Ethiopia, the second-most populous nation in Africa has experienced remarkable economic growth (averaging 9.5%) over the past 15 years. Engaging an Employer of Record (EOR) service can be a strategic choice to navigate this dynamic market and leverage its potential. An EOR assists with essential HR, compliance, and payroll functions, allowing employers to focus on their core business operations while ensuring adherence to local regulations and labor laws in Ethiopia.

For employers unfamiliar with Ethiopian local labor laws, handling compliance in-house will slow their efforts at hiring and expansion. Laws governing minimum wages, working hours, and payrolling are set and changed based on macroeconomic conditions. Labor unions have a strong say in setting these terms leading to the formation of Collective Bargaining Agreements.

This scene is unlike the systems in business-friendly countries. For example, labor unions in the USA do not have much bargaining power. And there are no federally-mandated provisions for paid time-offs in the USA - it is up to the employer to provide paid time-offs. In contrast, Ethiopia has strong labor unions, and employees have right to collect bargaining agreements.

Partner with an Argentina Employer of Record (EOR) like Gloroots to onboard local talent in under a day. With a single partner to manage payroll, taxes, your HR operations become less confused and more streamlined. The Argentina EOR  will ensure full compliance with local employment obligations, and you can fully focus on core business functions and growth plans.

The cost of Ethiopia EOR/PEO services in Ethiopia may differ based on various factors, such as the number of employees, the extent of services needed, and the intricacy of the project. The pricing structure for Ethiopia EOR/PEO services usually involves a monthly fee per employee or a percentage of the employee's salary. Extra charges may apply for additional services or customization.

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Key Metrics For Foreign Employers 

The Ethiopian government has implemented various incentives for foreign businesses, including tax holidays, duty-free imports of materials and machinery, and streamlined business starting processes. These policies make it easier for U.S. companies to set up operations and employ local talent.

The table below depicts key indicators from the Global Talent Competitiveness Report for employers wishing to hire from Ethiopia.

Source: The Global Talent Competitiveness Index 2023

Through the Gloroots’ Recrew platform, you can discover amazing talent in Ethiopia.

The issue of "Misclassification of Workers" involves incorrectly categorizing employees, like labeling them as independent contractors or exempt from certain regulations, when they should be legally recognized as employees. In Ethiopia, utilizing a PEO/EOR effectively reduces these risks by ensuring compliance with labor laws, accurate worker classification, efficient payroll management, and proper employee benefits. This delegation to experienced professionals ensures a compliant and smooth experience in Ethiopia's labor environment, enhancing operational efficiency and confidence.

The Labor Proclamation No. 42/1993 governs all matters related to minimum wages, payroll, termination, etc. It's important for both employers and employees to know and follow these rules to have a fair and legal workplace in Ethiopia.

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Employment contract

In Ethiopia, it is a legal requirement for employers to establish a formal employment contract with their employees. This written agreement must state the names of both the employer and the employee, outline the benefits and entitlements the employee will receive, lay out the terms and conditions of the employment relationship, and specify the location where the work will be performed. This comprehensive employment contract lets both parties clearly understand their rights and responsibilities, fostering a harmonious and legally compliant work environment in Ethiopia.

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Working time

In Ethiopia, the regular workweek is 8 hours a day or a maximum of 48 hours a week. The government changed the law with the Public Servants’ Pension (Amendment) Proclamation 907/2015. Unlike the previous Proclamation 714/2011 rule, this change now considers even temporary government employees (those working for at least 45 days) as public servants. This means they get the same benefits and rights as other government workers.

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Overtime

Extra work beyond the regular hours is considered overtime and is governed by a labour agreement. Overtime is allowed for a limited time:

•  2 hours a day
•  20 hours a month
•  100 hours a year

Employees are compensated as follows:

• Overtime pays 125% of the usual salary, except when it's between 10 p.m. and 6 a.m., it's 150%.
• Working on the weekend earns you 200% of the regular pay.
•  If you work overtime on a public holiday, you get 250% of your regular pay.

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Public Holidays

Ethiopia has 12 public holidays throughout the year. Some religious holidays depend on the lunar calendar, so their dates might be uncertain until they are confirmed closer to the holiday.

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Minimum Wage

Ethiopia has no national minimum wage; however, there is a recommended 420 ETB per month for the public sector.

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Annual Leave

After one year of service, employees in Ethiopia have the right to a minimum of 16 paid annual leave days, and this number increases by one additional day for every two more years of service. Employees can save and use their unused leave for up to two years if they wish.

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Paid Sick Leaves

Employees in Ethiopia can take up to six months of sick leave annually. During the first month, they receive their full regular pay. They get 50% of their regular salary in the second and third months. The last three months are unpaid. A medical certificate is required for sick leave lasting between 1 and 3 days.

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Maternity leaves

Female employees in Ethiopia have the right to 120 days of paid maternity leave. This leave includes at least 30 consecutive days before the due date and 60 days after the baby is born. Before starting maternity leave, employees must provide maternity confirmation certificates.

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Paternity leaves

Fathers in Ethiopia can take paid paternity leave for a maximum of three working days.

Tax and Social Security contribution:

Employer Payroll Contribution

Employee Payroll Contribution

Employee Income tax

Employment contracts cannot be terminated without a valid reason in Ethiopia. Acceptable reasons for termination include the end of the agreed employment period, the completion of the assigned task, the employer going bankrupt, the employee being unable to fulfill their duties, or both parties agreeing to it.

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Severance Pay

In Ethiopia, the amount of severance pay depends on how long someone has worked. For each year of service, they receive 30 days' pay at their regular rate, adjusted for part-years. After the first year, every additional year of service gets them 10 days' pay. However, the total severance pay cannot exceed 12 months' wages. If the termination is due to redundancy, an additional 60 days' pay at the regular rate is given.

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Notice Period

The notice period an employer must give in Ethiopia varies:

• One month for an employee who finished their probation and has less than a year of service.
• Two months for an employee with over one year but less than nine years of service.
• Three months for those with more than nine years of service.
• Two months if the employee completed probation but is terminated due to workforce reduction.

During the probation period, no notice is needed. On the other hand, employees can end the contract by giving 15 days' notice.

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Probation period

Probation periods in Ethiopia last for 60 working days.

Expanding your global workforce comes with a host of compliance challenges, from employment laws to data protection and diversity requirements. At Gloroots, we streamline this process with a unified platform. Our experts handle everything from employment contracts to on-time payments and compliant benefits. This way, you can concentrate on talent acquisition, while we ensure a stress-free global employment experience for both you and your employees. Connect with our experts today to kickstart your global hiring journey.

Expanding your workforce in Ethiopia involves strategic hiring, but it also means dealing with challenges like compliance, payroll, tax, and benefits. Gloroots offers a global Employer of Record (EoR) service to handle these complexities, allowing you to focus on your employees and business growth. Partner with us for a streamlined process in Ethiopia's dynamic market.