Ethiopia PEO & Employer of Record

WeHG provides an International PEO and global Employer of Record service in Ethiopia to companies willing to enter the Ethiopian market or hire local/expat employees in the country.

The traditional approach requires establishing a subsidiary in Ethiopia.  However, our resolution allows you to start the operations in Ethiopia within days hence saving time and money.  WeHireGlobally would hire candidates on your behalf while you maintain full operational control of their work. So legally they would be our job-seekers, on our local payroll, 100% obliging but will work on your behalf.

Ethiopia fast facts

Population: 117,876,227 (2021 estimate)
Land area: 1,104,300 km²
Capital: Addis Ababa
Local currency: Birr (ETB)

GDP per capita:$ 2,772
GDP in currency:$ 278 billion

Ethiopia is a country in the Horn of Africa. The country lies completely within the tropical latitudes and is relatively compact, with similar north-south and east-west dimensions. The capital is Addis Ababa (“New Flower”), located almost at the center of the country. Ethiopia is the largest and second most populated country in the Horn of Africa. It is a multi-ethnic state having over 80 different ethnic groups.

Hiring, Negotiating and Doing Business in Ethiopia

Necessity of written employment contract

An Individual employment contract may be oral or written. A contract of employment is deemed to have been concluded for an indefinite period except for the contracts of a definite period or piecework. The employment contract must be defined clearly and must not be deduced for the accomplishment of unlawful or immoral activities. It must comprise provisions that are more favorable for the worker than those provided by the law, collective agreement, or work rules. In a situation where a written contract of employment is not available, the employer is expected to provide a written statement of employment particulars within 15 days of the conclusion of the employment contract. 

A written employment contract (or a statement of particulars in the absence of employment contract) must stipulate the following: the name and address of the employer; the name, age, address and the work card number of the worker; the type of employment; workplace; rate of wages as well as the method of their calculation; manner and interval of wage payment; and period of the contract.  It must be endorsed by both parties.

Different forms of engagement: employment, contracting, work with private entrepreneur

• Probation period

A person may be employed for a probation period with the aim of assessing the individual’s suitability for a post to which he/she is expected to be assigned on the basis of a contract of employment. A worker re-employed by the same employer for the same job shall not be subject to probation.

Where the parties agree to have a probation period, the agreement shall be made in writing. In such a case, the probation period shall not exceed 45 consecutive days. 

Unless this Proclamation or work rules or collective agreement provides otherwise, during the probation period, the worker shall have the same privileges and responsibilities as a worker who has completed the probation period.

If the worker proves to be incapable of the job during his probation, the employer can annul the contract of employment without being compelled to pay severance pay or compensation. A worker on probation may terminate his contract of employment without notice.

If the worker continues to work after the expiry of the probation period, a contract of employment for the intended period or type of work shall be deemed to have been concluded from the beginning of the probation period.

• Formation of contract

There shall be a homework contract when a person habitually performs work for an employer in his home or any other place freely chosen by him in exchange for wages without any direct supervision or guidance by the employer. 

An agreement for the sale of raw materials or tools by an employer to a homeworker and the resale of the products to the employer or any other similar arrangements made between the employer and the homeworker shall be deemed a homework contract. 

The contract concluded between a homeworker and an employer shall be deemed to be made for a definite period or piece-work. 

The Minister shall, in consultation with the concerned organs, prescribe by directives the provisions of this Proclamation that shall apply to homeworkers and the manner of their application. 

An employer who employs a worker on the basis of a homework contract shall keep a register containing the following and other relevant particulars: 

• full name, marital status, age, and address of the worker; 
• the location of the place where the work is to be carried out; 
• the model, cost, quality, and quantity of material supplied by the employer to the worker;
•  the type of work, quality, and quantity ordered;
•  the time and place of delivery of the product or material; 
• amount and manner of payment.

Ethiopia Employment Contract

Types of employment agreements

Contract for an indefinite period. Any contract of employment shall be deemed to have been concluded for an indefinite period except for those provided for under section 10 hereunder.

Contract for a definite period or piece work. A contract of employment may be concluded for a definite period or for piece work in the case of: 

• the enactment of specified piece work;
•  the replacement of a worker who is temporarily absent due to leave or sickness or other causes;
•  the performance of work in the event of odd pressure of work;
•  the performance of pressing work to deter damage or catastrophe to life or property, to rectify defects or breakdowns in works, materials, building, or plant of the undertaking;
•  erratic work which relates to a permanent part of the works of an employer but is performed at irregular intervals; 
• seasonal work which relates to the permanent part of the works of an employment but is performed only for a specified period of the year which is regularly repeated in the course of a number of years;
•  occasional work which does not form part of the permanent activity of the employer but which is done intermittently.

Ethiopia working hours

The normal hours of work are 8 hours a day and 48 hours a week. The Labour Proclamation defines “normal hours of work” as the period during which a worker precisely performs work or avails himself for work in congruence with law, collective agreement, or work rules. Working hours may be reduced without a reduction in workers’ wages, on Minister’s directives, for economic sectors, industries, or occupations where there are special conditions of work. Hours of work are spread equally over the working days of a week. However, if the nature of work is so demanding, some of the working days can be reduced while on other days, working time can be increased to the limit of 10 hours a day. Normal working hours are not relevant to commercial travelers or representatives unless otherwise specified in a collective agreement or work rules.

Overtime

Overtime is the work done outside of one’s regular hours. A worker may not be obliged to work overtime except in case of an accident (actual or expected), force majeure, urgent work, or substitution of absent workers assigned on work that runs continuously without interruption. Overtime work may not exceed 4 hours in a day or 12 hours in a week. If a worker works beyond the stipulated working hours during the weekdays, i.e., 8 hours a day and 48 hours a week, he/she is qualified for an overtime premium as follows: 

• 150% of a normal hourly rate for overtime work between 06 a.m. to 10 p.m.;
•  175% of a normal hourly rate for overtime work between 10 p.m. to 06 a.m.; 
• 200% of the normal hourly rate for work on a weekly rest day; and
•  250% of the normal hourly rate for work on a public holiday.

Vacation leave in Ethiopia

Workers may be required to perform work on a weekly rest day or public holiday to avoid serious interference caused by accident (actual or expected) or force majeure or urgent work. 

A worker is reimbursed monetarily if his/her contract of employment ends before the compensatory holiday is granted. There is no provision for a compensatory holiday for the workers working on a public holiday.

 Workers may be required to work on weekly rest days and public holidays. In such circumstances, they are entitled to receive wages at a premium rate of 200% of the normal hourly wage rate. Nonetheless, there is no premium pay for the workers working on weekly rest days.

In Ethiopia, workers are entitled to 16 working days of paid annual leave on completion of one year of service plus one working day for every additional year of service. For a worker with 5 years of service, the period of paid annual leave is 18 working days (one day extra for every two additional years of service).

Ethiopia Maternity Leave

In accordance with the Constitution of Ethiopia and Labour Proclamation, female workers are entitled to fully paid maternity leave of 120 working days (30 days antenatal and 90 days postnatal) on the recommendation of a medical doctor.

Ethiopia Severance Laws

A worker may terminate the employment contract by serving 30 days prior notice to the employer. On the other hand, an employer may terminate the employment contract of a worker by observing a notice period as follows:

• One month for workers who have completed their probation and have a maximum of 1 year service period;
•  Two months for workers who have a period of service from one to nine (1-9) years; 
• Three months for workers with more than 9 years of service; and 
• Two months for workers who have completed probation period but whose employment is terminated due to the reduction of workforce.

The Labor Proclamation provides for severance pay for a worker who has finished his probation. A worker is entitled to severance pay on contract termination by the employer because he/she has halted its operations permanently due to bankruptcy or some other reason, or if the worker’s employment contract is terminated against the provisions of law, or if the worker is part of the reduced workforce; or if the employer has done something unlawful that hurts the right of the worker; or if his employer has not taken any action to secure the health & safety of workers even after being informed about the dangers in the workplace; and if the employment contract is terminated because of partial or total disability. 

The amount of severance pay depends on the duration of service and is payable at the following rates:

• 30 days’ wages for one year (as well as first-year) of service (severance pay for workers with less than 1 year of service is calculated in proportion to the period of service); 
• 10 days’ wages for every additional year of service after the first year (however, the total severance pay must not exceed 12 months’ wages);
•  60 days’ wages in addition to the above payments for workers who are terminated on grounds of redundancy.

Ethiopia Tax

Company Tax: 30%

Tax Rate For Foreign Companies: Resident entities are taxed on worldwide income; whereas non-residents are taxed on Ethiopia-source income. Foreign companies are taxed at the same rate as national ones. If a resident taxpayer has foreign taxable income on which he has paid taxes abroad, the taxpayer will be entitled to a tax credit equal to the lesser of the income tax paid or the tax payable in Ethiopia in respect of the foreign income. A company is considered resident for tax purposes if it is registered according to Ethiopia’s law on commercial registration or if its effective management is in Ethiopia.

Capital Gains Taxation: Capital gains are taxed at a rate of 15%, however capital gains derived from transfers of shares of companies and bonds are subject to tax at a rate of 30%. Capital losses may be carried forward indefinitely and offset against capital gains of the same class.

Health Insurance Benefits in Ethiopia

An employee is entitled to a maximum of 6 months of sick leave within 1 year of service. An employer will only be obligated to grant paid sick leave for the first months, whereas the wage is reduced to 50 % for the second and third month, and reduced to zero for the third to the sixth month of sick leave within a year.

Additional Benefits in Ethiopia

Work injuries are divided into four categories: permanent total incapacity, permanent partial incapacity temporary incapacity and  fatal injury leading to death of a worker.

In the case of permanent incapacity/disability, 47% of an insured worker’s monthly salary is paid if the insured has at least a 10% loss of work capacity and is unable to work.. If the disability pension is less than or equal to the old age pension, then the old age pensions up to 70% of the insured monthly basic salary is paid to the worker. A lump sum of 47% of the insured’s basic salary before the disability began multiplied by 60 months and by the assessed degree of disability is paid in case of permanent partial disability provided that the insured worker has at least a 10% loss of work capacity but is able to work.

In the case of temporary disability, for private-sector workers, 100% of the employee’s average earnings is paid for first three months; 75% for the following three months; and at least 50% for the remaining six months. The benefit is paid for 12 months or until full recovery or certification of permanent disability. For civil servants, 100% of the employee’s average earnings is paid until the employee recovers and resumes work or is medically certified as permanently disabled.

In the case of fatal injury, dependents (widow/widower, children under the age of 18 years and any parent being supported by the deceased worker) receive survivors’ pension. 50% of the pension a deceased worker would have received, if assessed with permanent total disability, is paid to the widow(er). 20% of a deceased worker’s pension is paid to each eligible orphan and 30% for each full orphan. 15% of the pension is paid to the each of the deceased worker’s parent supported by him; 20% if there are no other eligible survivors.

The maximum combined survivor benefit is 100% of the disability pension the deceased received or was entitled to receive.

General market practice benefits/additional allowances

Ethiopia is one of the fastest growing economies in the world. In 2013, the country’s GDP amounted to USD 46.87 billion, with a growth rate of 10.4 per cent that same year. Ethiopia has maintained an average growth rate of 10.9 per cent since 2004. The World Bank and the International Monetary Fund forecast continued average growth of 8.5 per cent in 2015 and approximately 7.5 to 8 per cent over the next five years (U.S. Department of State, 2015).

Investors can employ duly qualified expatriates required for business operations. A foreign investor can employ expatriates for top management positions without any restrictions. A foreign investor or a domestic investor who wishes to employ an expatriate for non-top management positions must prove that the required expertise is not available in the domestic labour market.

If the local labour market can supply the required profiles and expertise, the law gives priority to the employment of Ethiopian nationals. In addition, the right to employ expatriates for non-top management positions is limited by the legal requirement that foreign investors should replace, within a limited period, such expatriate personnel by Ethiopians by arranging the necessary training thereof.

Ethiopia Holidays

There are 15 public holidays in Ethiopia:

• Ethiopian Christmas 
• Orthodox Epiphany
• Timket 
• Adwa Victory Day
• Siklet 
• Labour Day
• Ethiopian Good Friday 
• Ethiopian Easter Sunday
•  Patriots’ Victory Day
•  Eid al-Fitre
•  Derg Downfall Day
•  Eid al-Adaha 
• Ethiopian New Year
•  Meskel 
• Prophet Muhammad’s Birthday

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.