Establish your presence globally with Neeyamo as we help you go beyond borders to manage your international payroll services and hire new talent in Ethiopia.
Overview
Located in the Horn of Africa, Ethiopia, home to a population exceeding 120 million, boasts one of the world's most scorching locales—the Danakil Depression. This area is renowned for its year-round extreme heat, consistently maintaining an average temperature of 46 degrees Celsius. Residents near the Danakil Depression endure these challenging conditions, demonstrating remarkable resilience, particularly in their work ethic.
Should your organization's expansion strategy necessitate the recruitment of individuals renowned for their strong determination, and if you currently lack a physical presence in the country—a crucial prerequisite for local talent acquisition—Neeyamo stands ready to provide comprehensive support. We offer global workforce onboarding and management solutions in Ethiopia, encompassing essential services such as business payroll processing, payroll tax compliance, local regulatory adherence, benefits administration, and more.
Facts And Stats
Capital
Addis Ababa
Currency
Birr(ETB)
Official Language
Oromo
Fiscal Year
8 July - 7 July
Date Format
DD/MM/YYYY
Country Calling Code
+251
Time Zone
East Africa Time (UTC+03:00)
Global Payroll
Overview
What is payroll?
Payroll is the list of compensation to be paid to employees of a company or organization for a set period or date. Global payroll provider companies allow organizations to outsource their payroll, allowing employers to focus on other aspects of their business.
Handling payroll for a widespread workforce can pose a significant challenge for any organization, and the added complication of compliance can make things worse. If companies spend more time processing payroll, it directly impacts day-to-day operations and their overall productivity.
Payroll processing companies like Neeyamo outsource payroll services around the globe to aid companies in maneuvering the tricky system of payroll Ethiopia. The advantages of using one of the best payroll outsourcing companies include handling global payroll for all your needs, including - employees working in primary geographies, the long-tail region, remote or internationally located.
Over the years, Neeyamo has observed these complexities and strived to provide a global payroll solution through a single technology platform - Neeyamo Payroll.
How is payroll calculated?
Neeyamo acts as an employer's payroll tax calculator, ensuring adherence to local regulatory requirements using multi-level controls. Ethiopia payroll calculation is made much easier with the assistance of a payroll management system, such as Neeyamos. Benefits of the payroll system include providing timely and accurate payroll - courtesy of our experts worldwide and using a tech-based integrated smart helpdesk solution with seamless support experience manned by payroll experts - Neeyamo has all your payroll needs covered.
Payroll Register: Definition
A payroll register is a consolidated register of all the payroll transactions for every individual employee during each pay period. This registry is kept to assist employers in monitoring their historical records and past transactions.
Payroll Taxes
Payroll tax is the percentage amount retained from an employee's salary and paid to the government to invest in the general population's welfare. These are statutory in nature and are levied from both the employer and employee. Additional statutory contributions are made by employers towards aiding both short-term and long-term benefits for their employees.
Employee Taxes
The employee taxes in Ethiopia are computed as follows:
Public/Private Sector Pension Fund or Military and Police Service Pension Fund - 7.00%
Total Employee Cost - 7.00%
The income tax slab in Ethiopia is as follows:
| Up to 600 ETB | 0.00% |
| 601 ETB – 1,650 ETB | 10.00% |
| 1,651 ETB – 3,200 ETB | 15.00% |
| 3,201 ETB – 5,250 ETB | 20.00% |
| 5,251 ETB – 7,800 ETB | 25.00% |
| 7,801 ETB – 10,900 ETB | 30.00% |
| 10,901 ETB and above | 35.00% |
Employer Taxes
The employer taxes in Ethiopia are computed as follows:
- Public/Private Sector Pension Fund or Military and Police Service Pension Fund : 11.00% - 25.00%
-
Total Employment Cost : 11.00% - 25.00%
Payroll Cycle
Overview
Undoubtedly, payroll is a critical process for any organization. Pay cycle in Ethiopia refers to the period for which an organization pays its employees, and this can vary depending on the pay frequency that the organization chooses to adopt.
Frequency
Ethiopia follows a monthly pay cycle.
13th Month Cycle
There is no legal duty to pay the 13th salaries in Ethiopia, although it is typical to pay bonuses.
Global Work
Overview
An Employer of Record (EOR) service provider helps you eliminate the hassle of handling complexities while onboarding a new employee in an international location. They help bridge the gap that otherwise mandates organizations to have a local registered entity and a local bank account, prior to making a job offer to an international hire.
An EOR service provider acts as a legal employer, facilitates salary payments, and manages other statutory requirements such as health insurance, payroll taxes, and employee benefits ensuring compliance with local tax laws and regulations.
This allows organizations to focus on collaborating with the employee in Ethiopia for operational tasks, with the knowledge that they have a cost-effective solution support their global payroll & HR requirements, as they continue their global expansion.
HR Mandates and Practices
Minimum Wage
Although there is no national minimum wage in Ethiopia, 420 ETB per month is proposed for the public sector.
Overtime
A collective labor convention or agreement governs all work performed more than the required hours per week and must be compensated as overtime. Only up to the following is permitted in overtime.
- Two hours each day,
- Twenty hours per month
- 100 hours per year, on average
The following is how employers pay their workers for overtime:
- Unless overtime occurs between 10 p.m. and 6 a.m., when the rate is 150 percent, overtime is paid at 125 percent of the base salary rate.
- Weekend overtime is compensated for at 200 percent of the basic salary.
- Pay for overtime performed on holiday is 250 percent.
Data Retention Policy
Employers must keep a tax record of all payments and taxes withheld for at least five fiscal years after the end of the fiscal year to which the records relate.
Hiring and Onboarding Requirements
Hiring
Employers must register with the Private Organization Employees' Social Security Agency within 60 days of hiring their first employees and must register employees within 60 days of their hiring date.
After registering, employers and employees will each receive a Social Security Registration Identification Number. New employees who already possess a social security number must inform their employers.
Probation
Leave
Public Holidays
As of 2022, there are 13 national holidays:
- Jan 7- Ethiopian Christmas Day
- Jan 19- Epiphany / Timkat
- Mar 2- Adwa Victory Day
- Apr 14 - Ethiopian Good Friday
- Apr 16- Fasika
- May 1- International Labor Day
- May 5- Eid ul Fitr
- May 5- Patriots' Day
- May 28- Derg Downfall Day
- Jun 29- Eid al-Adha
- Sept 12- Ethiopian New Year
- Sept 27- The Prophet's Birthday
- Sept 28- Meskel
Sick Leave
Each year, an employee is allowed up to six months of paid sick leave; the first month is paid at 100% of the regular salary rate, the second month at 50% of the regular salary rate, and the latter three months are unpaid.
Maternity Leave
In Ethiopia, female employees are entitled to 120 working days of paid maternity leave; this must include at least 30 days in a row before the due date and 60 days after the baby is born.
Paternity Leave
Fathers in Ethiopia are entitled to unpaid leave for three consecutive days.
Other Leave
A maximum of 5 days of unpaid time off are available to employees in special circumstances (e.g., bereavement).
Termination
Notice Period
Business, personal, or employee wrongdoing is grounds for termination under a fixed-term contract. The termination notice must be in writing, including the cause for the termination, and be delivered in person to the employee.
The statutory notice period given by the employer must be:
- One month for an employee who has completed the probation period and has a period of service not exceeding one year.
- Two months for an employee who has a period of service above one year but less than nine years.
- Three months for an employee who has a period of service of more than nine years.
- Two months for an employee who has completed the probation period and whose contract of employment is terminated due to the reduction of the workforce.
Severance Pay
According to the Labor Proclamation, any employee in Ethiopia who completes the probationary period is entitled to severance pay.
The following rates apply to severance compensation, which is paid based on the duration of service:
- 30 days at the usual salary rate for the first year of employment (as well as the first year when it will be prorated) (severance pay for employees with less than a year of employment).
- After the first year of service, 10 days at the regular salary rate are added; nevertheless, the total severance pay cannot exceed 12 months' income.
- Employees laid off due to redundancy will also receive 60 days at their usual salary rate in addition to the foregoing compensation.
Visa
Overview
A foreign national needs a work permit to perform any work in Ethiopia. The Ethiopian Investment Commission issues a work permit for a certain kind of work to international investors (EIC) employees.
Every year, the work permit is up for renewal. The lack of a local workforce with the necessary training and experience for the position is one of the factors considered by the EIC in deciding whether to grant a work permit or renew the same.
After the application is submitted, residence permits are typically issued within two business days, though in rare circumstances, they may take up to five days.
Employee Background Checks
Legal and Background Checks
Background checks are available in Ethiopia. Here are the most common ones used:
- Ethiopia Criminal Records Search
- Ethiopia Civil Records Search
- Education Degree Verification in Ethiopia
- Employment Verification in Ethiopia
- Professional Reference Check in Ethiopia
Last updated on October 10, 2023.
If you have any queries or suggestions, reach out to us at irene.jones@neeyamo.com
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