Understanding Payroll in Azerbaijan: What Global Companies Need to Know About Azerbaijan Payroll System
Oct 24, 2017
Azerbaijan may have been known only as a Soviet state a couple of decades ago, but this meeting point between East and West has flourished in its independence. This dynamic nation shares borders with Turkey, Georgia, and Iran, and boasts a population of 9.7 million people and a GDP of around $38 billion. Bolstered by its oil reserves, a highly educated workforce, and excellent trade relations, this country has a lot to offer major corporations.
Businesses can expect a government that is both friendly and accommodating to investors and entrepreneurs. Azerbaijan recently lowered the corporate tax rate to 20% and made it easier for companies to pay their workers. Not only has Azerbaijan embraced technology in business, including for tax and payroll solutions, they've fully digitized the system.
Azerbaijan has made it simple to register a company online, with the starting point for new businesses being The Ministry of Communications and Information Technologies. Here organizations can apply for the e-signature necessary to move forward, which is generally provided by the ministry in just one business day. Next, businesses must complete an online registration at One Stop Shop, for which they will need their articles of incorporation (charter), the standard application form, IDs, and legal address of the business. The last step is registering for VAT (if applicable) at the Ministry of Taxes.
Employment Law & Employee Rights
The work week in Azerbaijan runs from Monday through Friday, with a cap of 40 hours a week and few exceptions. While many of the rules are formally laid out, the culture takes a relaxed attitude toward them. For example, it’s common for workers to take extended lunch periods or come in later. Weekends are rarely worked. Overtime is paid as double time, night work is compensated with a 40% premium, and work on holidays is paid at 150% of the base salary.
Employee contracts are necessary in Azerbaijan and must state the general information for the job (including pay and duration of services) in writing to be official. Without a written contract, an employee is generally not eligible for severance pay. A fixed-term contract cannot be used if an employer requires more than five years of service from the employee. Probation periods are acceptable, though they cannot exceed three months. The country also allows for trade unions, but this right is rarely invoked.
Compensation & Severance
The national currency is the Azerbaijani manat, and minimum wage is set at 116 manat (~$69, £53, €48) per month for 2017. Severance pay is mandated, though it's unclear how often it's actually paid. Labor regulations state that workers should get two months of notice before termination and at least one month's salary. They may be entitled to up to 3 months of additional salary, depending on how long it takes them to find a new job. In addition to notice, the terminated employee is to get one day off per week to search for new work during their last two months.
Tax Requirements & Withholding
Income is taxed at a general rate of 25% for workers, unless they make less than 2,500 manat (~$1480, £1128, €1254) per year. Employers pay into social security at 22% of the employee's salary, while employees contribute 3% of their gross salary to social security. All taxes and contributions are withheld from employees’ gross salaries. Azerbaijan has adopted a fully electronic payroll system, and it is the employer's responsibility to ensure that all payments are made on time to the government in electronic form. An international payroll solution can ensure that taxes are filed correctly and on time, including the corporate tax of 20%. In addition, employers may pay a small reporting tax to file their electronic submissions, which helps support necessary software and technology updates.
Time Off & Paid Leave
Workers are entitled to 21 days off per year if they are on a fixed schedule and 30 days if they operate on a non-fixed schedule. These days can be used for general vacation time or short-term illness. in addition, Azerbaijan celebrates 20 national holidays.
Extended leave is permissible and paid for by the state. There are no set limits for how long an employee can take, and leave is expected to be determined on a case-by-case basis. New mothers are entitled to 126 days of paid leave, which is also paid by the state. However, mothers also have the option of staying home with their child until they reach three years of age.
While many Azerbaijanis are highly educated and skilled, a significant portion of people living in rural areas may not understand the labor code very well. As a result, there have been some instances in which workers were mistreated and not aware of the recourse they could take against their employer. It will behoove a foreign company setting up business in the country to be upfront and clear about expectations on both sides to assure good relations.
A Modern System
Payroll regulations in Azerbaijan are extremely modern, as the government continues to embrace technology to get more done. It makes things easier, but it can also create extra work. In addition to hitting all deadlines and requirements, data security continues to be a major concern for businesses. A global payroll solution can help companies handle their financials right from start to finish.