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ETHIOPIA
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Ethiopia Payroll and Employer of Record: Employment Contracts
For non-national 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.
Probation Periods
- According to Ethiopian labour law, a probation term is a period set aside to assess a person’s fitness for a position to which he or she is likely to be assigned.
- When the parties agree to a probation term, it must be documented in writing. This phase should not go more than 45 days in any scenario.
Notice Periods
A worker can cancel his or her employment contract by giving the employer 30 days’ notice. An employer, on the other hand, may cancel a worker’s employment contract by following the following procedure:
- One month for employees who have finished their probation and have worked for less than a year;
- Two months for employees who have worked for one to nine (1-9) years;
- Three months for employees who have worked for the company for more than nine years; and
- Two months for personnel who have completed their probation period but have had their job terminated owing to a workforce reduction.
The notice period for a fixed-term contract and a piece-work contract is determined by mutual agreement between the parties.
Minimum Wage
- There is no national minimum wage in Ethiopia. Employees in the public sector, the biggest group of wage earners, got a monthly minimum salary of 420 birr ($21); employees in the banking and insurance sector earned a monthly minimum wage of 336 birr ($18). Ethiopia’s minimum wage hasn’t been adjusted since January 1, 2015.
Working Hours
- In Ethiopia, the usual workweek is 48 hours. Employees work an average of eight hours per day, six days per week. Younger workers are subject to restrictions. Overtime employment is limited to two hours per day, twenty hours per month, and one hundred hours per year.
Overtime
Overtime compensation should not be less than one-quarter of the usual rate (125 percent).
Overtime rates:
- 150 percent of the normal hourly rate for overtime work from 6 a.m. to 10 p.m.;
- 175 percent of the normal hourly rate for overtime work from 10 p.m. to 6 a.m.;
- 200 percent of the normal hourly rate for work on a rest day; and
- 250 percent of the normal hourly rate for work on a public holiday.
Non Compete
- In the employment agreement, employers may include a non-competition provision for a limited period of time. If any of the aforementioned requirements is not met, the clause will be deemed invalid, and the employee will not be subject to this agreement.
Severance
The following is the formula for calculating severance pay:
- Severance compensation is 30 times the average daily income in the last week of service for the first year of service.
- For less than one year of service: – Severance compensation must be computed according to the length of service.
- 3. For service of more than one year: – For each additional year of service, the payment is raised by one third of the stated sum, provided that the total amount does not exceed 12 months earnings.
- Bankruptcy and general workforce reduction: – When a contract of employment is terminated because the business has ceased operations due to bankruptcy or a general workforce reduction, the worker is entitled to a stipend equal to 60 times his or her average daily wage for the previous week of service.
- Constructive dismissal: In the event of constructive dismissal, the employee is entitled to compensation in addition to severance pay, which must be 30 times his or her final week’s daily average earnings.
Termination
Unannounced termination of the employment contract:
- Only the following grounds may cause a contract of employment to be terminated without notice: If any of the following events occur, an employer has the right to terminate a worker’s employment without having to provide the employee a notice period (i.e. from one to three months period based on the workers service period).
Notice Period:
- The amount of days the employer must provide the employee before the contract is terminated is referred to as the notice period. Depending on the length of the worker’s employment, the notice period might be anywhere from one to three months.
- One month in the case of a worker who has finished his probation and has not yet completed a year of service,
- Two months in the case of a person who has worked for more than one year but less than nine years.
- Three months if the employee has been with the company for more than nine years.
- Two months in the event of a worker who has finished his probationary period and whose contract has expired.
Collective Bargaining
- One of the fundamental aims of the Ethiopian Labour Proclamation is to encourage collective bargaining as a method of sustaining industrial peace and working in a spirit of harmony and collaboration for the country’s overall development (Preamble).
Enforcement
- Administrative courts exist in Ethiopia to hear appeals from administrative agency judgments on legal and factual issues. One of the administrative tribunals in the country is the Federal Civil Servants Administrative Tribunal, which was re-established by the modified Civil Servants Proclamation.
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).
- After one year of service, a worker is granted his first period of leave, followed by his next and subsequent periods throughout the calendar year, in accordance with a leave schedule drawn up by the employer with the worker’s consent and in consideration of the need to maintain the normal functioning of his undertaking.
- On the employer’s approval, a worker may request that his yearly leave be split into two parts or that a portion of leave be deferred. However, such a postponement cannot last more than two years in a row.
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 labour regulations provide no provision for unemployment benefits.
Workers Compensation
BENEFITS FOR DISABILITY AND WORK INJURY
There are four types of workplace injuries: (i) permanent whole incapacity (ii) permanent partial incapacity (iii) temporary incapacity (iv) deadly injury resulting in worker death
- If an insured worker has a 10% loss of work capacity and is unable to work, 47 percent of his or her monthly wage is compensated in the case of permanent incapacity/disability. If the disability pension is less than or equal to the old age pension, the worker will receive an old age pension of up to 70% of the insured monthly basic pay.
- In the case of permanent partial disability, a lump amount of 47 percent of the insured’s basic wage before the disability began multiplied by 60 months and by the evaluated degree of impairment is paid, provided that the insured worker has at least a 10% loss of work capacity but is able to work.
- In the case of temporary incapacity, 100 percent of the employee’s typical salary is paid for the first three months, 75 percent for the next three months, and at least 50 percent for the remaining six months for private-sector workers. The payment is paid for 12 months or until complete recovery or permanent disability certification is obtained.
- Until the employee recovers and resumes work, or is medically diagnosed as permanently handicapped, 100 percent of the employee’s typical wages is provided to civil servants.
- Dependents (widow/widower, children under the age of 18 years, and any parent supported by the deceased worker) get a survivors’ pension in the event of a fatal accident. The widow receives half of the pension that a dead worker would have earned if he or she had been diagnosed with permanent complete disability. Each qualifying orphan receives 20% of a deceased worker’s pension, and each full orphan receives 30%. Each of the dead worker’s parents who are supported by him receives 15% of the pension; if there are no other eligible survivors, they receive 20%.
- The maximum combined survivor payment is equal to 100 percent of the deceased’s disability pension, if he or she was entitled to one.
Social Security
7 percent of a person’s basic pay is paid.
- The basic salary is the monthly gross pay for work done during ordinary business hours.
- Contributions from the insured individual also help to pay for work injury payments.
- Up to 18% of stated income for self-employed people.
- Work injury benefits are also funded by the payments of self-employed people.
- Employer: 11% of payroll; military and police personnel receive 25% of payroll.
- Work injury benefits are also funded by the employer’s payments.
- Government: None; as an employer, it contributes.
Retirement
- Pension for the elderly (Retirement Pension): 60 years old with at least 10 years of payments. For those who operate in dangerous or difficult situations, the qualifying standards may be decreased.
- Early retirement age: 55 with at least 25 years of contributions (civilian); 50 with at least one full term of service (five years) for senior government officials and members of parliament; 45 to 55 (depending on position) with at least 10 years of contributions (military and police).
- Age 60 with fewer than 10 years of contributions, old-age settlement (Retirement Gratuity).
Health
- Medical Aid 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
The local currency in Ethiopia is ETB. The exempt bracket is 0-600 ETB whilst the highest bracket is 35% for 10 900 ETB and above.
Taxable Income | Rates of Taxes |
0 – 600 | 0% |
601 – 1 650 | 10% |
1 651 – 3 200 | 15% |
3201 – 5 250 | 20% |
5 251 – 7 800 | 25% |
7 801 – 10 900 | 30% |
10 900 + | 35% |
Taxation Method
- Presumptive taxes is a simple technique of collecting income from tiny informal sector businesses in Ethiopia. The Ethiopian Revenue and Customs Authority (ERCA) uses an assessment procedure to determine the income made by small informal sector businesses in order to administer its presumptive tax.
Double Taxation
- Ethiopia has multiple double taxation agreements.
Residence Requirements
Residents are taxed on their international earnings. Non-residents are solely taxed on income derived from Ethiopia.
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.
Health Insurance
- Ethiopia has a community-based health insurance (CBHI) program that is mandatory.
Unemployment
- Ethiopian labour regulations provide no provision for unemployment benefits.
Social Security
- In addition to employment taxes, the employer is required to contribute 7% of the employee’s basic wage to the social security system on behalf of the employee. The employer contributes 11% of the total.
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
- Any money provided by an employer to cover the real cost of an employee’s medical care would be tax-free; • An allowance granted to an employee in place of transportation would be tax-free if certain requirements were met. The allowance must be mentioned in a contract of employment.
- The highest tax-free allowance is now set at 2,200 Birr (US$81) per month, however it cannot exceed 25% of an employee’s monthly wage. It’s also worth noting that the allowance excludes situations in which an employer arranges for or provides a car to a staff member who then utilizes it to commute between home and work.
- A portion of a hardship or weather allowance awarded to an employee as a result of working in a distant and/or arid location of Ethiopia, such as Asosa or Gambela, would be tax-free. The tax-free proportion varies depending on the location where the employee works. More information may be found in ERCA’s Directives No. 21/2001 and No. 102/2007.
- If an employee receives a per diem payment for traveling more than 25 kilometres from their place of work, they will be free from income tax up to 255 Birr (US$9) each day or 4% of their monthly salary, whichever is larger.
- The allowance must be included in the employment contract, with the wording indicating that it will only be given for per diem reasons and will not reimburse expenditures spent by employees during their daily trip from home to the workplace. It will also not reimburse expenditures paid to an employee who drives a corporate car or utilizes a company-provided transportation service. Furthermore, there is a monthly restriction, which implies that a staff member may only get 2,200 Birr in tax-free form every month. This sum should not be more than 25% of the employee’s monthly compensation.
- Amounts paid to an employee for work-related travel expenses are tax-free as long as there is recorded proof of the expenses and they are in line with current land and air transportation tariffs. Expat employees’ transportation expenditures paid when they leave the country following the termination of their employment contract are also excluded, subject to specific criteria. These expenditures should be reimbursed by their employment contract, which is intended to include a repatriation cost clause. However, such costs should not surpass existing land or air transportation charges, and there are restrictions on the amount of luggage that may be transported – the present maximum is 300kg. This exemption also applies to inbound expatriate travel expenditures, but the employment contract must include the necessary language.
- Employees who work in the mining, industrial, or agricultural industries and get free food and beverages from their employers will be excluded from employment income tax on a percentage of the cost. The extent to which this is true is determined by the industry in question.
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 percent on buildings used for business, factory, or office; 30 percent 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 ten percent to thirty-five percent.
Retirement Funding
Pension for the elderly (Retirement Pension): 60 years old with at least 10 years of payments. For those who operate in dangerous or difficult situations, the qualifying standards may be decreased.
Early retirement age:
- 55 with at least 25 years of contributions (civilian); 50 with at least one full term of service (five years) for senior government officials and members of parliament; 45 to 55 (depending on position) with at least 10 years of contributions (military and police).
- Work must come to an end.
- Age 60 with fewer than 10 years of contributions, old-age settlement (Retirement Gratuity).
- Work must come to an end.
Health Insurance
- Ethiopia has a community-based health insurance (CBHI) program that is mandatory.
Risk Insurance
N / A
Taxable Income
- Any payments or profits obtained in cash or in kind as a result of an individual’s job are considered employment income. Employers must withhold tax from each payment to an employee and pay the amount withheld to the Tax Authority at the end of each calendar month. The technique requires that revenue from the months of Nehassie and Pagume be combined and handled as if it came from a single month.
- If the employer pays the tax on employment income in whole or in part, rather than deducting it from the employee’s salary or compensation, the amount thus paid is added to the taxable income and is considered part of it.
Allowable Deductions
N / A
PAYROLL TAXES AND EMPLOYER CONTRIBUTIONS
Payroll Taxes
- Social security where the employees contribute 7% of their salary and the employers contribute 11%.
Unemployment
- Ethiopian labour regulations provide no provision for unemployment benefits.
Social Security
7 percent of a person’s basic pay is paid.
- The basic salary is the monthly gross pay for work done during ordinary business hours.
- Contributions from the insured individual also help to pay for work injury payments.
- Up to 18% of stated income for self-employed people.
- Work injury benefits are also funded by the payments of self-employed people.
- Employer: 11% of payroll; military and police personnel receive 25% of payroll.
- Work injury benefits are also funded by the employer’s payments.
- Government: None; as an employer, it contributes.
Workers Compensation
BENEFITS FOR DISABILITY AND WORK INJURY
There are four types of workplace injuries: (i) permanent whole incapacity (ii) permanent partial incapacity (iii) temporary incapacity (iv) deadly injury resulting in worker death.
- If an insured worker has a 10% loss of work capacity and is unable to work, 47 percent of his or her monthly wage is compensated in the case of permanent incapacity/disability. If the disability pension is less than or equal to the old age pension, the worker will receive an old age pension of up to 70% of the insured monthly basic pay.
- In the case of permanent partial disability, a lump amount of 47 percent of the insured’s basic wage before the disability began multiplied by 60 months and by the evaluated degree of impairment is paid, provided that the insured worker has at least a 10% loss of work capacity but is able to work.
- In the case of temporary incapacity, 100 percent of the employee’s typical salary is paid for the first three months, 75 percent for the next three months, and at least 50 percent for the remaining six months for private-sector workers. The payment is paid for 12 months or until complete recovery or permanent disability certification is obtained.
- Until the employee recovers and resumes work, or is medically diagnosed as permanently handicapped, 100 percent of the employee’s typical wages is provided to civil servants.
- Dependents (widow/widower, children under the age of 18 years, and any parent supported by the deceased worker) get a survivors’ pension in the event of a fatal accident. The widow receives half of the pension that a dead worker would have earned if he or she had been diagnosed with permanent complete disability (er). Each qualifying orphan receives 20% of a deceased worker’s pension, and each full orphan receives 30%. Each of the dead worker’s parents who are supported by him receives 15% of the pension; if there are no other eligible survivors, they receive 20%.
- The maximum combined survivor payment is equal to 100 percent of the deceased’s disability pension, if he or she was entitled to one.
ADMINISTRATION
Income
- Employers collect WHT on a monthly basis to pay employment income tax on a PAYE basis.
- 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.
- Employment income tax is assessed and paid on a pay as you earn (PAYE) basis by employers through monthly WHT collection.
Payroll Taxes
- Social security where the employees contribute 7% of their salary and the employers contribute 11%.
Unemployment
- Ethiopian labour regulations provide no provision for unemployment benefits.
Social Security
7 percent of a person’s basic pay is paid.
- The basic salary is the monthly gross pay for work done during ordinary business hours.
- Contributions from the insured individual also help to pay for work injury payments.
- Up to 18% of stated income for self-employed people.
- Work injury benefits are also funded by the payments of self-employed people.
- Employer: 11% of payroll; military and police personnel receive 25% of payroll.
- Work injury benefits are also funded by the employer’s payments.
- Government: None; as an employer, it contributes.
Workers Compensation
BENEFITS FOR DISABILITY AND WORK INJURY
There are four types of workplace injuries: (i) permanent whole incapacity (ii) permanent partial incapacity (iii) temporary incapacity (iv) deadly injury resulting in worker death
If an insured worker has a 10% loss of work capacity and is unable to work, 47 percent of his or her monthly wage is compensated in the case of permanent incapacity/disability. If the disability pension is less than or equal to the old age pension, the worker will receive an old age pension of up to 70% of the insured monthly basic pay.
In the case of permanent partial disability, a lump amount of 47 percent of the insured’s basic wage before the disability began multiplied by 60 months and by the evaluated degree of impairment is paid, provided that the insured worker has at least a 10% loss of work capacity but is able to work.
In the case of temporary incapacity, 100 percent of the employee’s typical salary is paid for the first three months, 75 percent for the next three months, and at least 50 percent for the remaining six months for private-sector workers. The payment is paid for 12 months or until complete recovery or permanent disability certification is obtained.
Until the employee recovers and resumes work, or is medically diagnosed as permanently handicapped, 100 percent of the employee’s typical wages is provided to civil servants.
Dependents (widow/widower, children under the age of 18 years, and any parent supported by the deceased worker) get a survivors’ pension in the event of a fatal accident. The widow receives half of the pension that a dead worker would have earned if he or she had been diagnosed with permanent complete disability (er). Each qualifying orphan receives 20% of a deceased worker’s pension, and each full orphan receives 30%. Each of the dead worker’s parents who are supported by him receives 15% of the pension; if there are no other eligible survivors, they receive 20%.
The maximum combined survivor payment is equal to 100 percent of the deceased’s disability pension, if he or she was entitled to one.
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 mandatory community based health insurance (CBHI).
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 1994 2.
- Constitution of the Federal Democratic Republic of Ethiopia, 1995 3.
- The Criminal Code Proclamation No. 414/2004 4.
- Public Holidays and Rest Day Proclamation 1975 amended in 1996 5.
- Civil Code, Proclamation No. 165 of 1960 6.
- Labour Proclamation No. 1156/2019 7.
- Social Health Insurance Proclamation No.690/2010 8.
- The Right to Employment of Persons with Disabilities Proclamation No. 568/2008
STATUTORY BODIES
- The Ethiopian Revenue and Customs Authority (ERCA)
