How to Hire Remote Employees In 

Ethiopia

The Basics

Currency
Ethiopian Birr (ETB)
Employer Taxes
11%
Payroll Frequency
Monthly
Official Language
Amharic, Oromo, Tigrinya, Somali, Afar

Employment in 

Ethiopia

Hire Independent Contractors

Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.

For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.

For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.

As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.

While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.

Benefits of Hiring Independent Contractors
Reduced overhead: Lower cost in expenses, payroll, benefits, and more.
Greater flexibility: Contractors can be brought on as-needed. If not a good fit, you simply don’t have to move forward with the contract.
Reduced legal risk: Contractors aren’t usually protected by employment anti-discrimination and workplace safety laws.
Disadvantages of Hiring Independent Contractors
Risk of Misclassification: Not only does this deny workers their proper protections, it can also result in steep penalties and damage to your company. If the IRS determines that employee misclassification has occurred, you will be liable for a percentage of the employees wages, FICA contributions, penalty fines, unpaid taxes, up to a year in prison, and more.
Lack of Control: Contractors are drawn to being independent because it gives them greater control over the work they perform and who they work with. Because they’re not employees, you can’t tell them what to work on and how it should be done.
Lack of Loyalty: Contractors come and go as-needed. Many companies hire contractors for short-term work, which makes it difficult to cultivate loyalty.
Increased Scrutiny: Using Independent Contractors typically leads to an increased risk of being audited.

Set up a subsidiary in 

Ethiopia

A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.

Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Ethiopia can be expensive, stressful, and time-consuming. It's not for the faint of heart.

To set up a subsidiary in Ethiopia, you have to:

  1. Register your business name and file articles of incorporation
  2. File for local bank accounts
  3. Learn and keep track of the local employment laws
  4. Set up local payroll
  5. Hire local accounting, legal, and HR people

If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Ethiopia.

Use an Employer-of-Record (EOR)

An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.

An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.

Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.

At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.

Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:

  • Ability to attract talented and motivated employees from all over the world.
  • Full legal compliance: There is no risk of violating local employment laws.
  • Transparency: Employees are still your employees. All the work, processes, operations and day-to-day business belong to you, the company, just like with any other employee. Panther just takes on all of the responsibilities, obligations and admin work related to your team's employment.
  • No risk of misclassification

Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.

Paying Remote Employees

Paying employees in Ethiopia is not the same as paying workers in your own country. Employees have to be paid using Ethiopia’s employment and payroll standards.

This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.

Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.

After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:

Pay through a local entity

One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.

Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.

Work with an EOR

Outside of EORs acting as the full admin employer, many also provide remote payroll.

For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.

We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.

Ethiopia

 Specific Information

Working Hours

The standard working hours in Ethiopia are 8 hours per day and 48 hours maximum per week.

Overtime

Overtime is only permissible for a maximum of:

  • In a day - 2 hours
  • In a month - 20 hours
  • Annually -100 hours

Employers compensate the employees for overtime as follows:

  • Overtime is paid at 125% of the basic wage unless it is between 10 p.m. and 6 a.m. when it is 150%.
  • Weekend overtime is paid at double the standard rate and at 250% on a public holiday.

Payroll Tax

Employer

Employer

  • Pension fund

Minimum Wage

In Ethiopia, there is no national minimum wage. Minimum wage exists only for the public sector workers which is around 420 birr ($22).

Payroll

Pay Cycle

In Ethiopia, employees expect to be paid monthly.

13th Salary

Bonuses are common in Ethiopia. Employers are not required to pay employees bonuses but may elect to do so as part of their compensation package

Leave

Paid Time Off (PTO)

In Ethiopia, employees receive one additional day per year for every two years of service.

Employees receive 16 days of paid annual leave after one year of service.

Public Holidays

There are 13 public holidays.

Sick Days

Employees receive 100% of their pay for the first month while on leave and 50% for the following two months. Employees receive six months of sick leave.

Maternity Leave

Female employees in Ethiopia receive 120 days of paid maternity leave of which up to 30 days of leave can be availed before the due date and the remaining can be availed post-partum.

Paternity Leave

Male employees in Ethiopia are entitled to up to three days of paternity leave.

Parental Leave

There are no statutory provisions for parental leave.

Other Leave

No Info.

Marriage Leave

Employees are entitled to 3 days paid leave for marriage.

Bereavement Leave

Employees are entitled to 5 days unpaid leave for exceptional circumstances.

Termination

Termination Process

Termination of the employment contract is possible only by the provisions of the Labor Proclamation. The following are the grounds of termination of the contract by either party:

  • Expiry of the duration of the contract.
  • Upon the death of the worker.
  • When the employee retires.
  • It is impossible to fulfill the requirements of the contract due to force majeure.
  • With mutual agreement.

Notice Period

Notice period in Ethiopia of termination depends on length of service, as follows:

  • Under 1 year of service, 2 months of notice:
  • Between 1 year and 9 years of service, 2 months of notice:
  • Over nine years of service, 3 months of notice.

Severance Pay

In Ethiopia, severance is typically required, unless in case of redundancy. Severance pay is 30 times the average daily wage at the last week of service.

Probation Period

Probation period is 6 months.