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

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 Somalia, 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 Somalia. 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 Somalia will help you focus on growth for greater levels of success.

Employment Contract Termination

Under Somali law, either party may terminate an employment contract by giving written notice. The required notice period depends on the type of work: manual workers require at least 10 days’ notice, and non-manual workers require at least 30 days’ notice. (Contracts of a month or less in duration can be ended without notice). Employers may terminate without notice in cases of just cause (e.g. gross misconduct), and employees may resign with the same notice obligations as above. Upon termination, it is crucial to follow proper legal procedures to avoid disputes or penalties. Somalia’s labor code provides for severance in certain cases – for example, in redundancies or dismissals without fault, an employee is generally entitled to severance pay of around 15 days’ wages for each year of service. Ensuring compliance with these termination rules is vital for smooth offboarding and to mitigate legal risks.

Somalia Country Overview

The Federal Republic of Somalia is located in the Horn of Africa and boasts the longest coastline in mainland Africa (over 3,000 km). It has a population of roughly 17 million people, and the country is predominantly Somali-speaking and Sunni Muslim, with Somali and Arabic as official languages. Key urban centers include Mogadishu – the capital and economic hub – and Hargeisa in the north. These cities, along with strategic ports like Bosaso and Kismayo, serve as major commercial gateways.

Despite a history of conflict and state fragility, Somalia has a resilient and entrepreneurial population. Its economy is chiefly driven by agriculture and livestock; about 80% of exports consist of livestock and related products. The service sector has been growing as well – particularly telecommunications and mobile money services – fueled by significant investment from the Somali diaspora.

Although Somalia 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 Somalia facilitates swift market entry. It manages all legal complexities associated with operations in the country.

Payroll Processing in Somalia

Local labour laws in Somalia 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:

• 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 Somalia 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.
• 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.
• Post-payroll Phase: The post-payroll phase in Somalia 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 Somalia 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 Somalia

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

• Salary / wages
• Overtime pay
• PAYE income tax
• Any employer-funded benefits (optional)
• Paid leave and public-holiday pay
• End-of-service or severance where required

Navigating Somalia Payroll Compliance

Somalia’s employment regulations are primarily defined by the Labour Code of 18 October 1972, which remains the fundamental law governing labor practices.

The Labor Law outlines critical aspects of payroll processing and compliance with crucial employment practices:

Salary/ Minimum Wage

Somalia does not currently mandate a national minimum wage rate for workers. Employers are expected to pay a fair wage as per the employment contract, but there is no legal floor on wages in the private sector. (Public sector or certain sectors may have their own scales, but legally there is no universal minimum).

Working hours

48 hours per week. The standard work schedule in Somalia is 8 hours per day, 6 days a week. Typically, this is Monday through Saturday, with Friday often treated as a lighter day due to prayers (though not officially a non-working day). Somali law generally considers hours beyond this as overtime. Employees are usually entitled to at least one day off per week (often Sunday in practice, since Friday is a half-day for some businesses). It’s important that employers respect any sector-specific norms or collective agreements that may specify shorter workweeks.

Overtime Rules

Overtime is limited and premium-paid. Overtime work in Somalia cannot exceed 2 hours per day or 12 hours per week by law. When employees do work extra hours, they are entitled to overtime pay at a premium rate. The typical overtime compensation is 150% of the normal hourly wage (time-and-a-half) for overtime on regular workdays. For work done on weekly rest days or public holidays, higher rates may apply – commonly 150% or more. Notably, work on certain major national holidays (such as Labor Day or Independence Day) may be paid at double the normal rate (200%). Employers should have clear approval processes for overtime and must include any due overtime payments in the payroll.

Social Security Contribution

Not mandatory. Unlike many countries, Somalia currently has no mandatory social security or pension contribution scheme enforced on private employers. The Labor Code mentions the right to social security, but in practice there is no unified state pension or social insurance system requiring payroll deductions. This means employers are not legally required to deduct or contribute for national social security. However, some employers voluntarily provide pension plans or gratuity schemes as part of benefits. Additionally, severance pay acts as a form of end-of-service benefit. It’s wise for companies to clarify in contracts if they will provide any retirement or long-term benefit in lieu of social security.

Health Insurance Scheme

No universal system (employers may offer private coverage). Somalia does not have a government-mandated health insurance contribution for employers, nor a universal healthcare tax. Many employees rely on out-of-pocket payment or international aid for healthcare. Employers are not required by law to provide health insurance, but some choose to offer private medical insurance as a benefit to attract and protect employees. Such benefits are at the employer’s discretion but, if provided, should be outlined in the employment contract.

Personal Income Tax

Progressive rates from 0% to 18%. Somalia operates a Pay-As-You-Earn income tax system on employees’ salaries. Employers must withhold PAYE from wages and remit it to the tax authorities monthly.

PAYE Rates ($)

• Up to 200: 0 %
• 201 – 800: 6 %
• 801 – 1500: 12 %
• 1501+: 18 %
• Corporate Income Tax: Up to 12.3%
• VAT Rate: 10% standard rate.

Paid Leaves

• Annual Leave: Workers in Somalia are entitled to paid annual leave after a period of continuous service. The law provides a minimum of 15 days of paid leave for every year of service.
• Sick Leave: 14 days (7 full pay + 7 half pay). Somali law provides for paid sick leave so that ill employees can take time off. Employees are entitled to 7 days of sick leave on full pay per year
• Maternity Leave: 14 weeks (often paid). Female employees are entitled to maternity leave around childbirth. The standard maternity leave in Somalia is 14 weeks (3½ months). In Somalia, 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: Somalia observes around 10 public holidays as follows:
  • New Year’s Day (Jan 1),
  • Labor Day (May 1),
  • Independence Day (June 26)
  • Republic Day (July 1)
  • Eid al-Fitr (at the end of Ramadan, 2 days)
  • Eid al-Adha (Feast of Sacrifice, 2 days)
  • Islamic New Year, Ashura
  • Prophet Muhammad’s Birthday (Mawlid).

The dates of Islamic holidays vary each year (lunar calendar). If a holiday falls on a weekend (Friday/Saturday), it may be moved or observed on the next working day.

Payroll Outsourcing in Somalia

Payroll in Somalia 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.