Ethiopia Payroll Outsourcing, Payroll Software and Employer Of Record (EOR) services.
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ETHIOPIA
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Ethiopia Payroll and Employer of Record: Employment Contracts
When hiring expat workers, you’ll need to apply for the proper business visa on their behalf. There are numerous types of business visas available in the country:
- Employment visa for a foreign business firm: For a period of up to one month in a non-nationally held corporation.
- Non-nationals invited by a Non-Governmental Organization (NGO) may apply for an NGO work visa (NGO).
- Conference visa: For attending a conference, seminar, or workshop in the nation.
- Non-nationals working for embassies or international organizations are eligible for an international organizations/embassies work visa.
- Non-nationals employed by the Ethiopian government are eligible for an Ethiopian government employment visa.
- Professional journalists, filmmakers, and photographers are eligible for a journalist visa.
- Investment visa: A visa for potential investors who have been invited by a firm.
- Ethiopian private firm visa: For employment with an Ethiopian-owned company for a limited period of time.
PAID TIME OFF
Annual Vacation
After one year of employment, employees are entitled to 16 days of paid annual leave, plus one day for every successive year of service. The paid yearly vacation time for a worker with 5 years of service is 18 working days (one day extra for every two additional years of service).
Sick
Sick leave is given to employees for a period of six months. Employees get paid 100% for the first month of their absence and 50% for the next two months. Any remaining sick leave is unpaid after that.
Maternity
Female employees are entitled to 120 days of paid maternity leave, with 30 days taken before the projected due date and the remainder taken after the birth.
Paternity
Employees who are fathers are entitled to three days of paid paternity leave.
Family
There were no provisions in the legislation that supported parental leave for new parents who had exhausted their maternity leave.
National Holidays
Ethiopia has a total of 13 public holidays which are paid.
Other Paid Time Off
N/A
STATUTORY EMPLOYEE BENEFITS
Unemployment
Ethiopian labor regulations provide no provision for unemployment benefits.
Workers Compensation
Covered by Social Security contributions.
Social Security
Ethiopian citizens are required to contribute to social security, while foreign citizens of Ethiopian origin may choose to contribute. Foreign citizens without Ethiopian origin are not eligible to contribute.
Employers are obligated to contribute 11% of the employee’s basic salary, while employees contribute 7%.
Retirement
Covered by Social Security contributions.
Health
Ethiopia has a community-based health insurance (CBHI) program. Medical Aid is a private option and is based on an employee voluntary basis to sign up or for the employer to offer it.
Life insurance is a private option and is based on an employee voluntary basis to sign up or for the employer to offer it.
PRIVATE EMPLOYEE BENEFITS
Workers Compensation
Private work accident insurance is available in Ethiopia.
Retirement
Private retirement/pension funds are available as options in Ethiopia.
Health
Private healthcare is available in Ethiopia and offers high standards of care and medical services.
Insurance
There are private life insurance options available in Ethiopia.
PERSONAL INCOME TAX
Tax Year
- Tax year runs from 8th July to 7th July.
Tax Tables
| Salary (ETB*) |
Income tax payable (%) |
Deductible fee** (ETB) |
|
| From | To | ||
| 0 | 600 | Exempt threshold | 0 |
| 601 | 1,650 | 10 | 60 |
| 1,651 | 3,200 | 15 | 142.50 |
| 3,201 | 5,250 | 20 | 302.50 |
| 5,251 | 7,800 | 25 | 565.00 |
| 7,801 | 10,900 | 30 | 955.00 |
| Over 10,900 | 35 | 1,500.00 | |
** The deductible fee is a tax relief.
Taxation Method
Ethiopia uses a progressive taxation method for PAYE.
Double Taxation
Ethiopia has multiple double taxation agreements.
Residence Requirements
If any of the following conditions present, an individual is considered to be a resident of Ethiopia:
- He or she has an Ethiopian domicile and habitual habitation.
- He or she is an Ethiopian citizen serving abroad as a consular, diplomatic, or equivalent officer of Ethiopia.
- He or she is physically present in Ethiopia for more than 183 days in a 12-month period, either continuously or intermittently.
Payroll Calendars
Wages are normally paid on the final working day of the month, according to the payroll cycle.
Rebates & Tax Credits
There are no employment income tax credits available. A tax relief amount is however applied and depends on an employee’s salary band.
Health Insurance
Ethiopia has a community-based health insurance (CBHI) program. Medical Aid is a private option and is based on an employee voluntary basis to sign up or for the employer to offer it.
Unemployment
Ethiopian labor regulations provide no provision for unemployment benefits.
Social Security
Ethiopian citizens are required to contribute to social security, while foreign citizens of Ethiopian origin may choose to contribute. Foreign citizens without Ethiopian origin are not eligible to contribute.
Employers are obligated to contribute 11% of the employee’s basic salary, while employees contribute 7%.
PAYROLL ELEMENTS
Income
Salary, earnings, bonuses, overtime pay, taxable benefits, allowances, and certain lump sum perks are examples of remuneration (revenue from employment). Profits or losses made by a company or trade. Income or profits derived from an individual’s status as a trust beneficiary.
Bonuses
Employers are not compelled to provide bonuses to their employees, but they may do so as part of their overall compensation plan. In Ethiopia, bonuses are quite prevalent.
Allowances
Contractual allowances are not mandatory.
Benefits in Kind
Benefits in kind are often valued at their cost to the employer, as documented in the company’s or the recipient’s records.
The following are some instances of in-kind benefits:
- performance prizes and bonuses
- including a corporate car
- housing aid
- a company’s phone number
- continuing education
- vouchers for meals
Investment Income
-
- Capital gains tax:
15 % on buildings used for business, factory, or office; 30 % on stocks and bonds.
- Profits are deemed to be distributed:
If a corporation has undistributed earnings that are not reinvested, a tax of 10% of the net undistributed profits must be paid.
- Profits repatriation by a non-resident corporation:
Profits repatriated out of Ethiopia by a non-resident corporation operating via a permanent establishment will be taxed at a rate of 10%.
Individuals’ rental income from buildings is taxed at progressive rates ranging from 10-35%.
Retirement Funding
Covered by Social Security contributions.
Health Insurance
Ethiopia has a community-based health insurance (CBHI) program. Medical Aid is a private option and is based on an employee voluntary basis to sign up or for the employer to offer it.
Life insurance is a private option and is based on an employee voluntary basis to sign up or for the employer to offer it.
Risk Insurance
N / A
Taxable Income
Residents are taxed on their international earnings. Non-residents are solely taxed on income derived from Ethiopia.
Any payments or profits obtained in cash or in kind as a result of an individual’s job are considered employment income.
Allowable Deductions
The following items are exempt from income tax in Ethiopia:
- Payments by employers for employees’ medical treatment costs.
- Transportation allowances provided under an employment contract.
- Reimbursements for legitimate business travel expenses.
- Food and beverages provided by employers in the mining, manufacturing, or agricultural sectors.
- Amounts exempted by international agreements.
- Compensation for personal injury or death.
PAYROLL TAXES AND EMPLOYER CONTRIBUTIONS
Payroll Taxes
Employers must withhold tax on payments made to employees for their employment services through the Pay-As-You-Earn (PAYE) system.
The withheld tax must be remitted to the Ministry of Revenue by the 30th day of the following month.
Unemployment
Ethiopian labor regulations provide no provision for unemployment benefits.
Social Security
Ethiopian citizens are required to contribute to social security, while foreign citizens of Ethiopian origin may choose to contribute. Foreign citizens without Ethiopian origin are not eligible to contribute.
Employers are obligated to contribute 11% of the employee’s basic salary, while employees contribute 7%.
Workers Compensation
Covered by Social Security contributions.
ADMINISTRATION
Income
Individuals whose main source of income is employment income are not obliged to submit tax returns since the employment income tax is withheld at source by their employer.
Payroll Taxes
The withheld taxes must be remitted to the Ministry of Revenue by the 30th day of the following month.
Unemployment
Ethiopian labor regulations provide no provision for unemployment benefits.
Social Security
Employers must submit pension contributions within 30 days of deduction. If a company misses three consecutive months of contributions, the Social Security Agency can withdraw the overdue amounts directly from the company’s bank account, with banks obliged to assist. Registered private employees can request pension benefits for reasons such as reaching retirement age, infirmity, on-duty injuries, or death. Employees with at least 10 years of service in public organizations are also eligible. Employers must submit applications, along with all required forms and documents, to the Private Servants Social Security Agency on behalf of their employees.
For retirement pensions, employees need to be at least 60 years old and have a minimum of 10 years of contributions, though those in hazardous jobs may have lower requirements. Early retirement is available at 55 years old with 25 years of contributions for civilians, at 50 years old with a full term of service for senior government officials and parliament members, and between 45 and 55 years old with 10 years of contributions for military and police personnel. An old-age settlement applies to employees aged 60 with fewer than 10 years of contributions, provided they cease working.
Workers Compensation
Workplace injuries are categorized into four types:
- Permanent total incapacity
- Permanent partial incapacity
- Temporary incapacity
- Fatal injury resulting in death
For permanent total incapacity, if an insured worker loses 10% or more of their work capacity and cannot work, they receive 47% of their monthly wage. If this disability pension is equal to or less than the old age pension, they receive up to 70% of their insured monthly basic pay as an old age pension.
For permanent partial incapacity, a lump sum is paid. This sum is 47% of the worker’s basic wage before the disability, multiplied by 60 months and adjusted by the degree of impairment, as long as the worker has at least a 10% loss of work capacity but can still work.
For temporary incapacity, private-sector workers receive:
- 100% of their usual salary for the first three months
- 75% for the next three months
- At least 50% for the remaining six months
This payment continues for up to 12 months or until full recovery or certification of permanent disability.
For civil servants, 100% of their usual wages is paid until they recover and return to work or are diagnosed as permanently disabled.
In the event of a fatal injury, dependents receive a survivors’ pension:
- The widow/widower receives half of what the deceased worker would have received for permanent total disability.
- Each qualifying orphan receives 20% of the deceased’s pension, and full orphans receive 30%.
- Each dependent parent receives 15% of the pension, or 20% if there are no other eligible survivors.
The total survivor benefits cannot exceed 100% of the deceased worker’s disability pension.
Statutory Benefits
Ethiopia has a disability and work injury benefit as well as social security scheme that employees contribute to monthly. They also offer a community based health program.
Employee Benefits
Certain benefits are mandated by law to be included in the Ethiopian benefit management plan. Ethiopia has 13 public holidays on which employees are excused from work, and they are additionally entitled to at least 16 days of paid leave every year. Employees have up to 6 months of sick leave where the first 3 months are paid. Females are entitled to 120 days of maternity leave and males are entitled to 3 days of paid paternity leave.
LEGISLATION
- Constitution of Ethiopia
- Social Health Insurance Proclamation
STATUTORY BODIES
- The Ethiopian Revenue and Customs Authority (ERCA)
