Ethiopia, the 2nd most populous African country is a one-party state with a planned economy. The country’s economy is experiencing robust, broad-based growth, averaging 10.3% per annum from 2006-07 onwards, with its GDP expected to grow from 88.00 billion USD in 2019 to 105 billion USD by 2020. Major infrastructure projects include roads, rails, power production and distribution, industrial parks, and airports. Key sectors include banking and insurance, telecommunications, and power distribution.

Currency: Birr

Principal Languages: Amharic, Tigrigna

Government: Democracy, Federal Republic, Parliamentary Republic

Capital City: Addis Ababa

Other Major Cities: Dire Dawa, Mek'ele, Gondar, Bahir Dar

Employment Contracts

An employment contract is deemed to have been concluded for an indefinite period except for the contracts of definite period or piecework. The employment contract must be stipulated clearly and must not be concluded for the performance of unlawful or immoral activities. It must contain provisions that are more favorable for the worker than those provided by the law, collective agreement or work rules.  If an employment contract is not made in writing, the employer is required to provide a written statement of employment particulars within 15 days of the conclusion of employment contract.

A written employment contract (or a statement of particulars in the absence of employment contract) must specify the following: the name and address of the employer; the name, age, address and the work card number of the worker; type of employment; workplace; rate of wages as well as method of their calculation; manner and interval of wage payment; and duration of the contract. It must be signed by both parties.

In case the employer does not comply with these provisions, the worker must not be deprived of his/her rights under this proclamation.

Fixed-Term Contracts

The Ethiopian labor Law prohibits hiring fixed-term contract workers for tasks of permanent nature. A contract of employment may be concluded for a definite period/fixed term or for piecework in the case of:

  • the performance of specified piece work for which the employee is employed;
  • the replacement of a worker who is temporarily absent due to leave or sickness or other causes;
  • the performance of work in the event of abnormal pressure of work;
  • the performance of urgent work to prevent damage or disaster to life or property, to repair defects or break downs in works;
  • materials, buildings or plant of the undertaking;
  • an irregular work which relates to permanent part of the work of an employer but performed on irregular intervals; seasonal works which relate to the permanent part of the works of an employer but performed only for a specified period of the year but which are regularly repeated in the course of the years;
  • an occasional work which does not form part of the permanent activity of the employer but which is done intermittently;
  • the temporary placement of a worker who has suddenly and permanently vacated from a post having a contract of an indefinite period;
  • the temporary placement of a worker to fill a vacant position in the period between the study of the organizational structure and its implementation.

The Labor Proclamation does not limit the maximum term (including renewals) of the fixed term contract except in the last two cases where it specifies that the contract may not exceed 45 consecutive days and has to be concluded only once.

Probation Period

In accordance with the Labor Proclamation, a probationary period is the initial period of execution of an employment contract to test the suitability of a worker to the assigned position. Probationary period must be declared in writing, however, it may not exceed 45 consecutive days. A worker reemployed by the same employer for the same job cannot be subjected to probation. Probationers have the same rights and obligations as other workers.

If a worker is found unfit for the job during probation, employer terminates the employment contract without notice and without obligation to pay any severance pay or any compensation. A worker may also terminate the employment contract without any notice.

Work/Time Regulations

Regular working hours are 8 a day and 48 a week. Employers are required to provide a 24-hour rest period each week to all employees. Employees under the age of 18 are required to work only 7 hours each day. They cannot work overtime, between 10 pm and 6 am, on weekly rest days, and on public holidays.


Work done in excess of normal working hours is considered overtime.

Work performed:

  • between 6 am and 10 pm must be compensated with 1.25 times the regular wage
  • between 10 p.m. and 6 a.m. must be compensated with 1.5 times the regular wage
  • on a weekly day of rest must be compensated with twice the regular wage, and
  • on a public holiday must be compensated with 2.5 times the regular wage.

Overtime may be required in cases of accident, urgent work, a force majeure or substitution of absent workers assigned to work that requires continuous interruptions.

Overtime may not exceed:

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



The following paid public holidays are observed in Ethiopia: 

  • Jan. 7: ‘Gena' - Ethiopian Christmas
  • Jan. 19: ‘Timkat' - Ethiopian Epiphany
  • March 2: Victory of Adwa Commemoration Day
  • May 1: International Labor Day
  • May 5: Ethiopian Patriots Victory day
  • May 28: Overthrow of the Derg Regime
  • Sept. 11: ‘Enkutatash' - Ethiopian New Year
  • Sept. 27: ‘Meskel' - Finding of the True Cross
  • Ethiopian Good Friday
  • Ethiopian Easter
  • Id Al Adha
  • ‘Mawlid' - The Birth of the Prophet Mohammed
  • Id Al Fater-End of Ramedan

Holidays without specific dates have different calendar dates each year.

Annual Leave
Employers must provide 14 days’ annual leave to employees who have completed at least 26 days of service during their first year of employment. The amount of annual leave must increase by 1 day for each year of additional service.

Marriage Leave
Employers must provide newly wedded employees with 3 days’ paid leave.

Bereavement Leave
Employers must allow for 3 days’ paid leave to employees whose parent, spouse, or child passed away.

Union Leave
Employers must grant paid leave to leaders of a trade union for purposes including presenting cases in labor disputes, attending union meetings, negotiating collective agreements, seminars or training courses.

Civil Leave
Employers must grant employees with paid leave for the purpose of performing civil duties.

Sick Leave
Employers must provide paid sick leave to all employees who have completed their probationary period. The leave may not exceed 6 months in a 12-month period. Sick leave is compensated at regular wages for the 1st month of leave, 50% of regular wages for the second month of leave and is provided as unpaid leave thereafter.

Maternity Leave 
Pregnant employees are provided with 30 consecutive days’ paid leave before the due date of the childbirth and 60 consecutive days after the childbirth.


Pension and Social Security

Employers should contribute towards social security under the Private Organization Employees Pension Proclamation. The Private Organization Employees Social Security Agency (also known as the Agency), administers the following benefits: disability pension, old age pension, survivor's pension, and workers' compensation.

Coverage: Employers should withhold social security contributions from all permanent employees who are Ethiopian citizens. Permanent employees are those individuals who are under an employment contract for an indefinite period.

Rates and Thresholds: Employers are required to pay 11% of payroll toward social security, while employees are required to pay 7% of their wages toward social security.

Workers' Compensation

Employers are considered responsible, irrespective of fault, for work-related injuries sustained by their employees. This excludes cases where employees injure themselves, disobey express safety instructions or report to work in an intoxicated state. Employer liability includes extending immediate assistance to the sick or injured worker, making disability payments, covering the worker's medical benefits, paying death benefits and/or paying for funeral expenses.

How GPS can Help

With our Global PEO/Employer of Record services, companies can expand into Ethiopia and hire their employees without having to establish a branch office or subsidiary in Ethiopia.

  • Your candidate is hired via our Ethiopia PEO. If needed, we can also help you find the right talent in any country with our comprehensive global staffing services
  • Your new employee begins work quickly as we take care of employment contracts, statutory and non-statutory benefits, and running their payroll – all in full compliance with the Ethiopia laws
  • Global PEO Services experts manage all day-to-day operational issues, such as employee expenses, and severance/termination if required.
  • No contractor risks, pass on the compliance burden to Global PEO Services.

 Spin Off/M&A Support

  • Ensure continuity of payroll, benefits and HR support when acquiring or spinning off a business with employees overseas.

24/7 Support in 150+ Countries

  • Empower your teams with 24×7 support and a single point-of-contact model in which experienced client services directors are in continuous communication with information and advice.
  • We are backed by a mix of 300+ multidisciplinary experts from HR, Payroll, Finance, Tax, and Legal domains who are ready to respond to the expected and unexpected needs of your business on the shortest notice.

Easy Visibility into Your Employee Time & Attendance and Benefits Data

With our Global PEO, you get access to our proprietary Mihi SaaS solution for time and attendance, vacation, leave management and benefits enrollment and management. Mihi enables clients to have easy access to employee data in real time. It is designed specifically for companies with a global workforce, especially when working in multiple countries with low headcount.

Ready for Growth When You Are

When ready, we can seamlessly transition you from the PEO/EOR model to your own legal entity and provide ongoing international HR, finance, legal, compliance and staffing support. Learn more about our end-to-end international expansion services here.

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