Navigating the complex labour laws governing employment practices is essential when running Ethiopia payroll. However, building an in-house compliance team may not be the most efficient way to manage your remote team’s payroll in Ethiopia.

Regardless of size, global companies need help to secure in-country expertise for localised payroll service. This is where a partner like Workforce Africa provides significant value in supporting global firms to maintain compliance when handling payroll in Ethiopia, addressing every intricate detail, including;

• Salary computation requirements,
• Taxation legislation specifics (social security, employee income tax, corporate tax, VAT and other employee deductions.
• Benefits administration, and more (health insurance, pension, paid leaves, holiday compensation

Workforce Africa simplifies hiring and payroll compliance for offshore talent management in Ethiopia. No need for a subsidiary or entity setup. From contracts and onboarding to taxes, payroll, and admin tasks, partnering with us – a payroll firm in Ethiopia will help you focus on growth for greater levels of success.

Employment Contract Termination

In accordance with the laws of Ethiopia, employment contracts can be terminated by either party upon giving notice, usually at least two months, depending on the terms of the contract. The employer may also terminate an employee’s contract without notice if there is just cause, such as gross misconduct or breach of contract. Conversely, an employee may terminate their contract by resigning in writing, which must be acknowledged by the employer. It is essential to follow the proper procedures for terminating an employment contract to avoid any potential legal disputes or penalties.

Ethiopia Country Overview

The Federal Democratic Republic of Ethiopia lies in East Africa. It is predominantly an Amharic-speaking country. Two critical cities in Ethiopia are Addis Ababa, the capital and the economic hub, and Dire Dawa. These urban centres act as transit points to ecotourism destinations and beach resorts. With a population exceeding 126.5 million people, Ethiopia boasts a significant demographic presence.

In recent years, key industries experiencing growth include renewable energy and agriculture. Ethiopia boasts a market-based, diversified economy comprising textile, construction, mining and services. Considerations such as the low labour cost and abundant natural resources make Ethiopia attractive for businesses seeking expansion opportunities.

Although Ethiopia possesses a highly skilled workforce, hiring and establishing a team can be time-consuming and challenging. However, partnering with an Employer of Record (EOR) or Professional Employer Organisation (PEO) in Ethiopia facilitates swift market entry. It manages all legal complexities associated with operations in the country.

Payroll Processing in Ethiopia

Local labour laws in Ethiopia govern payroll processing, with each employee’s salary potentially calculated differently. Due to compliance concerns, processing payroll at scale can become complex, cumbersome, and risky. Here are the phases of payroll processes global businesses should understand:

1. Pre-payroll Phase: Your organisation’s unique approach to payroll compliance shapes its policies and processes, including payroll preparation. Global firms must prioritise essential business elements in the pre-payroll phase, such as accurate business profile documentation and tailored work location policies, which is crucial. Customise leave and work policies to align with local standards in Ethiopia to ensure compliance and transparency while collaborating closely with compliance teams or partners to help adhere to statutory requirements throughout the payroll management process for your remote team. In this phase also, standardising compensation packages to conform with local payment norms, such as payment cycles, which enhance compliance and meet employee expectations, is necessary.
2. Payroll Calculation Phase: Streamlining input collection and validation processes ensures accurate wage calculations in this phase of payroll processing. This phase involves the actual calculation of wages, with a primary focus on this task. Utilising software automation and digital document submission tools makes payroll calculations efficient and reduces the risk of human error in this process.
3. Post-payroll Phase: The post-payroll phase in Ethiopia refers to the period after payroll processing, where employers review and settle any outstanding issues related to employee compensation, benefits, and taxes. This phase typically includes: salary payment, compliance reporting, benefit administration, audit and reconciliation. The post-payroll phase is crucial in Ethiopia as it ensures that employers comply with regulatory requirements, maintain a good employer-employee relationship, and reduce the risk of penalties or fines associated with non-compliance.

Payroll Components in Ethiopia

Here are some aspects comprehensively needed to navigate Ethiopia’s payroll compliance:

• Salary/Wages
• Overtime benefits
• Social security contribution
• Paid leaves
• Paid holidays
• Payroll taxes
• Other laws

Navigating Ethiopia Payroll Compliance

Ethiopia’s employment regulation primarily revolves around Labour Proclamation of 2019 along with pertinent sections of other laws and acts. The Labor Law outlines critical aspects of payroll processing and compliance with crucial employment practices:

• Salary/ Minimum Wage: A national minimum wage has not yet been officially established. However, the tax-exempt income threshold of 600 Birr is informally regarded as the minimum wage rate.
• Working hours: The standard workweek consists of 40 hours. With mutual agreement between the employer and employees, staff may work up to an additional two hours per day, 20 hours per month, or 100 hours annually as overtime.
• Social Security Contribution: The Employer contributes 11%, while the Employee pays social security contributions of 7% National Health Insurance Scheme.
• Health Insurance Scheme: In Ethiopia, employers are not mandated to provide health insurance to their employees. However, the Ethiopian Health Insurance Agency (EHIA) administers two public insurance programmes:
• Social Health Insurance (SHI): Available to employees of public, non-profit, and commercial organisations.
• Community-Based Health Insurance (CBHI): Primarily designed to support workers in local communities who may lack other forms of coverage.
• Pension Contributions: Pension contributions are governed by Public Servants’ Social Security Administration for employees in the public sector and Private Organization Employees’ Social Security Fund Administration for employees in the private sector.
• Payroll Taxes:

• Paid Leaves
  • Annual Leave: All regular full-time employees are entitled to 16 working days of paid annual vacation leave, with an additional working day granted for each subsequent year of service.
  • Sick Leave:
    • First month of sick leave per year: Full pay.
    • Second and third months of sick leave: Half pay.
    • Fourth to sixth months of sick leave: Unpaid.
  • Maternity Leave: Female employees are entitled to 120 working days of fully paid maternity leave, comprising 30 days of antenatal leave and 90 days of postnatal leave. If a pregnant employee does not deliver within the 30-day antenatal leave period, she is entitled to additional leave until childbirth. If delivery occurs before the completion of the 30-day antenatal leave, the postnatal leave begins immediately.
  • Other Leave: In Ethiopia, employees may be granted compassionate/ special leaves on some family events. Such leave shall be paid within the limits and deadlines specified. Public holidays are not fixed days and they can be changed according to the government decision.
  • Paid Public Holidays: In Ethiopia, the paid holidays are as follows:
    • January 7: Ethiopian Christmas
    • January 95: Eastern Orthodox Epiphany
    • March 2: Adwa Victory Day
    • April 30: Ethiopian Good Friday
    • May 1: Workers’ Day
    • May 2: Orthodox Easter
    • May 5: Patriot’s Victory Day
    • May/June: Eid Al-Fitr
    • May 28: Derg Downfall Day
    • June/July: Eid Al-Adha
    • September 11: Ethiopian New year
    • September 27: Meskel
    • Prophet Mohammed’s birthday: Based on the Islamic Calendar.

Payroll Outsourcing in Ethiopia

Payroll in Ethiopia also encompasses termination and probationary periods law. Employees are not generally eligible for severance pay, except the termination is unjustified, or the employer voluntarily decides to make severance payment.

Collaborate with an Africa employer of record and payroll solutions provider such as Workforce Africa to strategically outsource your payroll operations while ensuring compliance with local labour regulations. Additionally, leverage our flexible service offerings to expand your international teams as needed.