Ethiopia Employment Law: The Essential Guide for Foreign Businesses

Ethiopia is set to be one of the fastest-growing countries in Africa. With an economic growth rate ranging between 7.1% and 9.2%, the country presents abundant opportunities for business and expansion.
But to reap these benefits, businesses must first grasp the foundations of how the country operates, from the culture, to the way business is done, and even right down to the law itself.
In this article, our Ethiopia experts expand on some key labour laws every business should know about before expanding into the country.

Ethiopia's key industries

Agriculture

Agriculture is the country's most important resource and source of revenue, employing a majority of the population (at least 75%) and accounting for a whopping 36% of GDP in 2023. Ethiopia is the third biggest producer of wheat in Africa, the fifth largest producer of tropical fruits in Africa, and the sixth largest livestock population globally, demonstrating the country’s present capabilities and potential for growth.

Manufacturing

The manufacturing sector receives over 50% of FDI flow in Ethiopia. Investors can explore opportunities in various sectors including textile and apparel, leather and leather products, pharmaceuticals, agro-processing, packaging, and more.
The country has also signed several trade agreements with key international markets, including Everything But Arms, the African Continental Free Trade Area (AfCFTA), and the Common Market of Eastern and Southern Africa. These benefits are accessible to Ethiopia-based investors.

Mining

Ethiopia has great mineral potential. Currently, it has known reserves of more than 30 metallic, industrial, construction minerals, in addition to gold, rare gemstones, oil and gas. Ethiopia’s 10-Year Development Plan also supports expansion into the industry. It aims to transform the mining sector into a primary catalyst for industrialisation, job creation, and export earnings.
Projections target a massive expansion to increase the sector's contribution to GDP to 14% and capture 37% of the nation's export earnings by 2030.

Ethiopia's Labour Law

Labour law in Ethiopia is mainly governed by the Labour Proclamation No. 1156/2019, dating back to September 2019.

Employment Contracts in Ethiopia

In Ethiopia, a contract of employment is formed when a person agrees to work for an employer in exchange for a wage. Contracts must be clear, written in plain terms, and specify the job type, location, pay, and duration. Contracts cannot require unlawful or immoral acts and cannot offer worse conditions than those set by law.
If a contract is not written, the employer must provide a signed written summary within 15 days. If the worker does not object within 15 days of receiving it, it is treated as the official contract.

Contract Types

All contracts are considered indefinite unless they qualify as fixed-term. Fixed-term contracts are permitted for specific circumstances such as seasonal work, covering absent employees, urgent repairs, or filling temporary vacancies. Some temporary placements cannot exceed 45 working days and can only be used once.

Probation

Probation cannot exceed 60 working days and must be agreed in writing. During probation, either party can terminate without notice. If the worker continues after probation ends, the contract is considered to have been in effect from the start.

Employer Obligations

Employers must provide work, tools, and materials; pay wages on time; protect worker dignity and safety; cover required medical examinations; maintain accurate employment records; and issue a free work certificate upon request or termination.
Here is a simplified summary of the key points:

Working Hours & Overtime in Ethiopia

Working Hours

Normal hours must not exceed 8 hours per day or 48 hours per week. Where the nature of work requires, hours can be averaged over a longer period, provided the average does not exceed these limits. Reduced hours in certain sectors cannot result in reduced wages.
Overtime is only permitted in cases of accident, force majeure, urgent work, or covering absent workers on continuous operations. It must not exceed 4 hours per day or 12 hours per week. Overtime rates are as follows: daytime overtime (6am to 10pm) at 1.5 times the normal rate; night overtime (10pm to 6am) at 1.75 times; weekly rest day at 2 times; and public holidays at 2.5 times.

Young Workers

Young workers are those aged 15 to 17. Anyone under 15 cannot be employed. Young workers cannot be assigned to hazardous work, night shifts, overtime, rest day work, or public holiday work. Their normal working hours are capped at 7 hours per day.

Minimum Wage in Ethiopia

Minimum wage

Minimum wages are set by a Wage Board comprising representatives from government, employers, trade unions, and other stakeholders. The board periodically revises the minimum wage based on studies of the country's economic development, labour market conditions, and other relevant factors.

Wage Payments

Wages must be paid in cash.
If both parties agree, up to 30% may be paid in kind, valued at local market rates. Payment must be made on working days at the place of work, or on the preceding working day if payday falls on a rest day or public holiday. Wages must be paid directly to the worker or to someone they have authorised.

Deductions

Employers cannot deduct from, withhold, or offset wages without legal authority, a court order, or the worker's written consent. Even with consent, deductions cannot exceed one third of the worker's monthly wage in any single instance.

Payment Records

Employers must keep a payment register showing each worker's gross pay, calculation method, deductions, and net pay, along with the worker's signature. Workers can request to view and have explained any entry in the register. Accepting a payment without objection does not mean a worker has given up any wages still owed to them.

Leave & Holidays in Ethiopia

Weekly Rest

Every worker is entitled to at least 24 uninterrupted hours of rest per week, ordinarily on Sunday. Where the nature of the work prevents this, the employer must grant 4 rest days per month. If a worker is required to work on their rest day, they are entitled to compensatory rest or, if their contract ends before this is taken, a cash equivalent.

Public Holidays

Public holidays are paid.
Monthly-paid workers incur no wage reduction for not working on a public holiday. Workers required to work on a public holiday are paid at twice their normal hourly rate.

Annual Leave

Workers are entitled to 16 working days of paid annual leave after the first year of service, with one additional day for every two subsequent years. Leave must be granted uninterrupted unless the worker requests otherwise. It may be postponed by agreement or for operational reasons but cannot be deferred by more than two years. Untaken leave must be paid out on termination. A worker cannot waive their right to annual leave, and payment in lieu is prohibited except on termination.

Special Leave

Three days of paid leave are granted for marriage or bereavement of a close family member. Three consecutive days of paid paternity leave apply on the birth of a child. Up to five days of unpaid leave may be granted for exceptional personal circumstances, available twice per budget year. Trade union leaders are entitled to paid leave for union duties.

Sick Leave

Sick leave after probation is capped at six months within any 12-month period. The first month is paid at full salary, the next two months at 50%, and the final three months without pay. A valid medical certificate from a recognised facility is required.

Termination & Severance in Ethiopia

Grounds for Termination

A contract can only be terminated by the employer, the worker, or by mutual agreement, and must follow the law. It ends automatically on completion of specified work, death, retirement, permanent business closure, or permanent incapacity of the worker.
Employers cannot terminate a contract on grounds of union membership, union activity, raising a grievance, or a worker's nationality, sex, religion, political views, marital status, race, colour, family responsibilities, pregnancy, disability, or social status.

Termination Without Notice (Employer)

An employer may dismiss without notice for serious misconduct including: persistent lateness or absence after written warnings, fraud or misappropriation, consistently poor performance, serious workplace misconduct, criminal conviction that affects the role, deliberate or grossly negligent damage to property, or absence due to a court sentence exceeding 30 days. The right to dismiss lapses 30 working days after the employer becomes aware of the grounds.

Termination With Notice (Employer)

Notice-based termination is permitted where a worker loses the capacity to perform their role, is permanently unable to work due to health or disability, refuses to relocate when the business moves, or where their position is eliminated and redeployment is not possible. Redundancy due to reduced demand, business closure, or introduction of new technology also qualifies.

Notice Periods

Up to one year of service: one month. One to nine years: two months. Over nine years: three months. Redundancy: two months.

Termination by the Worker

A worker who has completed probation may resign with 30 days' notice. Without notice, a worker may leave immediately if the employer commits a criminal act, sexual harassment, ignores a serious safety threat, or repeatedly fails to meet basic legal obligations. This right expires 15 working days after the triggering event.

Payments on Termination

All wages and related payments must be settled within seven working days of termination. Delays can result in a penalty of up to three months' wages.

Severance Pay

Severance is calculated at 30 times the average daily wage for the first year of service, with one third added for each additional year, up to a maximum of 12 months' total wages. Additional payments apply in cases of redundancy or business closure. If a worker resigns due to sexual harassment, maltreatment, or a safety failure by the employer, severance still applies.

Unlawful Termination

If termination is found to be unlawful, the worker must be reinstated or compensated. Compensation for unlawful dismissal on an indefinite contract is 180 times the average daily wage, plus wages in lieu of notice. For fixed-term contracts, compensation covers wages for the remaining contract period, up to the same ceiling.

Employer of Record (EOR) in Ethiopia: how it helps

An employer of record (EOR) in Ethiopia provides support in many important ways: expansion into the country without entity registration, employee onboarding, legally compliant procedures and modes of operation, payroll, and employee benefits administration among many others.
Africa HR Solutions has been providing recognised and trusted EOR services in Africa for over 15 years. To find out how we can best help you during your expansion to Ethiopia, speak with one of our EOR and payroll experts today.

Disclaimer: The information contained in this article is for general information purposes only. While we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to this article or the information, products, services, or related graphics contained therein for any purpose.