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Global Payment and Compliance

How to Pay Remote Employees In Ethiopia


Global Payment and Compliance

How to Pay Remote Employees In Ethiopia

Remote Teams In Ethiopia. Paying remote employees locally or internationally. Know about how much tax you withhold, other deductions, and contributions. Calculate the net pay

April 5, 2022
min read
April 5, 2022
8 min read
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How to Pay Remote Employees in Ethiopia 

The scope of remote work has grown widely over the last decade and attracted professionals from all sectors. Consequently, it has led to more reliable platforms where they can hire remotely. Ethiopia is one of the growing economies in Africa, and since 2020 its gig economy has also improved. 

However, processing payments for remote employees is not without its difficulties. International employers, for example, may find it difficult to comply with foreign laws and tax issues. As a result, this post instructs local and international employers on how to pay their remote employees in Ethiopia in accordance with Ethiopian labor laws.

Things to Consider before Paying Remote Employees in Ethiopia 

 1. Are you paying remote employees locally or internationally?

Payroll processing as a local employer differs from payroll processing as an international employer. Why is this the case? As a local employer, you are more likely to be familiar with most payment and employment laws and regulations. International employers with remote employees in Ethiopia, on the other hand, must go above and beyond to ensure compliance.

Below are payroll options for employers with remote employees in Ethiopia:

  • Internal payroll processing- this option is best suitable for employers with a subsidiary within Ethiopia. It requires resources and staff who are proficient with payroll tasks. However, you might opt to use  an automated payroll management system. Such a system can also help you add remote employees to your payroll system. 
  • Outsource with a reliable  EOR service provider- This option is best suitable for an international employer with remote employees in Ethiopia. An EOR helps you manage payroll for remote employees and other administrative tasks such as tax compliance and HR management for employers without a physical entity in Ethiopia. 

2.When should you pay remote employees?

As an employer, you need to know when to pay your remote employees per the rules of that particular country. In Ethiopia, there is no specified payment cycle for employees. However, an employer is obligated to pay employees wages and emoluments at intervals per the national law, employment contract, or collective agreement. Often, employees get paid on a monthly cycle. 

A Process to Pay Remote Employees in Ethiopia 

1. Know about how much tax you withhold, other deductions, and contributions 

As an employer, it is your responsibility to know the exact percentage of taxes cut and different deductibles in the employees' salary at each payment cycle. Furthermore, it would be preferable if you learned about the legal contributions you must make.

Employee salaries in Ethiopia should be taxed at the following rates:

  An employer should withhold the above tax percentage each month and pay it to the Ethiopian Revenues and Customs Authority within 30 days. These deductions follow a PAYE system. However, specific income categories are exempted (partially or fully) from employment income tax. Nevertheless, these kinds of income should be according to the employment contract. They include 

  • A hardship allowance from working in a remote or desert area be made clear in the contract.
  • Allowances to employees for travelling more than 25km from their place of work 
  • If an employer contributes towards an employee's pension or other retirement funds, they should not deduct such contributions from employment income tax. However, this contribution should not exceed 15% of the employee's monthly income. 
  • Any amount paid by the employer to cover the actual cost of an employee's medical treatment should be in the contract.

An employer must also pay 11% of the employee payment to the Ethiopian Social Insurance system. 

2. Decide on the payment method to transfer money to your remote employees 

You can use different modes of payment to transfer wages or salaries to your remote employees based in Ethiopia. Below are some of the preferred ways: 

  • Direct deposits 

Direct deposits allow you to send your employees' payments directly to their respective bank accounts from your company's account. This kind of payment is usually instant and you can easily track all payments processed. 

However, this method works best for an employer based in Ethiopia. 

  • Wire transfers

Paying them is difficult for foreign employers because you must remain fully compliant with all employees' home-country payroll rules. Most importantly, you must use a dependable mode of payment to initiate payments for your remote team. Wire transfer is a simple method.

This method allows you to send and receive money electronically across multiple banks or transfer agencies around the world. To make a payment, all you need is your remote employees' bank accounts and your name as an employer. It could take two days or less, depending on factors such as banks and the recipient's location.

  • Money orders 

There are a variety of money order service providers that allow international transfers and can be used in Ethiopia to pay remote employees. Some of the reliable alternatives  include MoneyGram, WesternUnion, and RiaMoneyTransfer. 

  • Digital payments

Digital payment is another alternative you can rely on for transferring payments to your remote employees in Ethiopia. Digital payments are excellent because they are fast and efficient.

Examples of trustworthy digital payment options include: TranferWise ,WorldRemit, Remitly and Xoom.

  • Use an outsourced payroll or EOR provider 

If you're a foreign employer with remote employees in Ethiopia and you don't want to deal with the hassle of legal compliance while paying workers, outsourcing is an alternative. 

An EOR services provider such as  WorkPay  will handle both payroll and HR responsibilities in Ethiopia, thus allowing you to take other business operations. They also ensure that every task runs according to the regulations; therefore, you remain compliant. 

Outsourced payroll providers mainly help employers with their payroll. They focus on withholding taxes, remitting them, and processing dues to remote employees on your behalf, among other payroll tasks. Additionally, a reliable payroll provider will ensure that everything they do complies with the law within Ethiopia. 

3. Calculate the net pay 

It would be best to calculate the net pay once you've worked out the taxes and other deductibles from an employee's salary. Net pay is the amount an employee receives after deductions from the gross pay (total amount) before taxes and different deductions from your salary. 

4. Process employees' pay 

Use the agreed method to pay your remote employees in Uganda and monitor the payment until they have them in their respective accounts. You can use an automated payroll system to handle this kind of task. 

5. Update records 

You should continually update your payroll records after each payment cycle. It'll help you while conducting audits or even tracking previous payments that might have issues in the future. 

Why Partner with Workpay to Process Payroll?

Workpay offers companies with internal and remote employees an automated system that helps manage payrolls. The system streamlines your payroll processes on a single platform and is easy to use. Most importantly, it helps you stay compliant with necessary laws within African countries. 

Lastly, an automated payroll system saves you time and reduces payroll errors.

Workpay Africa

Workpay is a HR and Payroll software company that offers time & attendance, payroll, human resource, leave, expenses and remote teams solutions to businesses across Africa.

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