Payroll and Benefits Guide Ethiopia
Last updated: Mar 03, 2026
Contribution
|
Employer Payroll Contributions
|
|
|
11.00%
|
Public/Private Sector Pension Fund
(contributions are only required for local workers)
|
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11.00%
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Total Employment Cost
|
|
Employee Payroll Contributions
|
|
|
7.00%
|
Public/Private Sector Pension Fund or Military and Police Service Pension Fund
|
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7.00%
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Total Employee Cost
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Employee Income Tax
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|
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0.00%
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0 to 2000 ETB
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10.00%
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2,001 ETB – 4,000 ETB
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15.00%
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4,001 ETB – 7,000 ETB
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20.00%
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7,001 ETB – 10,000 ETB
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25.00%
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10,001 ETB – 14,000 ETB
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30.00%
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Over 14,000 ETB 35% |
Employer taxes
Employee taxes
Minimum Wage
General
There is no national minimum wage in Ethiopia, however for the public sector there is a recommended 420 ETB per month.
MINIMUM WAGE (PER MONTH)
Payroll
Payroll Cycle
The typical payroll cycle in Ethiopia is a monthly basis.
13th Salary
There is no statutory requirement to provide a 13th salary, however bonuses are common in Ethiopia.
Authority Payments
|
Authority Payment |
Due Date |
Method |
|
Ethiopian Revenues and Customs Authoirity |
25th of the following month |
Bank transfer |
|
Ethiopian Revenues and Customs Authoirity Taxes |
25th of the following month |
Bank transfer |
Working Hours
General
The standard workweek in Ethiopia consists of 8 hours per day and 48 hours maximum per week.
The Ethiopian government introduced Public Servants’ Pension (Amendment) Proclamation 907/2015. This was in contrast to Proclamation 714/2011, which defines a public servant as a ‘monthly salaried person employed permanently or for a definite period or piece of work in a public office, public enterprise, or project or program carried out by government’ (Proclamation 907/2015: 8287). The main purpose of the Amendment was to recognize temporary government employees (those employed for at least 45 days) as public servants.
Overtime
- Maximum Ordinary Hours (Article 61): The standard work limit is 8 hours per day or 48 hours per week.3 Any work performed beyond these hours is considered overtime.
- Daily Overtime Cap (Article 67): Overtime work must not exceed 4 hours in a day.
- Weekly Overtime Cap (Article 67): Overtime work must not exceed 12 hours in a week.
- Consent and Circumstances: Overtime is generally voluntary and may only be worked under express instructions from the employer in specific, limited circumstances (e.g., in case of accident, force majeure, urgent work, or substitution of absent workers).
- Exemptions: Managerial employees are generally exempt from the working hours and overtime provisions of the Proclamation.
Mandatory Overtime Pay Rates (Article 68)
Overtime compensation is mandatory and is calculated as a minimum premium percentage of the employee’s ordinary hourly rate.8 The rate increases significantly based on the time and day of the work.
| Day/Condition | Time Period | Minimum Premium Rate (Statutory) | Total Pay Rate |
| Daytime Overtime | 6:00 AM to 10:00 PM | 1.5 times the ordinary hourly rate. | 150% |
| Nighttime Overtime | 10:00 PM to 6:00 AM | 1.75 times the ordinary hourly rate. | 175% |
| Weekly Rest Day | Any time on the designated rest day. | 2 times the ordinary hourly rate. | 200% |
| Public Holiday | Any time on an official public holiday. | 2.5 times the ordinary hourly rate. | 250% |
Note on Premiums: These rates are statutory minimums and must be paid in addition to the employee’s normal wage.10 Higher rates may be stipulated in a Collective Agreement or employment contract.
Leave
Annual Leave (vacation)
Employees are entitled to a minimum of 16 working days of paid annual leave following the completion of one year of service. The number of days increases by 1 additional day per year for every two years’ service thereafter.
Upon request, unused leave can be carried over for a period of up to 2 years.
PTO carryover
Under Ethiopia’s Labour Proclamation, employees are entitled to annual paid leave and the employer must schedule it. *Unused annual leave can be carried over by agreement but only for up to two years; any agreement to defer it beyond that is void because workers cannot waive their leave right. Employers cannot implement a blanket “use-it-or-lose-it” policy that deletes accrued statutory leave, and unused leave must be taken within the allowable period or paid out on termination.
Public Holidays
Certain religious holidays are determined by the lunar cycle and will show as tentative until the exact date is confirmed nearer the holiday.
| Date | Day | Holiday | Notes |
|---|---|---|---|
| 1 January 2026 | Thursday | International New Year’s Day | Standard holiday |
| 7 January 2026 | Wednesday | Ethiopian Christmas Day | Standard holiday |
| 19 January 2026 | Monday | Epiphany | Standard holiday |
| 2 March 2026 | Monday | Adwa Victory Day | Standard holiday |
| 20 March 2026 | Friday | Eid al-Fitr | Standard holiday |
| 10 April 2026 | Friday | Ethiopian Good Friday | Standard holiday |
| 12 April 2026 | Sunday | Ethiopian Easter Sunday | Standard holiday |
| 1 May 2026 | Friday | International Labor Day | Standard holiday |
| 5 May 2026 | Tuesday | Patriots’ Victory Day | Standard holiday |
| 27 May 2026 | Wednesday | Eid al-Adha | Standard holiday |
| 28 May 2026 | Thursday | Derg Downfall Day | Standard holiday |
| 26 August 2026 | Wednesday | The Prophet’s Birthday | Standard holiday |
| 11 September 2026 | Friday | Ethiopian New Year | Standard holiday |
| 27 September 2026 | Sunday | Finding of the True Cross | Standard holiday |
| 8 December 2026 | Tuesday | Constitution Day | Standard holiday |
Sick Days
An employee is entitled to up to six months of sickness absence per year, with the first month paid at 100% of the regular pay, the second and third months at 50% of the regular salary rate, and the remaining three months unpaid.
A medical certificate should be provided for sick leave above 1 to 3 days.
Maternity Leave
Female employees are entitled to 120 working days of paid maternity leave in Ethiopia, with no less than 30 consecutive days of leave prior to the due date and 60 days following the birth.
Maternity confirmation certificates must be provided before any maternity leave can commence.
Paternity Leave
A father is entitled to paid paternity leave of up to three working days.
Parental Leave
There are no provisions in the law regarding parental leave.
Other Leave
Marriage Leave – Employees are entitled to 3 days of paid leave in the event of their marriage
Special Leave – Employees are entitled to 5 days unpaid leave for exceptional circumstances e.g. bereavement
PAID MATERNITY LEAVE (DAYS)
Termination
Termination Process
The contract of employment may not be terminated in the absence of a justified reason. Justified grounds for termination include the expiration of the agreed period of employment, completion of the specified task, insolvency of the employer, if the worker becomes partially or permanently unable to perform his or her contractual obligations, or by mutual agreement.
| Salary payment interval / date | Final payment on termination | Bank account payment requirement |
|---|---|---|
| Wages must be paid on the last day of the pay period, unless otherwise agreed. For time-based pay: usually monthly for salaried employees, and at least twice a month for hourly/daily staff. | When employment ends, the employer must pay all earned wages and entitlements (“relevant receivables”) immediately at termination or by the next pay date. | Wages must be paid into a bank account designated by the employee, and must be available for withdrawal on the due date. Cash payment is only allowed in exceptional cases (e.g., no account available). |
Notice Period
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 fewer 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 a reduction of workforce.
- No notice is required during the probation period.
- Workers can generally terminate the contract of employment giving prior notice of 15 days).
Severance Pay
The amount of severance pay depends on the length of service and is payable at the following rates:
- 30 days at the regular salary rate for one year of service (pro-rated)
- 10 days at the regular salary rate for every additional year of service after the first year (however, the total severance pay must not exceed 12 months’ wages)
In addition to the above, 60 days at the regular salary rate are paid in cases of termination on grounds of redundancy.
Probation Period
Probationary periods are 60 working days.
Setting Up a Business
Setting up a legal entity
The following steps are required in order to register a company in Ethiopia:
- Notarize the following document:
– Legal certificate of incorporation
– Minutes of resolution passed by authorized organ of the parent company authorizing to invest in Ethiopia
– Memorandum and articles of associations or similar documents of the parent company
– Notarized power of attorney of the agent - Open a bank account and obtain bank letter from Licensing and Registration Department to get permission to open foreign currency account from National Bank of Ethiopia.
- Once a bank account is secured, register with the Ethiopian Revenue and Customs Authority.
- Register with the Ethiopian Investment Commission via Investment Permit Application Form or from EIC Information Desk. Submit filled and signed application form (by the investor or general manager or legally authorized person) along with previous business background (company profile), memorandum and article of association, copy of valid passport, and investment or business visa of each shareholder to Licensing and Registration Department.
- Visit the EIC website for updated information as well as the minimum capital requirements.
- Obtain an investment permit certificate from Licensing and Registration Department.
- Apply for a Taxpayer Identification Number (TIN). This can be done online at e-Trade Online Trade Registration & License System.
Registration as an employer
Ethiopian employment law makes it mandatory for employers to deduct union dues from a employee’s salary and then, if the employee agrees, transfer the money into the trade union’s bank account. They must also educate employees about the rules of the company and register the company, along with information about the location of the workplace and any important data that needs to be provided to the Ministry of Labor and Social Affairs (MoLSA).
Immigration
A foreign national must have a work permit to undertake any type of work in Ethiopia. A work permit for employees of foreign investors is issued for a specific type of work by the Ethiopian Investment Commission (EIC). The work permit is subject to renewal every year. One of the grounds considered by the EIC in determining whether to grant a work permit or to renew the same is the unavailability of the workforce locally having the required skill and experience for the position.
Residence permits are issued by the Ethiopian Immigration, Nationality and Vital Events Agents. A work permit is one of the mandatory requirements for applying to get a temporary residence permit. Residence permits are typically issued within two business days after the application is submitted and can take up to five days in exceptional cases.
VAT
General
The Standard rate of VAT in Ethiopia is 15%.
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Payroll and Benefits Guide
in Ethiopia
What’s covered in this guide:
- Employer/employee contributions
- Minimum wage
- Working hours
- Visa requirements
And more...
Public Holidays Calendar
| Date | Day | Holiday | Notes |
|---|---|---|---|
| 1 January 2026 | Thursday | International New Year’s Day | Standard holiday |
| 7 January 2026 | Wednesday | Ethiopian Christmas Day | Standard holiday |
| 19 January 2026 | Monday | Epiphany | Standard holiday |
| 2 March 2026 | Monday | Adwa Victory Day | Standard holiday |
| 20 March 2026 | Friday | Eid al-Fitr | Standard holiday |
| 10 April 2026 | Friday | Ethiopian Good Friday | Standard holiday |
| 12 April 2026 | Sunday | Ethiopian Easter Sunday | Standard holiday |
| 1 May 2026 | Friday | International Labor Day | Standard holiday |
| 5 May 2026 | Tuesday | Patriots’ Victory Day | Standard holiday |
| 27 May 2026 | Wednesday | Eid al-Adha | Standard holiday |
| 28 May 2026 | Thursday | Derg Downfall Day | Standard holiday |
| 26 August 2026 | Wednesday | The Prophet’s Birthday | Standard holiday |
| 11 September 2026 | Friday | Ethiopian New Year | Standard holiday |
| 27 September 2026 | Sunday | Finding of the True Cross | Standard holiday |
| 8 December 2026 | Tuesday | Constitution Day | Standard holiday |
Did the National Bank in Ethiopia pay the foreign employees’ annual leave in US dollars or Birr?
If By Birr, The Contract; THe Salary, and the benefits mentioned in USD, how I get the Birr out of Ethiopia
Unfortunately, this is a unique case and we cannot advise on this matter. We recommend directly contacting your employer and the bank.
HOW CALCULATE YEARLY BONUS TAX
A bonus is taxed the same way as salary.
is overtime tax-payable
?
Yes, overtime is subject to taxation as wages.
I have served for about over 25 years. Can you calculate my severance pay?
Hello, unfortunately, we are unable to provide advice on individual personal statuses.
is there an income tax and pension cut for contract employees? if so is it the same as the full time workers?
Independent contractors are responsible for paying their own income taxes (up to 35%); they are not enrolled in the Social Security/Pension scheme.
can we ask severance pay if we leave with our accordance after working for more than five years
This question lacks specificity, making it difficult to provide a clear answer. In Ethiopia, an employee is entitled to severance pay depends on the terms specified in their employment agreement. Unlikely if its a resignation scenario.
@Enny; if it is a local NGO employee working in a donor based project and the donor has been giving the severance payment regularly ( already put in the local NGO account),can the employee get the severance payment after resignation? If not, does it mean the organization will take that money? and is that fair?
Typically, severance is not paid when a worker resigns. If there has been a specific severance or unemployment fund set up then the worker should consult with the fund to understand their entitlements as terms can vary.
hi admin,shall we pay severance for employee who serve lessthan one year?
Generally, leavers with less than 1 year of service are not entitled to severance payout.
is compensation benefits taxed
Compensation benefits are generally taxed as part of employment income.
how to calculate house allowance
hi there, house allowance in Ethiopia is usually set by the employer. It is typically either:
A fixed monthly amount, or a percentage of the employee’s basic salary (for example, 10%–30%).
If it’s percentage-based, the calculation is:
House Allowance = Basic Salary × Agreed Percentage
For exact details, it’s best to check the employment contract or company HR policy.