How to Pay Independent Contractors in Ethiopia 

Operating a successful business requires you to have a quality team. Some companies hire workers from foreign markets as independent contractors, whereby they get the best skills for the job. A labour market assessment  report  showed that Ethiopia has many people skilled in various industries such as construction, light manufacturing and service sectors (hospitality, education, transport etc.).

Nevertheless, employers have to comply with regulations as outlined by the government while dealing with independent contractors. Most importantly, foreign employers have to consider practical ways they pay such contractors to minimize costs and stay in compliance. For this reason, this article is a comprehensive guide for paying independent contractors in Ethiopia. 

Distinguish between Independent Contractors and Employees 

As an employer, the proper classification of your workers is essential. In most countries or states, misclassification of workers is likely to attract penalties on your side or even get you into a lawsuit. With the rise of independent workers worldwide, we cannot assume the issues of workers' misclassification by employers. 

What is the difference? An independent contractor is a person or an organization contracted to provide a service(s) to a client (usually an entity) under a contract. On the other hand, an employee is an individual who works full-time or part-time for an employer under a contract of employment (oral or written) and has recognized rights and duties. Additionally, employees are entitled to some benefits that independent contractors are not permitted. 

An Easy Process to Pay Independent Contractors in Ethiopia

Every country has its standards guiding employers on how to process payroll. It also includes addressing and complying with tax-related issues. The below process will help you pay independent contractors in Ethiopia irrespective of your location.

1. Workout on contract pay rates 

Before an employer and an independent contractor agreement, they should determine pay rates. However, while determining pay rates, you ought to consider a few things such as international market rates, the skillet, and the local currency's value where the contractor lives. Most importantly, you shouldn't ignore the issues of taxes and payment processing costs. 

2. Choose a payment method

As an employer, you need to use an effective method to pay independent contractors. Whether you are a local employer or an international employer, there are various payment methods for transferring payments to independent contractors in Ethiopia. Below are a few options: 

• ‍International Payment Providers 

If you're an international employer with independent contractors in Ethiopia, you may consider using a global payment provider such as Wise, Revolut and WorldRemit. 

Wise (formerly known as TransferWise) and WorldRemit offer Debit Card, Credit Card and bank transfers as their payment options internationally. Therefore, you can easily and quickly do multi-currency transfers. To sum up, Revolut is another excellent option for paying international contractors since it offers debit card payment options worldwide.

• ‍Wire Transfers 

Wire transfers can be local or international, and you could use either to pay independent contractors in Ethiopia. 

An employer initiates a transaction at the remitting bank for local wire transfers and provides the recipient's name (independent contractor's name), bank account number, and the amount transferred within the border. 

International wire transfer involves the same process as a local wire transfer. Still, it requires bank SWIFT and global payment system routing code for that particular recipient country. 

• ‍Digital payments 

You can pay independent contractors in Ethiopia through digital payments such as XOOM. It allows sending payment to top cash pick-up locations and banks such as Dashen Bank and Awash Bank in Ethiopia. Transfers are within minutes. 

• ‍Retail money transfers 

Retail money transfers service is another mode of payment you can utilize to pay independent contractors in Ethiopia. Typical service providers include Moneygram, Western Union, Majority and ExpressMoney. They allow you to send money to a pick-up location or a recipient's bank account. 

• ‍Work with an employer of record (EOR)

Suppose you're an employer who doesn't have a subsidiary company and is not conversant with Ethiopian payment and labour laws. In that case, you'll need to consider another option, i.e. use an employer of record services such as  WorkPay. 

An EOR is an entity that acts as a legal employer on your behalf, thus allowing you to hire, pay and manage independent contractors in foreign countries. They also help you process payments to your in-country contractors or employees and remit employer and employees' taxes. 

3.Monitor ongoing payments and update records 

You should monitor the payment to full compliance after initiating payment to your respective independent contractors until the recipient has the money. 

Employers should also update and maintain their records of paid payments and even pending charges. 

Income Taxes for Independent Contractors in Ethiopia 

The Ethiopian Revenues and Customs Authority (ERCA) requires all employees to withhold taxes from employee payments and remit them within 30 days. 

An employer with workers under permanent contracts should handle their PAYE. However, if the contract is short-term, an independent contractor might be required to work out their taxes. In addition, an employer might opt to use an  EOR service provider  who helps in payroll processing and taxation issues as per the laws and requirements in Ethiopia. 

However, those with personal income are subject to personal income tax at a 35% rate annually. 

Why Use WorkPay to Pay Independent Contractors in Ethiopia 

Apart from offering EOR services to companies hiring and paying independent employers, WorkPay also offers automatic payroll and expense tracking systems. 

We ensure you cut down costs, i.e. no dedicated personnel to manually handle payroll administration and no hiring a payroll processing company. WorkPay system integrates with your company's system without interrupting other functions.

 Most importantly, our expense tracking system is fully-customizable, accurate, and quickly generates reports. You also enjoy it because it brings a user-friendly experience to employers and employees.