Legal and compliance checklist for Employer of Record (EOR) services in the Caucasus region
- Gegidze • გეგიძე | Marketing
- Jun 12
- 13 min read
Table of contents:
Introduction: Why compliance in the Caucasus isn't optional
Usually, your first hire in the Caucasus doesn’t cost €2,000.
Unless, of course, that hire comes with a bonus penalty letter from the Georgian Revenue Service, a surprise audit in Baku, or a call from Armenia’s State Labor Inspectorate asking why your contracts are in English and your payroll’s in euros.
Welcome to the compliance trap that founders don’t talk about on LinkedIn.
It starts small. You spot an amazing backend dev in Tbilisi or a product lead in Yerevan. You draft a contract, run a wire, slap a ‘contractor’ label on it, and think, “We’ll sort the legal stuff once we raise the next round.”
Then boom: one missed tax registration, one misclassified worker, one misplaced NDA—and your GTM speed turns into a court case. In three jurisdictions. With three legal codes.
This isn’t fear-mongering. It’s what keeps legal teams, finance heads, and HR leads pacing at 2 a.m.
This guide is here to save your sleep (and your funding round).
We’ll break down:
What labor law actually means in Armenia, Georgia, and Azerbaijan
How to handle payroll, benefits, visas, and IP, legally
What your contracts must include to hold up in court
Why DIY setups often backfire, and how EOR services mitigate the risk
No fluff. No fear tactics. Just real talk, real steps, and a framework you can copy-paste into your global hiring playbook.
Let’s make sure your “fast hire” doesn’t become your most expensive mistake.
The top 6 Employer of Record compliance priorities in the Caucasus region
Let’s get one thing straight: hiring in the Caucasus isn’t a vibes-based activity. You don’t get to skip tax filings just because your new hire in Yerevan “feels like a contractor” or your backend dev in Tbilisi “works best without a formal contract.”
Labor authorities here don’t care about your startup culture. They care about signatures, registrations, and filings, in the right format, in the right language, by the right date.
Here’s what you actually need to get right when hiring via an Employer of Record (EOR) in the Caucasus region, whether you’re scaling fast or just dipping your toe into the market.
Locally compliant employment contracts
Why it matters: That fancy English-only contract you sent? It’s not legally binding in Armenia. Or Georgia. Or Azerbaijan. Labor courts expect contracts in the local language, with clauses that match the regional labor code, down to probation periods, termination terms, and salary structure.
What to do: Use an EOR that issues bilingual contracts tailored to each country’s labor code. One missing clause and you can kiss your IP protections goodbye.
Accurate payroll tax filings
Why it matters: Every country has its own rules. In Georgia, you’re on a flat 20%. In Armenia, expect social fund contributions and a graded income tax. And Azerbaijan? They want everything in manat, filed monthly, with precise pension deductions.
What to do: Choose an EOR provider in Georgia that calculates, withholds, and remits local taxes on time. Bonus points if they help you avoid those “Hey, your employee hasn’t been reported in three months” emails from the tax inspector.
Proper worker classification
Why it matters: If you’re telling your frontend dev in Baku what hours to work, what tools to use, and what Slack channels to join, you’ve got an employee, not a contractor. And local authorities will agree.
What to do: Your EOR provider in Armenia must treat every hire as a full-fledged employee, not a contractor in disguise. Because once a misclassification audit starts, it doesn’t end in a friendly chat. It ends in fines. Retroactive fines.
Benefits that meet (and beat) local expectations
Why it matters: In the Caucasus, benefits aren’t just nice-to-haves. They’re part of compliance. That means paid time off, sick leave, maternity, paternity, and in many cases, employer-paid health insurance.
What to do: Make sure your EOR provider in Azerbaijan offers a full local benefits package. This isn’t Silicon Valley. Perks aren’t ping pong tables, they’re legally required sick days and maternity pay.
Work permits for foreign hires
Why it matters: Want to relocate your product manager from Berlin to Tbilisi? Or hire an expat data scientist in Yerevan? You’ll need a valid work permit—and in some cases, a registered sponsor.
What to do: Use an EOR that handles visa sponsorship, immigration filings, and registration. Unless you enjoy spending weeks learning how not to get your employee deported.
IP protection and data compliance
Why it matters: Your new dev may be writing code for your core product. If their contract isn’t bulletproof, you may not actually own that code. Even worse, if you're handling EU data, you'd better be GDPR-adjacent at the very least.
What to do: Make sure your EOR uses regionally valid IP and confidentiality clauses, and knows the data laws in each country. Because no founder wants to explain to their Series A investors why a freelancer in Kutaisi owns half their source code.
What can go wrong (if you skip these steps)
Think skipping a few “minor” compliance steps in the Caucasus is no big deal? Cool, just make sure your legal team is fluent in Armenian, Georgian, and Azerbaijani… and has time to respond to a Ministry of Labor inquiry on a Friday afternoon.
Here’s what actually happens when you skip the boring stuff like contracts, taxes, and visa paperwork, and what it costs fast-scaling companies who thought “we’ll figure it out later” was a strategy.
Contract chaos in Georgia: When English isn’t enough
You send your sleek English-only employment contract to a brilliant React dev in Tbilisi. It outlines IP terms, a 3-month notice period, and your company’s values. Cool.
Except Georgian labor courts require contracts to be bilingual, with legally enforceable local terms that cover salary in GEL, not USD, and termination clauses that don’t read like a Silicon Valley handbook.
What happens: You try to fire someone. They lawyer up. You lose the case, and maybe your IP. Your “strong NDA” has no teeth in court because it wasn’t in Georgian. Your VC backer is not impressed.
Armenia’s misclassification boomerang
You call someone a “freelancer.” But you tell them where to work, when to show up, and review their hours every Friday.
That’s an employee, not a contractor. Armenian labor inspectors are not into semantics.
What happens: They reclassify the person as an employee, retroactively. You now owe 12 months of pension contributions, health taxes, and employer fees. Oh, and interest. Also, good luck explaining that in your next investor update.
Azerbaijan: pay the tax or pay the price
You pay your Baku hire €2,000/month from your UK account. No local payroll, no tax registration, no problem? Think again.
Azerbaijan requires salary payments in manat through registered payroll channels. And you need to report contributions to social and pension funds monthly.
What happens: You get flagged in a routine audit. Now you owe all back taxes, plus a fine, plus a formal warning that stays on your compliance record. The worst part? Your employee may not be eligible for state healthcare or benefits, and they will definitely be calling HR.
The visa-that-wasn’t in Yerevan
You fly in a senior PM from Berlin to Armenia. No visa application. No permit. You figure: “It’s a friendly country. What’s the worst that could happen?”
What happens: Immigration shows up. Your PM has 10 days to leave. And your team’s roadmap just lost its lead.
Termination roulette
You decide to “part ways” with a developer in Batumi after 10 months. No written warning, no notice, no severance. You’re thinking: “We’re a startup, not a bureaucracy.”
What happens: Labor court says otherwise. You owe two months’ severance, one month of notice pay, and are now listed in a national labor dispute database. That “lean hiring machine” you built just got very expensive.
The pension panic
You missed Georgia’s mandatory pension law update. Contributions shifted slightly, but you kept using last year’s rates. Six months later, the Pension Agency sends a notice.
What happens: You now owe back contributions with interest. Your accountant is crying. Your CFO is yelling. And you’re Googling “how to say sorry in Georgian.”
The hidden compliance traps across Armenia, Georgia, and Azerbaijan
Armenia: A Small country, a sharp labor code
Armenia punches far above its weight in STEM talent. Especially in software engineering, AI, and embedded systems, Armenian professionals rival global markets at a fraction of the cost.
Why companies love hiring here:
Highly educated, multilingual tech workforce
Flat 23% income tax structure, soon dropping
Digital nomad-friendly visa paths
Legal compliance for EOR services in Armenia:
Contracts must be locally compliant and Armenian-language or bilingual
Labor law demands specific clauses (vacation, termination, social guarantees)
Misclassification risks are real, and courts tend to side with workers
Pro tip: Get local legal help before onboarding. EOR in Armenia structures that into your hiring process.
Georgia: Fast setup, slow regrets (if you get lazy)
Georgia sells itself as a startup playground, and rightfully so. Easy business registration, low taxes, and a Western-aligned legal climate make it perfect for fast launches.
Why companies love hiring here:
Register a company in a day
20% flat corporate tax, low payroll taxes
One of the easiest countries in the world to do business (World Bank says so)
Legal compliance for EOR services in Georgia
Employment law may seem relaxed, but try firing someone without documentation and see what happens
Contractors vs employees? Still a grey area, and still audited
Contracts must be understandable in Georgian or a mutually agreed-upon language
Pro tip: Don't mistake “easy to start” for “safe to wing it.” A local EOR in Georgia keeps you fast and compliant.
Azerbaijan: Structured, serious, and strategically smart
Azerbaijan is often overlooked. But companies that set up here quickly realize the country runs a tight and highly formal ship. Government portals. Registered labor contracts. Social security filings. It’s all real and all enforced.
Why companies love hiring here:
Deep bench of engineers, especially in infrastructure-heavy tech
Strong state-backed digital governance
Contracts and taxes monitored = less under-the-table risk
Legal compliance for EOR services in Azerbaijan:
Employment contracts must be filed via the state e-contract portal
Must pay salaries in AZN via Azerbaijani bank accounts
Miss a payroll run, and you trigger a tax audit fast
Pro tip: Azerbaijan gives you structure and protection, but only if you play by the rules. That’s where an EOR in Azerbaijan is essential.
DIY vs PEO vs EOR: Who owns the risk?
If you’re expanding into the Caucasus and you think “we’ll figure it out later” is a growth strategy, pause.
Because who legally employs your local hire isn’t just a box to tick. It’s the difference between building a fast-moving remote team and waking up to a labor court summons in a language you don’t speak.
So let’s break down your three options, and exactly where the legal, financial, and operational risk lands in each.
DIY (Set up your own local entity)
You own everything. Including the headaches.
You incorporate locally, open bank accounts, hire legal and HR, and register with tax authorities in Georgia, Armenia, or Azerbaijan.
Yes, you get full control. But you also take on:
Tax filings, every month
Labor contracts that match local codes
Social fund contributions
Payroll in the local currency
Employee disputes and severance
Work permits (for foreign staff)
Best for: Enterprises with in-house counsel, deep HR ops, and long-term headcount plans.
Risks: Miss a form, misclassify a worker, or underpay a pension, and you’re liable. No buffer. No safety net.
PEO (Professional Employer Organization)
Shared employment, split liability.
A PEO becomes your co-employer, but only if you’ve already set up a local entity. They help manage HR and compliance, but you're still legally on the hook.
What they do:
Assist with payroll, tax, and benefits
Offer local HR support
Help with onboarding/offboarding
What they don’t:
Shield you from employment lawsuits
Assume full liability for compliance
Eliminate the need for a legal presence
Best for: Mid-sized teams already operating on the ground who need HR outsourcing, not legal risk relief.
Risks: If your PEO messes up payroll taxes, guess whose name is on the audit notice? Yours.
EOR (Employer of Record)
You run the team. We carry the legal weight.
With an EOR, there’s no need to open an entity. You hire through a local partner (like Team Up), who becomes the legal employer. You focus on managing the talent; the EOR handles everything else.
Included:
Legal employment contracts (in the right language)
Payroll, taxes, and benefits compliance
IP protection and NDAs that hold up in court
Fast onboarding, no setup delays
Reduced audit exposure
Best for: Startups and growth-stage companies that want to scale across the Caucasus without legal friction.
Risks: Minimal. You’re not the legal employer; your EOR is. That’s the whole point.
The employer of record compliance checklist in the Caucasus region
You don’t need to memorize every labor code in Georgia, Armenia, or Azerbaijan, but you do need to know what can get you fined, audited, or sued.
So we built this. A no-fluff, copy-pasteable checklist designed to help you hire through an Employer of Record (EOR) without stepping on a legal landmine.
Check every box below. If you miss even one, you’re not hiring, you're gambling.
Legally valid, locally compliant contracts
Every hire needs a written employment agreement in the local language (or bilingual format) that reflects actual job scope, compensation, benefits, and location.
Armenia: Contracts must be in Armenian and registered with the tax authority within 15 days.
Azerbaijan: Must be entered into the government’s electronic labor contract portal.
Georgia: While less bureaucratic, clear contracts in Georgia prevent disputes.
Miss this? Your agreement may be unenforceable, especially for IP or non-compete clauses.
Correct worker classification
Are you hiring an employee or a contractor? It’s not up to you, it’s defined by local law.
If they work fixed hours, use your tools, and report to your managers? They’re an employee.
If misclassified, expect back taxes, social contributions, and legal claims.
Tip: Your EOR should guarantee compliant classification and liability protection.
Compliant payroll setup
Payroll must be processed in local currency using locally approved channels.
Georgia: Paid in GEL via licensed payroll processors.
Armenia: Paid in AMD with all reporting done through the online tax portal.
Azerbaijan: Must be paid in AZN and reported to multiple authorities.
Penalties apply for foreign-currency payments, late filings, or underreporting.
Statutory tax withholding & social contributions
Each country has its own formulas:
Georgia: 20% flat income tax + 2% pension
Armenia: Progressive 21–26% income tax + 5% social contribution
Azerbaijan: 14–25% income tax + 22% employer pension + 3% employee contribution
Your EOR must calculate, withhold, and remit every lari, dram, or manat on time, monthly.
Registered working hours & schedules
The labor code requires set schedules, including maximum weekly hours (usually 40).
Flex work is fine, but deviations must be pre-approved and documented.
Overtime must be tracked and paid at legal multipliers (e.g., 150–200%).
If an audit finds unpaid OT? You pay back wages + fines.
Paid time off & public holiday entitlements
Minimum annual leave:
Georgia & Armenia: 20 working days
Azerbaijan: 21 calendar days
All three recognize 10–24 national holidays that must be observed or compensated. Your EOR should automatically track local calendars to stay compliant.
Sick, maternity, and parental leave
These aren’t optional perks, they’re legally protected rights.
Sick Leave: Paid by employer (first 5–14 days), then by state fund.
Maternity Leave: Up to 183 days, partially or fully paid depending on country.
Paternity Leave: Typically 5–14 days unpaid unless extended by contract.
Parental Leave: Unpaid leave until the child turns 2–3 years old in Armenia and Azerbaijan.
All leave must be documented, filed, and honored.
Employee registration with social funds
Every employee must be registered with:
Pension fund
Social insurance system
Health insurance (if applicable)
Failing to register within the legal timeframe means retroactive penalties and legal risk, especially in Azerbaijan.
Intellectual property & confidentiality protection
A one-size-fits-all NDA won’t hold up in local courts.
You need:
IP assignment clauses compliant with local IP law
Confidentiality clauses are enforceable in the local jurisdiction
Data transfer provisions to protect sensitive data across borders
Your EOR should have localized, court-tested templates.
Data protection compliance
The Caucasus countries are not under GDPR, but they all have national data privacy laws.
What does that mean?
You need written consent to store or process employee data.
Files must be stored on secure local/cloud systems.
Access must be limited and traceable.
Failure to comply can bring both fines and reputational damage.
Termination procedure & notice rules
Termination without proper cause or notice is a litigation trap.
Notice: 1–5 months, depending on tenure and country
Cause: Must be documented (poor performance, redundancy, misconduct)
Payouts: Severance required by law in most terminations
All of this must be filed with the labor authorities in Azerbaijan and Armenia. If you don't, your case may not hold up, even if you're right.
Work permits & visas for foreign employees
Hiring expats? You’ll need:
Employer sponsorship documents
Valid local contract
Government approvals
Every step has a deadline and a document list. Get it wrong, and you risk fines, delays, or deportation.
Your EOR should manage the full immigration workflow, not just payroll.
Can an EOR handle all this for you?
If you’ve made it this far and your palms are slightly sweaty, good. That means you’re paying attention.
Between navigating payroll tax filings in three different currencies, translating contracts that actually hold up in local court, and remembering whether it’s Azerbaijan or Armenia that requires electronic registration within 15 days (spoiler: both), one thing becomes crystal clear:
This is not a DIY project.
Here’s where a proper EOR provider in the Caucasus region steps in, not as a vendor, but as your legal safety net, local fixer, and compliance translator rolled into one.
What an EOR actually does for you in the Caucasus:
Acts as the legal employer for your team in Georgia, Armenia, or Azerbaijan
Registers your employees with the local tax, pension, and labor authorities
Draft compliant contracts in the correct local languages, using enforceable clauses
Calculates, withholds, and remits income taxes, social contributions, and pension fees
Tracks leave, overtime, holidays, and benefits, based on real local labor codes, not assumptions
Processes payroll in the right currency via legal banking channels
Handles immigration, if you’re hiring expats (including work permits and visas)
Updates you on regulatory changes before they become problems
You manage the day-to-day work. Your EOR handles the legal minefield you’d otherwise have to navigate solo.
Will any EOR do?
Not quite. Some global platforms just automate payroll; they don’t have boots on the ground.
Others outsource compliance to a local firm you’ll never meet.
What you need is:
A registered local entity in each country, not a reseller of another EOR’s service
In-country HR and legal support, in case things go sideways
Real-time updates when labor laws or tax rates change (they will)
One monthly invoice that’s clearer than your accountant’s spreadsheet
Final thoughts: Bulletproof your expansion, not just your product
Your tech stack is airtight. Your roadmap is bold. Your pitch deck has already closed two rounds. But if your hiring strategy still includes “figure out compliance later,” you're walking into the Caucasus with a great product and a legal blindfold.
Here's the thing:
Markets like Georgia, Armenia, and Azerbaijan offer rich talent, competitive salary expectations, and a time-zone sweet spot for global teams. But none of that matters if you're fumbling labor codes, misclassifying engineers, or wiring salaries in USD through your EU bank and calling it a day.
Because in these markets, compliance isn’t a background process. It’s the infrastructure your growth sits on.
And the fastest way to build that infrastructure?
Not setting up a local entity.
Not hiring a dozen lawyers.
Not praying your contracts translate the same way a labor inspector reads them.
It’s choosing the right EOR, one that knows the actual difference between a legal entity and a liability.
Team Up was built for this.
We’re local in the Caucasus. We don’t outsource. We don’t guess.
We keep you compliant so your talent can get to work, and you can scale without fear of fines, freezes, or frantic calls from your CFO.
If you’re serious about growing here, start by making sure your hiring model won’t crack the first time a tax inspector asks questions.
Let’s make your expansion as solid as your product.
