How does an Employer of Record (EOR) manage payroll taxes in the Caucasus region
- Natia Gabarashvili
- Oct 24
- 16 min read
Table of contents:
TL;DR
Managing payroll taxes in the Caucasus Region can get complex fast; each country (Georgia, Armenia, and Azerbaijan) has its own mix of income tax, pension, and social contribution rules.
An Employer of Record (EOR) takes all that complexity off your plate. It handles payroll calculations, withholdings, reporting, and tax submissions for both you and your employees — legally and on time.
Here’s what you need to know at a glance:
Georgia: 20% flat income tax + 2% pension (split 1% each).
Armenia: 21% income tax + 3–5% employer social payments.
Azerbaijan: 14–25% total social contributions (sector-dependent).
EOR = peace of mind: All payroll taxes, filings, and compliance handled locally.
Your focus: Growth, not government paperwork.
Partnering with Team Up gives you transparent pricing, full compliance coverage, and seamless onboarding in all three markets.
Introduction
Hiring in the Caucasus Region, particularly in Georgia, Armenia, and Azerbaijan, has become increasingly appealing for global companies.
The region offers skilled technical talent, competitive costs, and time zone alignment with both Europe and the Gulf. But as straightforward as hiring might seem on paper, the real complexity begins with payroll taxes.
In cross-border employment, it’s easy to confuse payroll taxes with income taxes. The distinction matters. When you hire across borders, both sets of taxes apply, and both must comply with local rules.
That’s where most companies stumble. Each country in the Caucasus region has its own payroll framework:
Georgia applies a flat 20% income tax plus mandatory pension contributions.
Armenia follows a progressive tax structure with additional social payments.
Azerbaijan enforces tiered rates and sector-specific contribution rules.
For foreign employers, keeping up with these nuances can quickly turn into a legal and administrative headache. Mistakes in calculating or remitting taxes can lead to penalties, delayed payments, or even restrictions on future hiring.
This is precisely why many international businesses partner with an Employer of Record (EOR).
An EOR acts as your local employer, managing every aspect of payroll compliance, from calculating and withholding taxes to filing reports with local authorities. Instead of learning three tax systems, you work with one partner who already understands them all.
Let’s get into it.
What are payroll taxes in the Caucasus region?
When hiring across Georgia, Armenia, and Azerbaijan, understanding payroll taxes is one of the first and most critical steps in staying compliant. Payroll taxes are mandatory contributions paid by both the employer and the employee to support public systems, typically covering income tax, pensions, and health or social insurance.
Each country in the Caucasus Region has its own rules, rates, and payment structures. Below is a breakdown of how these taxes are applied and what employers need to account for when paying local or remote employees through an Employer of Record (EOR).
Payroll tax overview by country
(Rates as of 2025. For the latest updates, refer to each country’s tax authority: Georgia Revenue Service, Armenia State Revenue Committee, Azerbaijan Ministry of Taxes.)
What are payroll taxes in Georgia?
Payroll taxes in Georgia maintain one of the simplest tax structures in the region, making it a popular choice for global employers. The country applies a 20% flat income tax and a mandatory 2% pension contribution, which is shared between the employer, employee, and state.
An EOR in Georgia ensures that all these contributions are automatically deducted, reported, and remitted on schedule, protecting employers from compliance errors or delayed filings.
What are payroll taxes in Armenia?
Payroll taxes in Armenia operates a 21% flat income tax system, with additional 3–5% social contributions that go toward pension and insurance funds. Employers contribute directly to these funds, while the EOR ensures that the required filings and withholdings meet local labor law standards.
An EOR in Armenia simplifies this entire process, from salary calculation to tax submission, and guarantees that both employer and employee contributions are fully compliant with Armenian regulations.
What are payroll taxes in Azerbaijan?
Payroll taxes in Azerbaijan varies by sector. Employers typically contribute 14% to 25% toward social security, while employees pay 14% income tax. The exact rate depends on whether the company operates in the private or public sector, as well as on the type of employment contract.
An EOR in Azerbaijan handles these distinctions seamlessly, managing deductions, calculating contributions, and submitting payments to local authorities without delay.
Payroll tax vs income tax: What employers should know (and why leading payroll providers matter)
When expanding into new markets like Georgia, Armenia, or Azerbaijan, understanding the difference between payroll tax and income tax is essential for every employer, especially those managing remote or cross-border teams.
Payroll taxes are employer- and employee-funded contributions that support public programs such as pensions, health insurance, and unemployment benefits. They’re calculated as a percentage of an employee’s gross salary and paid regularly through payroll.
Income taxes, on the other hand, are the employee’s personal tax obligations on their total earnings. These are withheld by the employer (or their Employer of Record) and remitted directly to the local tax authority.
In short:
Payroll tax = social contributions tied to employment.
Income tax = personal taxation on total earnings.
For global teams, this distinction matters because the two tax types are often managed under different rules, deadlines, and authorities. For instance:
In Georgia, income tax is fixed at 20%, while pension contributions (payroll tax) are shared.
In Armenia, income tax is 21%, with additional payroll-based social payments.
In Azerbaijan, income tax is 14%, but payroll taxes range from 14% to 25% depending on the sector and salary.
Partnering with leading payroll providers or an Employer of Record (EOR) provider in the Caucasus ensures both sides of this equation are handled correctly. Providers like Team Up calculate, withhold, and remit all taxes in compliance with local laws, while also managing benefits, pension contributions, and filings.
Which payroll taxes are paid by employers only?
When hiring across the Caucasus Region, employers are responsible for several payroll tax obligations that employees don’t share. These employer-only contributions cover the social protections that sustain each country’s labor system, including social security funds, unemployment insurance, and accident coverage.
Partnering with a trusted Employer of Record (EOR) in the Caucasus Region ensures that these taxes are calculated, withheld, and reported accurately, so your company remains fully compliant while operating efficiently.
Here’s what employers are required to pay, and how it differs across Georgia, Armenia, and Azerbaijan.
1. Social security contributions
Social security is one of the most important employer responsibilities in the region. These contributions fund national pension systems and healthcare coverage.
In Georgia, the pension contribution totals 2%, shared among the employer, employee, and the state. Employers pay 1%, while employees contribute 1%, and the government adds a matching portion.
In Armenia, employers cover 3–5% in social payments to the Social Security Fund, depending on income levels.
In Azerbaijan, employers contribute 22% of gross salary to social insurance, which supports pensions and healthcare programs. Employees only pay an additional 3%, making this largely an employer-funded tax.
2. Unemployment and accident insurance
Most governments in the Caucasus Region require employers to fund programs that protect workers against job loss or workplace injury.
Georgia: These programs are covered through broader pension contributions, rather than as separate taxes.
Armenia: Employers indirectly fund unemployment protection via social payments included in their total contribution rate.
Azerbaijan: Employers pay 0.5–1% toward unemployment insurance and 0.2–0.3% toward occupational accident insurance, depending on sector classification.
3. Corporate payroll costs
Beyond taxes and contributions, employers are responsible for gross-up costs such as administrative fees, payroll management, and employee benefits. These vary by company and are often absorbed by an EOR partner, creating one flat, predictable monthly invoice.
Example: Calculating employer payroll taxes
Let’s look at how an employer’s obligations differ across the region using a monthly gross salary of $1,000 USD as a reference point.
These examples show how employer obligations vary depending on the country’s tax structure.
With an EOR, these calculations, along with filings, payments, and annual reporting, are fully managed on your behalf.
By outsourcing payroll tax management to Team Up, you remove the guesswork and maintain compliance with local regulations while keeping control of your budget and workforce strategy.
How are payroll taxes calculated under an EOR model?
When you hire in multiple countries across the Caucasus Region, such as Georgia, Armenia, and Azerbaijan, payroll taxes become one of the most critical yet complex parts of staying compliant.
Each country has its own rules about how taxes are computed, withheld, remitted, and reported, and those details change frequently.
An Employer of Record (EOR) like Team Up ensures that every part of this process is handled correctly. The EOR acts as your local partner, managing all payroll calculations and filings on your behalf so that both employer and employee obligations are met under local law.
Below is a detailed, country-specific look at how payroll taxes are calculated under an EOR model in the Caucasus Region.
How to Compute Payroll Taxes
The calculation always begins with an employee’s gross salary, the total pre-tax compensation agreed upon between employer and employee.
The EOR then applies the relevant national tax rates and contributions, which typically include:
Income tax (employee’s responsibility)
Social and pension contributions (shared between employer and employee)
Health and unemployment insurance (primarily employer-funded)
Once computed, the EOR:
Withholds employee-side deductions from gross pay.
Adds employer contributions to determine the total cost to the company.
Remits both sets of taxes and contributions to local authorities.
Reports all payroll filings monthly or quarterly, depending on local requirements.
This ensures full transparency, accuracy, and timely compliance—without the need for the company to maintain a local payroll department or register an entity in-country.
Calculating employer payroll taxes (by country)
Employer payroll taxes in Georgia
Georgia offers one of the most straightforward tax systems in the region. Employers are responsible for only one major payroll contribution: the pension fund.
Employer Pension Contribution: 1% of gross salary
Employee Pension Contribution: 1% of gross salary
Income Tax (Employee): 20% flat rate
Example Calculation
For an employee earning $2,000 per month:
Employer Pension Contribution: $20
Total Employer Cost: $2,020
Employee Pays: $400 (Income Tax) + $20 (Pension)
Employee Net Salary: $1,580
Georgia’s system is simple but strictly enforced. An EOR in Georgia ensures pension contributions and income tax payments are made through the Revenue Service of Georgia, preventing penalties for underpayment or missed filings.
Employer payroll taxes in Armenia
Armenia’s payroll structure combines income tax with social payments tied to each employee’s income bracket.
Income Tax (Employee): 21% flat rate
Social Payments (Employer): 3–5% of gross salary
3% for salaries under AMD 500,000/month (~$1,250)
5% for salaries above AMD 500,000/month
Example Calculation
For an employee earning $2,000 per month (~AMD 800,000):
Employer Social Contribution (5%): $100
Total Employer Cost: $2,100
Employee Pays: $420 (Income Tax)
Employee Net Salary: $1,580
Under an EOR model, these payments are filed with the State Revenue Committee of Armenia, ensuring both social and income tax obligations are met automatically. The EOR also updates rates as new income thresholds are introduced annually.
Employer payroll taxes in Azerbaijan
Azerbaijan has the most layered payroll tax system in the region, combining income tax, social insurance, unemployment insurance, and accident coverage.
The rates vary depending on whether the employee works in the private or public sector.
For private sector employees:
Employer Social Insurance Contribution: 22% of gross salary
Employee Social Insurance Contribution: 3% of gross salary
Income Tax: 14% flat rate
Unemployment Insurance: Employer 0.5%, Employee 0.5%
Accident Insurance: Employer 0.2–0.5% (depends on risk level)
Example Calculation
For an employee earning $2,000 per month:
Employer Social + Insurance Contributions: $440 (22%) + $10 (Unemployment) + $6 (Accident avg.) = $456
Total Employer Cost: $2,456
Employee Pays: $280 (Income Tax) + $60 (Social & Unemployment) = $340
Employee Net Salary: $1,660
In this setup, an EOR in Azerbaijan ensures all payments are made to the State Social Protection Fund and Ministry of Taxes, reconciling contributions and reports monthly to stay compliant.
Calculating payroll taxes for employees (Under an EOR)
Employees across all three countries have their income tax and social contributions automatically deducted by the EOR. This guarantees compliance, transparent reporting, and timely payment of net salaries.
Here’s a comparative snapshot for an employee earning $2,000/month:
Each of these tax obligations can vary slightly depending on income thresholds, industry, and employment type. The advantage of using Team Up’s EOR model is that these differences are automatically accounted for, ensuring every calculation, deduction, and remittance aligns with local tax authority standards.
With an EOR, your payroll tax compliance is more than just managed; it’s mastered.
How to manually calculate payroll taxes (if you don’t use an EOR)
While it’s possible to calculate payroll taxes manually, doing so requires precision, constant monitoring of tax law updates, and complete familiarity with each country’s local payroll framework.
Even a minor error, a missed filing, a miscalculated deduction, or a late payment can lead to penalties or compliance audits.
That’s why most international employers prefer to rely on an Employer of Record (EOR) like Team Up, which handles all of this automatically.
Still, understanding the manual calculation process helps you see what your EOR is managing behind the scenes.
Step-by-step: Manual payroll tax calculation process
Start with the Gross SalaryThis is the total amount agreed upon with the employee before any taxes or deductions.
Identify All Applicable Payroll Taxes and DeductionsDetermine which taxes apply in the country where your employee is based — including income tax, social security, pension, and insurance contributions.
In Georgia, this means 20% income tax + 2% pension (split 1% each).
In Armenia, it’s 21% income tax + 3–5% social contributions.
In Azerbaijan, it’s 14% income tax + 22–25% employer social insurance + smaller insurance fees.
Calculate Employee DeductionsMultiply the employee’s gross salary by the applicable employee-side tax percentages to find how much will be withheld from their pay.
Calculate Employer ContributionsAdd the employer’s share of social, pension, or insurance payments based on the country’s rates.
Apply the Payroll FormulaUse the following formula to find your total employment cost per employee:Gross Salary – Employee Taxes – Deductions + Employer Contributions = Total Cost
Remit Taxes and Contributions to Local AuthoritiesOnce you’ve calculated the exact amounts, payments must be submitted to local tax offices and social funds — usually on a monthly basis.
Examples of payroll taxes calculation in Georgia
If your employee’s gross monthly salary is $2,000, here’s how the calculation would look:
Employee income tax (20%): $400
Employee pension (1%): $20
Employer pension (1%): $20
Formula:
2,000 – (400 + 20) + 20 = $1,600 total net pay
Total employer cost: $2,020 (including employer’s pension share)
Examples of payroll taxes calculation in Armenia
For a gross salary of $2,000 (AMD 800,000):
Employee income tax (21%): $420
Employer social contribution (5%): $100
Formula:
2,000 – 420 + 100 = $1,680 total cost per employee
Net salary: $1,580
Examples of payroll taxes calculation in Azerbaijan
For a gross salary of $2,000:
Employee income tax (14%): $280
Employer social insurance (22%): $440
Employer unemployment & accident insurance (~1% total): $20
Formula:
2,000 – 280 + (440 + 20) = $2,180 total employer cost
Net salary: $1,720
The Risk of Going Manual
Manually calculating payroll taxes may work for a small local team, but it becomes risky and inefficient for international hiring.
Local laws in Georgia, Armenia, and Azerbaijan are updated frequently, especially in areas like social security and tax reporting. Employers who miss filing deadlines or misinterpret contribution rates can face:
Fines for underpayment or late submissions
Legal disputes over incorrect deductions
Delayed payrolls or blocked payments
Working with Team Up’s Employer of Record (EOR) eliminates these risks.
You’ll get accurate, country-specific payroll management, full tax compliance, and one transparent monthly invoice that covers everything, without spending hours recalculating deductions or chasing local tax offices.
Employer of Record (EOR) payroll tax examples in the Caucasus
Every country in the Caucasus Region, Georgia, Armenia, and Azerbaijan, applies different tax structures, contribution rates, and reporting requirements. For international employers, keeping track of these changes can be time-consuming and error-prone.
That’s why most businesses expanding into the region rely on an Employer of Record (EOR) to manage all payroll tax calculations, withholdings, and filings locally. An EOR ensures full compliance with labor and tax laws, while you maintain control of team management and performance.
Below are country-specific payroll tax examples to help you understand how payroll is structured across the Caucasus region.
Taxes in Georgia – 20% flat tax + 2% pension split
Georgia offers one of the most straightforward tax systems in Eastern Europe.
Income Tax: 20% (flat rate)
Pension Contribution: 2% total — split equally (1% employer, 1% employee)
Social Security: No additional social tax; pensions serve as the main contribution.
Example:
If an employee earns $2,000/month, the breakdown looks like this:
Employer pays: $20 (1% pension)
Employee pays: $400 (income tax) + $20 (1% pension)
Total Employer Cost: $2,020
Net Salary: $1,580
Georgia’s predictable tax model makes it ideal for international companies testing the market or hiring remote teams. To compare how leading EORs manage payroll in Georgia, visit our Top EOR Providers in Georgia.
Taxes in Armenia – 21% Income Tax + Social Payments
Armenia’s system includes both a flat income tax and social payments that fund pensions and healthcare.
Income Tax: 21% (flat rate)
Social Payments: 3–5% employer contribution (based on salary level)
Pension: Included in the social payment structure
Example:
For an employee earning $2,000/month (~AMD 800,000):
Employer pays: $100 (5% social payment)
Employee pays: $420 (21% income tax)
Total Employer Cost: $2,100
Net Salary: $1,580
Armenia’s progressive social payment system rewards employers who stay compliant, as filings are verified directly by the State Revenue Committee. Partnering with an EOR provider in Armenia ensures those contributions are always reported on time and at the correct rate.
Taxes in Azerbaijan – Differentiated Rates for Public and Private Sectors
Azerbaijan’s payroll tax system distinguishes between public and private sector employment, each with different rates for social insurance and contributions.
Private Sector:
Employer Social Contribution: 22%
Employee Social Contribution: 3%
Income Tax: 14%
Unemployment + Accident Insurance: ~1% (combined)
Public Sector:
Employer Social Contribution: 25%
Employee Social Contribution: 3%
Income Tax: 14%
Example (Private Sector, $2,000/month salary):
Employer pays: $440 (social) + $20 (insurance) = $460
Employee pays: $280 (income tax) + $60 (social) = $340
Total Employer Cost: $2,460
Net Salary: $1,660
An EOR provider in Azerbaijan ensures the correct tax rate is applied depending on sector classification and employment type, avoiding the risk of misreporting or underpayment.
Comparative payroll tax chart – Caucasus region (2025)
When managing teams across the Caucasus, these differences can quickly add up, both in time and cost.
Using an EOR partner like Team Up ensures every contribution, deduction, and report aligns with each country’s laws, giving you full transparency and zero compliance risk.
Final thoughts
Hiring in the Caucasus Region, whether in Georgia, Armenia, or Azerbaijan, offers incredible access to skilled, loyal, and globally minded talent. But managing payroll taxes and compliance across three different legal systems is rarely simple.
That’s where an Employer of Record (EOR) changes everything.
By partnering with a trusted EOR like Team Up, you eliminate the biggest risks international employers face:
Reduced risk: No misclassification, missed filings, or hidden liabilities.
Simplified compliance: Local tax, labor, and payroll obligations managed in full.
Transparent cost: One clear monthly invoice, no unexpected fees or government penalties.
Team Up handles the details, from payroll tax calculations and social contributions to benefits and employee onboarding, so you can focus on growth, not paperwork.
If you’re planning to start remote hiring in the Caucasus Region, let Team Up handle compliance while you build your best team yet.
Explore how Team Up manages payroll and compliance for global employers hiring in the Caucasus Region.
Frequently asked questions
What’s the difference between payroll taxes and income taxes?
Payroll taxes vs income taxes often confuse new employers. The main difference is who pays and what it funds:
Payroll taxes are shared between employer and employee, funding social programs like pensions, healthcare, and unemployment insurance.
Income taxes are paid by employees on their earnings and go directly to the state budget.
For example, in Georgia, income tax is a flat 20%, while payroll contributions (like the 2% pension) support retirement savings.
Which payroll taxes are paid by employers only?
In the Caucasus Region, certain employer-only payroll taxes apply:
Georgia: 1% pension contribution.
Armenia: 3–5% social payment.
Azerbaijan: 22–25% social security contribution, depending on the sector.
These cover pensions, unemployment insurance, and occupational safety funds. An EOR ensures each payment is made accurately and on time, avoiding penalties.
How are payroll taxes calculated under an EOR model?
An Employer of Record (EOR) calculates payroll taxes based on each employee’s gross salary, applicable benefits, and country-specific deductions.
Here’s how payroll taxes are calculated step by step:
Determine gross salary.
Deduct employee income tax.
Deduct employee social contributions.
Add employer contributions (pension, insurance).
File and remit all taxes to local authorities.
How do I calculate employer payroll taxes manually?
If you’re not using an EOR, here’s how to compute payroll taxes yourself:
Formula:
Total Employer Cost = Gross Salary + Employer Contributions
Example (Georgia):
Gross Salary: $2,000
Employer Pension: 1% ($20)Total Cost: $2,020
Warning: Misreporting even minor deductions can lead to fines. That’s why most foreign companies rely on EORs for accuracy and compliance.
How are payroll taxes different from personal income taxes?
Payroll taxes are typically shared costs between employer and employee to fund welfare programs.Personal income tax is paid only by the employee and contributes to the national treasury.
Think of it this way:
Payroll taxes = Social safety net.
Income taxes = Government revenue.
In Georgia, both are deducted from salary, but the pension (payroll) portion goes to a separate retirement fund.
How do EORs calculate payroll taxes for employees?
Calculating payroll taxes for employees involves three main deductions before net pay is issued:
Income Tax (based on national rate).
Employee Social Contributions (like pension).
Other mandatory deductions (if applicable).
The EOR manages all calculations automatically through local payroll software, ensuring employees receive the correct net salary while staying compliant with tax authorities.
What are payroll taxes in Georgia, Armenia, and Azerbaijan?
Here’s how payroll taxes are structured in each country:
Georgia
20% Income Tax
2% Pension (1% employer, 1% employee)
Armenia
21% Income Tax
3–5% Employer Social Payment
Azerbaijan
14% Income Tax
22–25% Employer Social Security
3% Employee Social Contribution
Each jurisdiction updates its payroll rates periodically, and an EOR stays current with every legal change to avoid compliance issues.
How can an EOR simplify payroll tax management across multiple countries?
An Employer of Record takes care of everything—calculating, remitting, and reporting payroll taxes to each local tax authority.
With an EOR like Team Up, you:
Avoid manual calculations and compliance mistakes.
Receive a single monthly invoice covering all costs.
Maintain transparency and audit-ready records in each jurisdiction.
This allows your company to hire confidently across the Caucasus without worrying about local payroll complexities.
How do I manually calculate payroll taxes if I don’t use an EOR?
If you prefer to handle payroll in-house, here’s a quick formula:
Net Pay = Gross Salary – (Income Tax + Employee Contributions)Total Employer Cost = Gross Salary + Employer Contributions
However, doing this manually requires monitoring:
Tax rate changes.
Filing schedules.
Employee status (resident/non-resident).
Without an EOR, these small administrative tasks can lead to big compliance risks, especially in multi-country hiring setups.
