Ethiopian payroll in 2026: income tax, pension and overtime

Updated October 2026

Ethiopian payroll changed in 2025, when Income Tax (Amendment) Proclamation No. 1395/2025 raised the tax-free amount and reset the brackets. This guide sets out the monthly brackets, pension, overtime rates and a worked example, with the law each figure comes from.

Income tax brackets (monthly salary)

0 to 2,000 birr: 0%
2,001 to 4,000 birr: 15%, minus 300 birr
4,001 to 7,000 birr: 20%, minus 500 birr
7,001 to 10,000 birr: 25%, minus 850 birr
10,001 to 14,000 birr: 30%, minus 1,350 birr
Above 14,000 birr: 35%, minus 2,050 birr

The tax is the taxable salary times the rate of its bracket, minus that bracket's deduction.

Ethiopian Salary & Income Tax Calculator 2026 (Net Pay)

Pension

Employee: 7% of the basic salary, deducted from pay
Employer: 11%, paid on top of the salary
Both are paid to the pension fund every month (Proclamation No. 1268/2022)

Worked example: basic salary 10,000 birr

Employee pension 7%: 700 birr
Taxable salary with pension deducted first: 9,300 birr
Income tax: 9,300 × 25% − 850 = 1,475 birr
Net pay: 10,000 − 700 − 1,475 = 7,825 birr
Employer pension 11%: 1,100 birr, so the salary costs the employer 11,100 birr

Some advisers tax the full salary before pension: the tax is then 1,650 birr and net pay 7,650 birr. Agree the method with your auditor.

Overtime

6:00 to 22:00 on working days: 1.5 times the hourly wage
22:00 to 6:00: 1.75 times
Weekly rest day: 2 times
Public holidays: 2.5 times

Rates of Labour Proclamation No. 1156/2019, Article 68.

Every month

Record attendance, leave and overtime
Work out gross pay, pension and income tax
Pay salaries and hand out payslips
Pay the income tax to the tax office and the pension to the fund, with the monthly declarations

Payroll software that does this

ELIF's HR and payroll software applies these rules, prints payslips and produces the monthly declarations, in Amharic or English.

HR & Payroll Software in Ethiopia: Tax, Pension, Attendance

Figures from Proclamation No. 1395/2025 (income tax), No. 1268/2022 (pension) and No. 1156/2019 (labour). This guide is not tax advice; confirm special cases with the Ministry of Revenue or your adviser.