As a business owner, you know payroll practices are critical to running your company. While you need to compensate your employees, you also need to abide by tax regulations and severance requirements to remain compliant. With payroll outsourcing from Globalization Partners, you can keep up with tax laws and mitigate risk.
Eritrea has a Pay As You Earn (PAYE) tax system for individual income tax, making employers responsible for deducting income tax from employee paychecks. The tiered system requires a set percentage for different ranges of monthly income. The tax brackets are as follows:
- 2 percent for up to 200 Eritrean nakfa
- 7 percent for ERN 201 to 500
- 12 percent for ERN 501 to 1,200
- 17 percent for ERN 1,200 to 2,000
- 24 percent for ERN 2,001 to 3,500
- 29 percent for ERN 3,501 to 5,500
- 34 percent for ERN 5,501 to 8,000
- 38 percent for all amounts over ERN 8,000
Eritrea Payroll Options
While you have an established payroll operation at home, you’ll need to determine the best management method for handling paychecks abroad. Your payroll method will rely on your company’s resources and the level of risk you’re willing to adopt. Management options include:
- Remote strategy: If you have limited company resources, you can count on your current payroll team at home to manage payroll for your international business. This arrangement requires extensive organization to keep taxation laws separate and sidestep noncompliance.
- Payroll processing company: A team of payroll professionals in Eritrea will offer tax expertise that your team may not have. However, if a processing company makes a mistake in your payroll, your company will be liable for the issue.
- Internal division: Creating an internal payroll department as a part of your subsidiary can give you complete process control, but this option is not always viable for companies in the early stages of expansion.
- Employer of Record: As an EOR, Globalization Partners will hire your workers through our subsidiary and add them to our payroll. The taxation responsibilities and the associated liabilities will fall on our shoulders.
How to Set up Eritrea Payroll
Your payroll management methods will determine the steps you need to take for setup. If you want an internal department, you’ll need to incorporate a company in the country first. This process requires business licenses, government applications, and initial capital investment.
Regardless of your payroll arrangement, you’ll need tax identification numbers (TINs) from your employees to file their PAYE income tax. Keeping documentation of this information in a spreadsheet will make it easy to access when you need to make deductions from paychecks.
Termination and Entitlement
While tax laws are an immediate practice you need to follow in your payroll management, you also need to consider termination and severance requirements. The country’s labor laws require severance pay for every form of termination on behalf of the employer, regardless of the reasoning.
If an employee has served for less than a year, they must receive two weeks’ wages. The employer should use the most current wage amount at the time of termination for this calculation.
Employees who serve longer than a year receive wages based on the number of years with an employer. Severance payments are as follows:
- Two weeks’ wages for every year for the first five years
- Three weeks’ wages for each year after five years and up to 10 years
- Four weeks’ wages for each year after the 10th year
Work With Globalization Partners for Payroll Outsourcing
Globalization Partners has a team of legal experts that will help you manage complex payroll laws in your country of expansion. Get in touch with our team to learn more about our services.