foreign workers and foreign experts across the country.
In 2010, the Israeli government announced that they were increasing enforcement upon employers who illegally hire foreign workers and/or foreign experts. Based on these enforcement operations, a monthly report entitled “Foreign Nationals in Israel Report” is published by the National Immigration Authority (Hereinafter: “NIA”). The report presents statistical data concerning the main issues of foreigners in Israel. 1 An interesting figure appearing in this report shows that the total amount of fines imposed on employers of foreign workers during the small window of January-April 2011 was 7,467,000 NIS!! According to the data of the report, this figure increases by 1 Million NIS each month.
The answer to the question what is the cost of employing a foreign expert depends on the legality of the employment. The expected cost of employing illegal foreign experts is very different from the expected cost of employing legal foreign experts. We shall point out the various expenses involved in legal employment[1] and in illegal employment, (assuming the employer was caught by the authorities while hiring the illegal foreign worker or a foreign expert without valid permit). We wish to emphasize that in discussing these scenarios, we are definitely not recommending, in any form whatsoever, illegal employment of foreign experts. In this essay, employment of illegal foreign experts is not economically efficient (if any), because the alternative cost, i.e. legal employment, is not as high as presumably.
Costs of Legally Employing a Foreign Expert
While examining the issue of foreign experts’ employment in Israel (July 2001), the “Buchris committee,” a government committee, established that the fee of a foreign expert should be at least double the average salary in Israel. The average salary in Israel as of March 2011 was approximately 8,996 NIS (gross), including all customary social benefits. This salary condition is a preliminary condition to define a foreign expert’s status in Israel.
Foreign Expert Regulations (exemptions for foreign expert employers) 2007 (hereinafter: “Exempt Regulations for Foreign Expert Employers”) determined that certain law articles of the Foreign Workers Act do not apply to employers hiring foreign experts (in contradiction to non-expert foreign workers). These articles relate to the employer’s obligation of holding foreign worker’s documents at his working place, the obligation to include certain details in the employment agreement (in accordance with Item 1C of the law), and the obligation to provide proper housing accommodation (in accordance with the amounts specified in item 1E of the law). However, there are also obligations resulting from Israeli labor laws that apply to all employers engaging foreign experts in Israel, including foreign experts employed in Israel. For example, employers cannot refuse the signing of a valid employment agreement, employers must provide medical insurance and keep all Israeli labor law terms, while employing a foreign expert in Israel.
“Exempts for Foreign Experts Employers’ Regulations” also state that the employer of a foreign expert is exempt from the Yearly Employer’s Government Fee (the government fee for 2011 is 9,060 NIS). Yet, various cases show that this exemption is limited.
Foreign experts’ costs include their gross salary, social security fee, health insurance (which applies to the employer), accompanying expenses (social-pension payments, firing compensation and vacation payments), and additional various fees and payments to authorities which applies to the employer, as hereby detailed. The sum of all these government fees and taxes increases each year.
As of 2011, the yearly government fees for foreign experts are as follows:
- Work permit application – 1,140 NIS;
- Yearly Employer Fee – 9,060 NIS (this government fee can be waived in special circumstances);
- Issuance of B-1 work visa – 170 NIS;
- Issuance multiple entry visa – 170 NIS.
The sum of these fees is 10,540 NIS, which represents the total annual government fees for a single foreign expert who arrives to Israel without additional family members.
The total sum does not include employer’s costs such as paying twice the average Israeli salary, social benefits, health insurance, accommodation, and flight expenses.
Legal Deductions – according to Israeli foreign workers regulations, the monthly permitted deductions rate for health insurance, appropriate accommodation, expenses and debt to employer (i.e., flights expenses, food) cannot go above 25% of the employee’s salary. Therefore, employing foreign experts legally can only result in reduced expenses.
Costs of Illegally Employing a Foreign Expert (Assuming the employer is caught employing the illegal Expert)
Illegally employing a foreign worker (including a foreign expert) is punishable by administrative fine of 5,000 NIS (for organizations that are not Human Resources sub-contractors and/or private chambers) or more. Furthermore, there are other offenses which carry additional fines should a law violation repeat itself or in cases the violation involve severe circumstances, such as violate foreign worker’s rights, or hiring many foreign workers without permits. In such cases, instead of an administrative fine, the employer will be criminally charged and potentially face up to one year imprisonment or up to 104,000 NIS in penalties. The maximum penalty amount for all Foreign Workers Laws violations can reach up to 116,800 NIS plus one year imprisonment.
The Israeli government established its overall immigration policy concerning foreign workers in January 2010, with special emphasis on the following:
- Increased enforcement on illegal employment of foreign workers;
- Reducing the numbers and deportation of illegal workers and/or illegal immigrants;
- Reduced benefits for foreign workers importation;
- Handling the collection of illegal fees;
- Imposing taxation restrictions on employers who illegally hire foreign workers;
- Increasing public awareness of the illegal foreign workers phenomenon in Israel and act for creating preference of local labor.
Following this government policy, during 2010, the NIA announced severe punishment measures against Israelis: private organizations and companies who illegally hire workers or foreign experts. The campaign was launched using frequent public announcements of these activities and explaining the damage involved by illegally employing foreign workers. Alongside this enforcement campaign, many raids of restaurants, private houses and high-tech companies took place and many legal charges were filed.
In addition, it was also decided to issue taxation sanctions as well. Therefore, starting in 2010, bookkeeping in relation to the employer’s expenses resulting from hiring illegal workers will be refused, and any employer who will be found illegally employing foreign workers will be subject to more strict and frequent bookkeeping taxation check-ups. This strict monitoring will be enforced in order to ensure that the employment of foreign workers did not involve any tax violations.
Another element to be taken into account is the lack of insurance coverage. In the absence of a valid work visa, if an accident occurs, both the employer and worker shall not receive compensation or refund for the expenses resulting from the work accident.
Under the policy of increased enforcement on the employers of illegal foreign workers, in January 2010, a bill was filed on behalf of the government, entitled: “(Amendment No. 14) foreign workers bill (illegal employment – increased enforcement), 2010” (hereinafter: “Increased Enforcement bill”). This bill, submitted by the Inter-disciplinary Committee for Foreign Workers issues, is mainly aimed at deterring and discouraging illegal employment of foreign workers. The bill proposes to cancel the administrative offenses over certain articles of the law and, instead, to file automatic charges in accordance with article 2(a) of the foreign workers law. This will result in an automatic criminal offence indictment along with a minimal penalty of 10,000 NIS for a private employer (not a company) and 25,000 NIS for a company, per each illegally employed worker. Under this new law, the chance that an employer will be criminally charged is almost certain, even if the parties will eventually reach a settlement. It is suggested that in case this violation will repeat itself, the fine will be doubled. In addition, all legal foreign worker permits of an employer will be cancelled if it is discovered that the employer illegally hired foreign workers. The Increased Enforcement bill also considers Article 5 of the Foreign Workers Act (in reference to the issue of company’s position-holder liability), for which it was suggested that the maximum fine shall be increased.
Comparison
The following table summarizes the above:
| Illegal employment of foreign expert, (according to the new described bill and assuming the employer was caught by the authorities) | Legal employment of foreign expert | The Costs |
| Salary | Salary + social benefits | Salary expenses[2] |
| ————- | 10,540 NIS | Government Fees |
| 1. 10,000 NIS fine for single employer, 25,000 NIS fine for company.
2. Criminal indictment against the employer and / or position holder within the organization. 3. Tax sanctions. 4. Cancellation of existing permits. |
————- | Penalties and Fines |
| Very high – for legal presentation while cancelling fine/s and / or indictment/s | Reasonable – for applying for the work permit and the B-1 work visa | Lawyer’s Legal Fees |
| Foreign expert is not insured. No coverage in case of a work accident. | Foreign expert is duly insured | Insurance |
| Tax sanctions, bookkeeping controls and expenses’ refusal | Over employee’s salary and on employer. | Taxation |
Legal engagement of a foreign expert in Israel clearly involves various expenses, and yet the fines and criminal consequences of illegally hiring a foreign expert, especially in view of Israeli law enforcement policy, might result in higher expenses than legally hiring a foreign expert. As shown in this article, it is clearly evident that illegally hiring a foreign expert simply does not pay off.
All said and explained in this article does not constitute a legal opinion and does not replace legal advice. Responsibility for using the wordings and opinions conveyed in this article relies solely and entirely on the reader.
This article was written by Dotan Cohen Law Offices, working in the field of immigration law in the United States, Canada and Australia.
[1] Clearly there are additional costs beyond those of this article, but the significant ones are included in this article. In addition, it is clear to the authors that the assumption of the employer being caught with his offense is only a hypothesis for discussion.
[2] Assuming that in both situations described above, the foreign expert is paid the same.
