
<PAGE>
 
                                                                  EXHIBIT 10.13
 
                             EMPLOYMENT AGREEMENT
 
  Agreement made on October 28, 1996 by and between IDT Corporation, a
Delaware corporation ("IDT") and Kenneth Scharf ("Scharf"). This Agreement
supersedes any previous agreements between IDT and Scharf.
 
  Scharf is employed by IDT as the Chief Information Officer. Scharf's first
day of employment was September 1, 1996. Scharf reports directly to Howard
Balter and Howard Jonas. Scharf shall be compensated as follows:
 
1.Signing Bonus
Upon October 29, 1996, Scharf shall receive an option grant to purchase 15,000
shares of IDT stock at $.01 per share, and an additional option grant to
purchase 5,000 shares of IDT stock at $12.00 per share. Both grants, the
15,000 shares and the 5,000 shares, shall become vested with respect to an
incremental twenty-five (25%) of the shares on these dates: December 1, 1996
(25%), March 1, 1997 (25%), June 1, 1997 (25%), and September 1, 1997 (25%).
If at any time when Scharf exercises any portion of the 15,000 options granted
at $.01, and the selling price is below $10 per share, IDT will pay Scharf a
bonus equal to the number of shares sold multiplied by the amount below $10
per share of the selling price, less all applicable taxes.
 
2.Annualized Salary
Scharf shall receive an annualized salary of $200,000 consisting of two
components.
 
  The first component, $150,000 of the $200,000, will be paid to Scharf in a
bi-weekly gross check of $5,769.23.
 
  The second component, $50,000 of the $200,000, will be paid to Scharf on a
quarterly basis in either one of two manners. Scharf must specify each quarter
which manner he wishes to receive this component of compensation. Within two
weeks after November 1, 1997 and each ninety (90) day anniversary thereafter,
Scharf must notify Jonathan Rand as to which manner of compensation Scharf
wishes to receive for each respective quarter. The two payment manners are as
follows:
 
  a. Cash Basis--Scharf will receive a payment of a $12,500 pre-tax check per
     quarter.
  b. Stock Options--Scharf will receive 3,000 IDT stock options with an
     immediate vesting period and exercise date. The exercise price will be
     equal IDT's lowest closing price on the NASDAQ anytime within the
     quarter previous to each two week period in which Scharf must notify
     Rand to select this payment method.
 
3.Executive Benefits
The above compensation plan includes paid medical coverage for Scharf. Other
benefits are available to Scharf by his voluntary contributions. In the event
an Executive Benefits package becomes available to IDT executives, Scharf will
be included in the executive group. All benefits covered by this paragraph do
not refer to any form of cash compensation such as salary, bonus, or stock.
With regard to cash compensation, Scharf's agreement will be independent from
any other IDT employee's compensation package.
 
4.Termination
In the event IDT terminates Scharf, Scharf will receive six months severance
once Scharf signs a severance release. The six months of severance pay will be
at the annualized rate of $200,000, and will not allow Scharf the choice of
compensation components as described above.
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date written above.
 
IDT, CORP.
By:
 
    -----------------------------             ---------------------------------
    Stephen Brown                             Kenneth Scharf
    Chief Financial Officer
