Legal and compliance checklist for Employer of Record (EOR) services in Azerbaijan
- Gegidze • გეგიძე | Marketing
- Jun 10
- 16 min read
Updated: Jul 4
Table of contents:
Why compliance in Azerbaijan isn’t optional
The email lands in your inbox at 6:07 a.m. Baku time:
Subject:
REQUEST FOR EXPLANATION OF UNDECLARED PAYROLL TAXES
Yesterday, you were celebrating a new React hire;
Today, the Azerbaijani Revenue Service is asking why that same engineer shows no pension contributions, no social-fund deductions, and, small detail, no Azerbaijani-language contract on file.
Welcome to the moment every fast-scaling founder discovers that “We’ll tidy up the paperwork later” is not a strategy, it’s an invoice.
The real question at stake:
How do you tap Azerbaijan’s underrated tech talent poolwithout inviting fines, audits, or IP disputes that can vaporize a funding round?
That question keeps CTOs, People-Ops leads, and CFOs awake at 3 a.m., and it’s exactly why this checklist exists.
What you’ll get in the next few minutes:
The non-negotiable contract clauses a local labor judge will actually enforce.
The payroll timeline that, if you miss it, turns into a penalty meter.
Mandatory benefits vs. nice-to-have perks so you stay compliant and competitive.
A straight-shooting breakdown of EOR vs PEO vs DIY (no vendor fluff, just risk math).
A twelve-point compliance template you can copy into your onboarding playbook before lunch.
Skip any step, and you may end up debating labor code sections in a language you don’t speak. Nail them, and you’ll onboard talent in days, without losing a single byte of sleep (or IP).
If you are ready to turn “hope we’re covered” into “we’re bullet-proof”? Keep reading.
Top legal mistakes foreign employers still make in Azerbaijan
Misclassification of workers
Many foreign companies try to engage workers as independent contractors to avoid payroll taxes and social security obligations. However, Azerbaijani labor law is strict about the criteria distinguishing contractors from employees.
Issue: If the worker is effectively controlled in terms of work schedule, tools, and integration into the company, local authorities reclassify them as employees retroactively.
Consequences: Employers face back payment of social contributions, penalties up to 20% of the gross salary per month, fines, and potential legal disputes.
Noncompliant employment contracts
Contracts drafted only in English, lacking mandatory clauses required by Azerbaijani labor law, or missing local language versions are common mistakes.
Issue: Azerbaijani courts require contracts to be in Azerbaijani (or a mutually agreed language), and missing statutory clauses (termination, notice periods, benefits) can void protections.
Consequences: IP rights and confidentiality clauses may not hold, exposing companies to theft of proprietary info or product.
Incorrect payroll currency and tax withholding
Paying foreign workers in USD/EUR without using Azerbaijani manat payroll channels leads to regulatory problems.
Issue: Currency law mandates salary payments in AZN with proper tax and social contributions withheld and remitted to local authorities.
Consequences: Noncompliance triggers audits, penalties, and tax arrears with interest.
Failure to register employees with social funds
Employers must register employees with social insurance and pension funds and remit monthly contributions.
Issue: Some companies overlook or delay registrations, or miscalculate contributions.
Consequences: Retroactive payments, fines, and legal exposure.
Not observing mandatory leave & public holidays
Azerbaijan requires at least 21 days of paid annual leave plus national public holidays.
Issue: Ignoring or under-providing leaves can cause labor disputes and penalties.
Impact: Damaged employee relations and legal claims for wage arrears.
Challenge: Balancing local labor law with global HR policies.
Overlooking work permit and visa compliance
For expatriates hired in Azerbaijan, failure to obtain the proper immigration visas and work permits results in fines and possible deportation.
Issue: Many foreign companies underestimate the complexity and timing of visa procedures.
Impact: Delayed project starts, fines, legal troubles.
What legal teams flag: Immigration compliance as a critical risk.
Ignoring proper termination procedures
Termination without proper notice, cause documentation, or severance payments leads to costly labor disputes.
Issue: Azerbaijani law mandates a minimum 30-day notice (except probation), and clear grounds for dismissal.
Consequence: Potential reinstatement orders or compensation claims.
Inadequate data protection & confidentiality clauses
Azerbaijan has data privacy laws that require explicit consent and proper handling of employee data. Lack of clear confidentiality and IP clauses in contracts is risky.
Issue: Failure to comply with data laws or protect company IP risks legal action and information leakage.
Concern: Intellectual property theft, non-compliance fines.
EOR vs PEO vs DIY: Which model actually protects you?
If you're expanding into Azerbaijan, choosing the wrong employment model can cost more than money; it can drag your company into regulatory hell. Let’s unpack the three paths, where they shine, and where they leave you exposed:
Employer of Record (EOR) in Azerbaijan
What it is:
An EOR is a third party that hires employees on your behalf. They become the legal employer in Azerbaijan while you manage the team’s day-to-day work.
Why companies use it:
No local entity needed – skip the 6-month incorporation slog.
Full compliance coverage – taxes, labor contracts, social fund filings? Done.
Speed to hire – you can legally start onboarding talent within a week.
IP protection baked in – contracts are localized and enforceable.
Single vendor, clear invoice – no juggling multiple local providers.
Where it may fall short:
Less control over benefits design – limited to what the EOR platform supports.
Recurring service fees – you pay per employee, usually monthly.
Best for:
Startups and growth-stage companies are testing the market or scaling without building infrastructure.
Professional Employer Organization (PEO) in Azerbaijan
What it is:
A PEO co-employs your team. You and the PEO share legal and administrative responsibilities, but you must already have a legal entity in Azerbaijan.
Why companies consider it:
Shared HR load – they help with benefits, payroll, and compliance.
Cultural/operational local help – often includes local HR support.
Custom benefits are possible – more flexibility if you're legally set up.
Where it gets tricky:
Entity required – you must open a local company before engaging a PEO.
You hold the legal liability – if something goes wrong, your company takes the hit.
Slower to start – setting up the entity takes time and money.
Best for:
Mid-sized companies with legal roots in Azerbaijan that want to outsource HR operations, but not legal risk.
DIY (Set up your own entity) in Azerbaijan
What it is:
You go full local, registering a company, handling payroll, tax filings, legal contracts, and compliance in-house.
Why some choose it:
Total control – you define all terms, benefits, policies, and culture.
Cheaper at scale – no per-employee EOR fees after setup.
Enterprise credibility – seen as a long-term commitment to the region.
The legal landmines:
Tax filings – one late form? Expect penalties.
Employment contracts – must align with Azerbaijan’s Labor Code (no shortcuts).
IP and confidentiality enforcement – you’ll need watertight local legal counsel.
Visa and work permit compliance – gets bureaucratic, fast.
Best for:
Enterprises with legal teams, a long-term vision in Azerbaijan, and a high volume of local hiring.
Employer of record vs PEO in Azerbaijan
Here’s how they stack up:
Feature | EOR (Employer of Record) | PEO (Professional Employer Org) | DIY (Own Entity) |
Entity Requirement | None | Yes | Yes |
Legal Employer | EOR | You | You |
Payroll & Tax Compliance | Fully handled | Shared responsibility | All on you |
IP Protection | Included | Often excluded | You handle |
Onboarding Speed | Fast (days) | Medium (weeks) | Slow (months) |
Cost Efficiency (Short-Term) | High | Medium | Low |
Long-Term Scalability | Medium | Medium | High |
Legal Risk Exposure | Low | Medium | High |
Ideal For | Fast, safe hiring without local setup | Companies with legal entity + local HR | Enterprises with deep pockets and legal know-how |
If you're optimizing for speed, simplicity, and safety, go EOR.
If you're already on the ground, a PEO can streamline HR tasks, but you still own the legal exposure.
If you're scaling fast and ready to invest, DIY can work, but only with serious legal backing.
The non-negotiables of Azerbaijani labor law
Remote hiring in Azerbaijan isn’t a paperwork formality, it’s a legal contract with the state. One missed form, one misclassified severance, and you’re not just non-compliant, you’re liable.
These are the labor code absolutes you need to know before signing your first local offer letter.
Contracts: No hire is legal without one
Every employment agreement must be in writing and registered through the government’s electronic labor contract portal.
Contracts must be in Azerbaijani (or bilingual), covering job scope, compensation, benefits, and termination terms.
Probation periods are capped at three months, with a three-day exit clause for either side.
Working hours, overtime, and the six-day week loophole
Standard: 40 hours/week, 8 hours/day.
In some sectors (retail, agriculture), you can run a 6-day schedule—but daily hours must be adjusted to keep weekly totals compliant (max 40 hours).
Overtime is limited to 2 days in a row or 4 total hours. It must be paid at 200% for hourly staff or no less than standard pay for output-based roles.
Pay: Currency, timing, and social contributions
Salaries must be paid in Azerbaijani manat (AZN) via official banking systems.
The minimum wage is 300 AZN/month.
Employers contribute 22% of gross wages to social insurance; employees contribute 3%.
Income tax is withheld monthly at progressive rates (14%–25%).
Leave: Annual, parental, sick
Paid leave: minimum 21 calendar days annually, increasing with tenure (up to 6 extra days after 15 years).
Maternity leave: 126 days (70 before birth, 56 after), paid at 100% by the State Social Protection Fund. +14 days if medically required.
Paternity leave: 14 unpaid days.
Sick leave: First 14 days paid by employer; additional days covered by state fund (with medical certificate).
Public Holidays: 24 Days, No Workarounds
Azerbaijan has 24 official public holidays. These are non-working days and must be fully honored or compensated.
Termination: Strict, Structured, and Monitored
Notice periods vary by service length: from 6 weeks (0–2 years) up to 5 months (25+ years).
All terminations must be documented and reported to the Ministry of Labour.
Final salary must be paid before the employee’s last working day.
If downsizing, employees get 1 paid day off per week to job-hunt during notice.
Severance pay: By the book or else
Based on tenure:
1 year or less: 1 month
1–5 years: 1.4x monthly salary
5–10 years: 1.7x
10+ years: 2x
Redundancy terminations = 3 months minimum.
Additional 2-month compensation required if employment ends due to disability, military service, or unilateral contract changes.
Data compliance, workplace safety, and final details
Personal data must be stored and processed per Azerbaijani privacy laws with employee consent.
Employers are liable for ensuring safe working conditions, especially in high-risk industries.
All records, contracts, pay slips, and leave balances must be stored locally and be audit-ready.
Payroll & tax compliance checklist in Azerbaijan:
For international companies hiring in Azerbaijan, “close enough” doesn’t apply.
Payroll here is governed by strict legal requirements; every missed form, late payment, or misclassified hire adds up to penalties, legal exposure, and in worst-case scenarios, government intervention.
Below is everything you must do to stay compliant from Day 1.
Every employee must have a legally registered contract
Language: Azerbaijani or bilingual (Azerbaijani + English)
Portal: All contracts must be registered through the Ministry of Labour’s e-contract system
Content Requirements: Must include job title, responsibilities, salary (in AZN), working hours, leave entitlements, benefits, termination terms, and probation period
Probation Limit: Maximum of 3 months with a 3-day termination notice
If your contract isn’t registered and compliant, your employee isn’t legally hired, which means any tax or labor benefits they receive can be considered illegal, and your company faces audits and fines.
Salaries must be paid in Azerbaijani Manat (AZN)
No exceptions. All salaries must be paid in local currency via licensed Azerbaijani banks
Timeliness: Salaries must be paid monthly at minimum, twice a month is common in local practice
Non-compliance triggers: Tax violations, audit flags, and liability for exchange miscalculations
Income tax withholding: Mandatory and monthly
Flat tax system for most employees
14% on gross monthly income up to 2,500 AZN
25% on income exceeding 2,500 AZN/month
Must be withheld at payroll and remitted monthly to the tax authorities
Penalties apply for delays, underreporting, or misfiling
Social fund contributions: Employer and employee obligations
Employer Contributions (Monthly):
22% of gross salary to the State Social Protection Fund
Employee Contributions:
3% of gross salary (withheld by employer and remitted monthly)
These contributions fund pensions, disability insurance, and social assistance programs. Failure to remit them = back payments + fines + interest.
Payslips: Legally required, language-specific
Must be issued in Azerbaijani
Must detail:
Gross income
All deductions (income tax, social fund, etc.)
Net pay
Must be retained by employer for at least 5 years for audit purposes
No official payslip = No legal proof = You're exposed during an inspection.
Paid leave compliance
Annual Paid Leave: 21 calendar days minimum per year
Increases up to 30+ days with tenure and seniority
Leave Approval: Must be documented and approved in writing
Leave Pay: Must be paid in advance, before the leave starts
Public Holidays: 24 per year; employees must not work unless paid extra or offered time off in lieu
Violation of leave entitlements opens your company to labor lawsuits and potential employee reinstatement orders.
Sick leave rules
First 14 days: Paid fully by employer
Beyond 14 days: Covered by the state social insurance fund if the employee submits medical certification
Employers must retain documentation and prove that payroll covered the right period
Maternity & paternity compliance
Maternity Leave:
126 days (70 before, 56 after birth), 100% state-funded
Extended to 140 days in case of complications
Paternity Leave:
14 days unpaid
Failure to process leave or benefits correctly leads to breach-of-contract claims and reputational damage.
Termination procedures: Highly regulated
Notice Periods:
Vary from 6 weeks to 5 months depending on tenure
Must be documented and acknowledged
Cause for Dismissal:
Must be clearly stated and supported by performance reports, warnings, or legal grounds
Final Payment:
All salaries, leave balances, and severance must be paid before the final working day
Every termination must be reported to the Ministry of Labour.
Severance pay: By tenure
Up to 1 year: 1x monthly salary
1–5 years: 1.4x
5–10 years: 1.7x
10+ years: 2x
Redundancy: Mandatory 3 months’ salary
Disability, military call-up, or forced contract changes: Add another 2 months’ pay
This isn’t negotiable. If you miscalculate, the labor court recalculates for you—and adds penalties.
Payroll & tax records: Audit-ready at all times
Keep:
Contracts
Payslips
Leave logs
Tax filings
Social contributions receipts
Store locally or in accordance with Azerbaijani data privacy laws
Be prepared for random inspections from tax or labor authorities
Equipment, workspace, and remote-work liability
Hiring remote employees in Azerbaijan through an Employer of Record might save you from opening a legal entity, but it doesn’t mean you’re off the hook for everything else. The minute your remote team starts working, so do the questions:
Who owns the laptop?
Who pays for the co-working space?
What happens if someone spills tea on their work-issued MacBook in Ganja?
Or worse, what if there’s a data breach because someone worked from a café with public Wi-Fi?
This section lays out exactly what you need to know about equipment, workspace, and liability when managing remote employees in Azerbaijan through an EOR.
Who provides the equipment?
You have two options when hiring through an EOR in Azerbaijan:
Buy and ship hardware to the employee directly
You select the equipment (laptop, monitor, accessories), ship it to Azerbaijan, and log it as a company asset. You’ll need:
A hardware usage agreement (preferably bilingual)
An asset return clause in the employment contract
Clear customs handling hardware deliveries are subject to import rules and may require declaration
Team Up Tip: If you’re managing multiple hires, opt for local procurement. It's faster, avoids customs delays, and reduces breakage risk.
Lease equipment through your EOR provider
The EOR provider in Azerbaijan can handle local procurement and leasing of equipment, bundled into your monthly service fee.
This includes:
Device provisioning per role (Mac for design, ThinkPad for devs, etc.)
Pre-installed tools and security protocols
Coverage for loss, theft, or damage (depending on the policy)
Workspace setup: Home office vs co-working space
Azerbaijani labor law doesn’t mandate an official office for remote workers, but if you’re engaging long-term employees via EOR, providing a productive setup is part of the deal.
Home office setups must include:
Ergonomic desk and chair (especially for tech or finance roles)
Reliable internet connection
Quiet working environment (critical for client-facing roles)
Alternatively, consider:
Co-working stipends: Popular in Baku and Ganja, where high-speed internet and stable electricity are guaranteed
Dedicated desks or private offices: Can be leased locally through your EOR provider or arranged with local operators
Not sure where to start? Team Up helps arrange workspaces tailored to employee roles, whether they need solitude, client space, or 24/7 internet.
Remote work liability: Who owns the risk?
Remote work doesn’t mean zero liability. In Azerbaijan, the employer is responsible for:
Data privacy compliance under national law
Safe working conditions (even at home)
Proper use and maintenance of company-owned equipment
Handling workplace accidents (yes, even if it happened at home)
If you’re working with a DIY setup or an EOR that doesn’t localize contracts and asset policies, you’re risking more than downtime, you’re risking legal exposure.
What you need:
An IT usage policy that complies with Azerbaijani law
A remote work policy defining working hours, locations, and liabilities
Insurance coverage for hardware and data loss incidents
Security tools (VPN, two-factor authentication, remote-wipe tools)
Team Up includes all of this by default, because pretending it’s “not your problem” doesn’t hold up in court.
Can an EOR legally hire contractors in Azerbaijan?
Short answer? No. And if anyone tells you otherwise, they’re either selling snake oil or haven’t read Azerbaijan’s Labor Code in a while.
An Employer of Record (EOR) can only hire full-time employees on your behalf in Azerbaijan. That’s what they’re built for, local employment compliance, not contractor loopholes.
Let’s break it down.
Contractor hiring in Azerbaijan: Why it’s not EOR territory
An EOR’s legal model requires them to become the official employer of the worker. That means:
Local employment contract (filed in the national system)
Payroll processed in AZN
Mandatory benefits and social security contributions
Compliance with termination laws and severance
Independent contractors? They’re a different beast.
They don’t have employment contracts.
They don’t receive statutory benefits.
They’re not covered under employee protections.
And more importantly:
They can’t legally be “hired” by an EOR.
If your goal is to work with freelancers or short-term project-based talent, you’ll need a different setup:
A local agency that engages contractors under B2B agreements
Or a compliance advisory team that helps structure contracts to avoid misclassification
But do not try to route contractors through your EOR to dodge payroll obligations. That’s like using a speedboat to drive across the highway, it’s the wrong tool and ends badly.
The misclassification trap: Why it matters
Azerbaijan’s labor inspectors are increasingly sharp when it comes to misclassification. If you treat a contractor like an employee (set work hours, provide tools, integrate them into your team), you could be:
Audited for back taxes and missed social contributions
Fined for labor law violations
Dragged into court over unpaid benefits, notice periods, or wrongful dismissal
And guess who’s legally liable? You, not the EOR. Because contractor relationships aren’t part of their mandate.
What can you do instead?
If you still want the flexibility of contract work in Azerbaijan, here’s how to do it right:
Use a local entity or partner that specializes in contractor management.
Draft clear B2B contracts in Azerbaijani (or bilingual) with scope, timelines, and deliverables.
Avoid operational control: no set hours, no mandatory team meetings, no direct supervision.
Separate equipment and tools: contractors should use their own.
12-point compliance quick-reference
This is your definitive checklist. No fluff, no loopholes, no gray areas. If you're hiring in Azerbaijan, whether through your own entity or an Employer of Record (EOR)—these are the legal requirements you must meet. Miss a single one, and you open the door to audits, fines, or labor court.
Employment contract requirements
Must be signed before the first day of employment.
Must be in Azerbaijani (or bilingual if agreed).
Must be registered through the State Electronic Labor Contract System.
Must include: job title, salary in AZN, working hours, benefits, probation terms, leave entitlements, and termination clauses.
Failure to comply: The employment is considered invalid, and you can’t enforce IP, confidentiality, or non-compete clauses.
Probation period rules
Maximum length: 3 months.
Must be explicitly stated in the contract.
Either party can terminate with 3 days' notice during probation.
Cannot be extended.
Working hours & overtime
Standard hours: 8 per day, 40 per week.
Overtime:
Max 4 hours over two consecutive days.
Max 120 hours per year.
Overtime must be paid at 200% or compensated with time off at the same rate.
Night shifts, weekend work, and holiday work have higher pay rates (typically 150–200%).
Payroll & currency compliance
Salaries must be paid in Azerbaijani manat (AZN).
Payroll must be processed through a local Azerbaijani bank.
Payments in USD or EUR are non-compliant unless for expat contractors via legal cross-border arrangements.
Minimum wage
As of 2025: 345 AZN/month (gross).
Applies to all legal employment agreements.
Any bonuses or allowances must be added on top of this minimum.
Mandatory tax & social contributions
Employer Contributions:
22% of gross salary to social funds.
Employee Deductions:
3% social insurance.
Income tax: 14% on income up to 2,500 AZN; 25% on the portion exceeding that.
All payments must be filed monthly and submitted to the Ministry of Taxes. Late submissions incur interest and penalties.
Paid annual leave
21 calendar days minimum.
Additional leave required for:
Hazardous work: +6 days.
Long service: +2–6 days after 5–15 years.
Unused leave must be paid out if the employee leaves or doesn’t take it.
Sick, maternity & parental leave
Sick Leave: First 14 days paid by employer, beyond that by state fund (requires medical certificate).
Maternity Leave: 126 days total (70 before, 56 after birth), paid at 100% of average salary by the state.
Extended maternity leave: Up to 140–156 days if medically required.
Paternity Leave: 14 days unpaid (protected).
Parental Leave: Up to 3 years unpaid with job protection; may be shared by either parent.
Public holidays
Azerbaijan has 24 official non-working public holidays, including:
Novruz Bayram (5 days)
Independence Day
Constitution Day
International Women’s Day
Holiday work must be paid at double or substituted with compensatory leave.
Termination & notice
Termination must follow strict procedures:
Notice period ranges from 6 weeks to 5 months, depending on seniority.
Termination reasons must be documented (e.g., redundancy, poor performance, misconduct).
The Ministry of Labour must be notified.
Final salary and compensation must be paid before the last working day.
Severance pay
Legally required if terminated for reasons other than misconduct:
Up to 1 year service: 1x monthly salary
1–5 years: 1.4x
5–10 years: 1.7x
10+ years: 2x
Redundancy: 3 months minimum
Special cases (military duty, disability): 2 months' compensation required
Data privacy, IP protection & records
Employee data must be stored locally and handled per Azerbaijan’s Personal Data Law.
Employees must give written consent for data processing.
Contracts must include confidentiality, non-compete, and IP transfer clauses, written and enforceable under Azerbaijani law.
All employment records (contracts, pay slips, timesheets) must be kept for at least 5 years and be audit-ready.
Final thoughts: Turn this checklist into action
Reading compliance checklists is great. Using them is better.
If you’ve made it this far, you already understand what most hiring managers and startup CEOs learn too late: Azerbaijan is not a “figure-it-out-as-we-go” kind of market. It’s a market where misclassifying one developer can cost you a product launch, and an investor’s trust.
But here’s the good news: you don’t have to go it alone.
Team Up helps you hire legally in Azerbaijan without setting up an entity, without losing months to legal red tape, and without hoping your IP clauses “probably hold up.”
We handle the contracts, payroll, benefits, tax filings, and local compliance so your team can focus on building, not firefighting.
You’ve seen the risks. You’ve seen the rules. Now let’s make it real.
Need to onboard someone this month? Or figure out what EOR model makes sense for your team?
→ Book a free demo with our team and get clear, fast answers, no fluff, no salesy nonsense, just facts.
The checklist? Handled.
Your team in Azerbaijan? Ready.
Your compliance risk? Zeroed out.
Let’s get to work.
