Over the years, Afghanistan has emerged as a great location to establish a business. It has a strategic position connecting Central Asia and South Asia. It also provides accessibility to the European market and its large consumer base. The country also offers low competition, modern infrastructure, and a favorable tax regime, making it suitable for foreign investment.
Companies planning to extend their business and hire in Afghanistan should be fully acquainted with local rules and regulations defined by the Afghanistan government. Setting up a payroll policy to streamline salary disbursal is crucial. For this, companies need to comprehend the Afghanistan Labor Code. The following guide discusses all the prominent aspects of payroll in Afghanistan.
How Is Payroll Calculated in Afghanistan?
Payroll in Afghanistan is calculated using employee attendance and performance data. Employers should also consider the working hours, social security contributions, and other deductions while calculating net salary. Moreover, you should periodically maintain record-keeping to calculate payroll accurately.
Payroll in Afghanistan (Net Salary) = Gross Salary – Gross Deductions
Important Elements of Salary Structure in Afghanistan
Here are the details of the elements constituting the salary structure in Afghanistan:
- Cost to Company (CTC) – It represents an annual amount payable by a company when hiring an employee. It covers additional benefits, employees’ gross and net remunerations, payroll deductions in Afghanistan, etc.
- Gross salary – It denotes all factors using which an employer creates an employee compensation package. It covers various factors: social security contributions, health insurance, total income before considering payroll deductions in Afghanistan, etc.
- Net salary – An employee’s net salary specifies the amount credited to an employee’s bank account after calculating all deductions from their gross salary.
- Basic salary – It denotes the amount employees get after the employer has calculated all additions and payroll deductions in Afghanistan from the annual package. Its value depends on the employer’s job designation and the sector’s activities.
- Allowances – The payroll in Afghanistan benefits employees with different allowances like medical allowance, food allowance, transportation means, old-age retirement pensions, maternity allowance, etc., irrespective of the employer and the industry. It represents all the occupational expenses payable by employers to their employees. Providing allowances ensures a decent work-life balance for employees.
How to Set Up a Payroll in Afghanistan
Here is a step-by-step guide on how to set up a payroll in Afghanistan:
- Step 1: Register a business in Afghanistan with the Afghanistan Central Business Registry (ACBR) within the Ministry of Commerce & Industry (MoCI).
- Step 2: Check for your business name’s validity through WIPO.
- Step 3: Register the company name, labor and tax registration, and national tax number.
- Step 4: Obtain a state or local business ID (if required).
- Step 5: Specify details about each employee, including their full name, date of birth, address, employment start date, compensation information, and tax filing number. With these details, you can accurately calculate each employee’s pay amounts by conforming to the payroll policies and procedures in Afghanistan.
- Step 6: Sort your employees among the full-time, part-time, and independent contractors.
- Step 7: Calculate the appropriate income tax from employees’ wages and file.
- Step 8: Get a Tax Identification Number (TIN) from the Afghanistan Revenue Department (ARD).
- Step 9: Register for VAT.
- Step 10: Open an Afghanistan bank account with a registered local bank to distribute payroll-related payments.
- Step 11: Calculate all employees’ payroll sum and approve your company’s payroll method and cycle. You can choose one from the various payroll methods like traditional bookkeeping, appointing an accountant, payroll software, or outsourcing to a trustworthy payroll provider.
- Step 12: Pay all employees through a local entity (that lets you onboard and pay employees compliantly) or use services from an Employer of Record (EOR) platform in Afghanistan. You can choose from payment methods like cheques, direct bank transfers, direct debits, prepaid cards, and credit transfer orders.
A Step-by-step Process of Payroll Processing in Afghanistan
Here are the details of the three stages of the processing of payroll in Afghanistan.
This stage focuses on adhering to Afghanistan’s legal requirements to process payments and payroll. The mandatory components of this stage are here:
- Register your business as a legal entity through the Afghanistan Central Business Registry (ACBR) and get a unique business number.
- Next, prepare a compliant attendance policy for your payroll policies and procedures in Afghanistan. It assists you in calculating standard and special attendance and permissions. Hence, it streamlines payroll calculation.
- Decide on the various salary components, including allowances, deductions, leave types, supplementary benefits, and payroll tax in Afghanistan.
- Set up a leave policy that augments employees’ performance and facilitates promotion. It can include maternal, paternal, childcare, sick leave, etc.
- Now, decide on a fixed payment schedule to eliminate payment delays.
Payroll calculation stage
- This stage involves uploading the collected data from the earlier stage into the payroll system.
- You should supervise employees’ working hours and calculate taxes and deductions.
- Calculate all employees’ net salaries and print payslips to ensure an error-free Afghanistan payroll process.
- Calculate and update payroll records automatically or manually. Timely process payment processing helps you meet the payroll policies and procedures in Afghanistan.
The components involved in this stage of the Afghanistan payroll compliance checklist help you complete the Afghanistan payroll process.
- During the processing of payroll in Afghanistan, the payroll manager must carefully withhold all contributions and conform to the statutory compliances. Subsequently, the employer should submit these deductions to the respective authorities.
- Payroll accounting is the next step, wherein employers have to track payments and payroll-based expenditures.
- You must prepare all statutory reporting and compliance forms to submit to local regulatory authorities. The payroll process calculates all contributions, compensation, deductions, statutory taxes, and other data inquired in compliance and reporting forms. Lastly, it transfers payments to employees.
In Afghanistan, there is no mandatory contribution towards payroll tax. However, employees have to contribute to the income tax.
Annual tax base (AFN)
0 – 5000
5000 – 12500
12500 – 100,000
10% + AFN 150
More than 100,000
20% + AFN 8900
The country follows alternate payroll schedules, i.e., weekly, semi-monthly, and monthly.
Afghanistan Payroll Options for Companies
The Afghanistan payroll guide entails various options from which employers can choose an appropriate one per their budget and requirements. Here are the details of different HR payrolls in Afghanistan.
- Internal payroll: Larger companies with long-term agreements with Afghanistan can manage internal payroll. This option allows the company to engage a proficient workforce and establish an internal payroll.
- Remote payroll: Despite being a cost-effective option for the payroll in Afghanistan, the remote payroll company should know different labor laws in Afghanistan.
- Afghanistan payroll processing company: It focuses on using services from a trustworthy payroll processing company competent at creating payroll and payroll rules and regulations in Afghanistan. Exhaustively researching the market is essential if you want to use this option of the Afghanistan payroll guide.
- Afghanistan payroll outsourcing: It assures compliance with the Afghanistan payroll requirements and oversees all components of the Afghanistan payroll process. You can use services from a worldwide PEO service provider like Multiplier to fulfill Afghanistan payroll requirements and efficiently process payroll in Afghanistan.
Entitlement and Termination Terms
Entitlement terms in Afghanistan
The employers are entitled to provide the following benefits to the employees per payroll rules and regulations in Afghanistan.
Paid time off
- Employees in Afghanistan are entitled to up to 10 days of paid annual leave.
- At a time, employees can only take three days’ leave or provide a written application to the employer to take the leave.
- Valid reasons to take leaves are the child’s birth, marriage purpose, and death of family members.
- Employees who have completed at least six months of employment are eligible for 20 days of paid sick leave per year.
- The employee must send a written notice if they want to use three sick days or fewer.
- To take sick leave of more than three days, the employee should provide a medical certificate.
- If an employee wants to use more than 20 days of sick leave, they can use other leave types.
- Newly joined employees who begin work in the year’s first half can use all 20 days of sick leave.
- Employees who join the company in the year’s second half get ten days of sick leave.
- Female employees can get 90 days of paid maternity leave.
- The maternity leave begins 30 days before delivery and lasts 60 days after the child’s birth.
- In the case of multiple births or abnormal delivery, female employees are entitled to an additional 15 days of maternity leave (upon presenting the appropriate certificates from the hospital).
- The employees in Afghanistan obtain 14 public holidays per year.
Mujahideen Victory Day
Day of Arafa
Eid Al Adha
Eid Al Adha Holiday
Eid Al Adha Holiday
Victory of the Islamic Emirate
Termination terms in Afghanistan
- In Afghanistan, employment termination may occur in the below situations:
- Completion of a fixed-term contract
- Mutual agreement
- Disability influencing the work performance
- Decrease in staff by employer
- Breach of disciplinary rules
- Denial to work after reassignment
- Unsatisfactory probation performance
- If an employee has unused leave during their contract’s termination, they will get their wages for those leaves.
- Prior notice for terminating the employment contract is not required in cases like employment contract breach and employee’s physical disablement.
- Employers can terminate an employment contract after 20 days of the employee’s successive absences that are not covered by any leave.
- The employer must offer one month’s notice for the termination of fixed-term contracts and two months’ notice for open-ended contracts.
- The severance pay for an employee relates to the duration of employment as mentioned below:
Duration of employment
Up to 1 year
Afghanistan Payroll Processing Company
Foreign stakeholders should thoroughly understand local tax, employment, and compensation needs and reports to ensure the payroll in Afghanistan is precise, up-to-date, and compliant. They should also be proficient at complying with Afghanistan Labor and local employment laws before creating payroll in Afghanistan. You can use services from a worldwide PEO company like Multiplier to get the optimum benefits of payroll rules and regulations in Afghanistan.
How Multiplier Can Help with Global Payroll
Multiplier is prestigious for providing EOR solutions to global firms, enabling them to test and run 150+ nations. Our proficient staff oversees the Afghanistan payroll process, employee recruitment, employer and employee contributions, payroll tax in Afghanistan, and other associated tasks. We offer streamlined payroll services for international firms with payments disbursed in local currency. Moreover, our SaaS-based PEO services guarantee that payroll processing completes efficiently in the country.