EMPLOYMENT BENEFITS IN ETHIOPIA

Poet and Writer Alemseged Sisay

Current Job Position: Senior Compensation, Performance, and Labor Relation Officer in
Hiddassie Telecomm Share Co.
Former Job Positions

1- Head, HR, Material Procurement, and Purchase in Addis Diary Private Company;
2- HR administration Work Process Coordinator (Team Leader) of Kirkos Sub City
Woreda 05 of Addis Ababa City Administration;
3- Lead HRD in Ethiopian Road Construction ;
4- Senior Training Officer in Ethiopia Road Construction;
5- Human Resource Officer in the former Ethiopian Telecommunication Corporation;
6- Junior Human Resource Officer in the former Ethiopian Telecommunication
Corporation;
7- Telecomm Technician in the former Ethiopian Telecommunication Corporation; and
8- Junior Telecomm Technician in The former Ethiopian Telecommunication
Corporation.
Education
- MA in Human Resource and Organizational Development in Education.
- BA in Management
- Telecomm Technician 1 year and Six Month Education Completed.

AUGUST /2019

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CONTENT PAGE

INTRODUCTION ………………………………………………………………………1
CHAPTER ONE
✓ DEFINING COMPENSATION AND WORK TERMINATION
COMPENSATION………………………………………………………….……2
✓ THE MOST KNOWN WORK LEAVE
TYPE OF COMPENSATION IN ETHIOPIA…………......................................3
✓ THE PRACTICE OF WORK TERMINATION COMPENSATION IN
ETHIOPIA ………………………………………………………………………3
✓ A) SEVERANCE PAY ……………………………………………..…………...3
✓ B) PENSION……………………………………………………………………..8

CHAPTER TWO

✓ COMPENSATION AND BENEFIT WITH OUT TERMINATION OF JOB…..9

✓ OCCUPATIONAL INJURY AND DISABLIMENT PAY ……………………..9
✓ OCCUPATIONAL DISEASE AND MEDICAL BENEFIT PAYMENT………10
✓ OTER BENEFIT OF EMPLOYEES ……………………………………………11
✓ RFERENCES ……………………………………………………………………12

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 INTRODUCTION
Employee benefit is a main issue in any modern organization to attain its planned goal. In this
civilized and modern global era most organizations focus in their fiscal and strategic planning
and budget to allocate the benefits of employees financially. Employees benefit issue is not the
will of organization at its basic level. It is a mandatory operational cost put down by law which is
must be obeyed to be performed.
Organizations can think beyond the basic obligation which is set by their country and ILO
legislation to pay more than that to their employees; however, they can’t violate to give the basic
requirements of benefits to their employees which are to be payable to workers. Employee
benefits can have different names and applications based on their style and kind of provisions.
Most benefits are benefits which are payable while employees are on their job; and others are
payable while they left their job permanently before their retirement age.
Ethiopia has predefined benefit plans on its labor and employment laws. But the benefit plans are
different among organizations which are operating in its federal and regional states and
territories. Some organizations of the government obliged to pay what others are not allowed to
pay. The reason to this is organizations in the country are not governed with one similar
employment law. Therefore, some workers with equal effort and contribution to their public are
not beneficial albeit others do get it.
The purpose of this paper is to explain briefly the application and scope of employment benefit
in Ethiopia with brief discussion of applicable laws and procedures of the country.

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 CHAPTER ONE
DEFINING COMPENSATION
Compensation is defined as the benefit that one party shall be granted to collect from the other
due to failure of obligation or due to the provision made by law. Many scholars wrote about
compensations in the perspective of different applications; however the focuses of this article
paper is to deal with employees’ compensation. Some scholars see employee’s compensations as
reward and others as obligation lied up on employers by law.
There are many kinds of compensation that are to be payable. But generally they are classified
in to three: Direct Compensation, Indirect Compensation, and Intangible Compensation. In this
paper we try to see the theoretical definition of compensation in the context of Ethiopian
employment laws. Compensation ordered by criminal court to plaintiff due to the lost benefit or
injury made by the crime maker; compensation ordered by civil court to plaintiff to the lost or
denied financial or material right by the accused person or organization.

The compensation which is known in HRM of organization has not far meaning from the
above definitions and examples. Organizations operate with the sum effort of peoples
who are hired permanently or temporarily. These peoples are called employees of the
organization and their effort leads the organization to its final product output.
Compensation in this context deals with employees versus organizations. Therefore
employee’s compensation has the following meaning:
Employee’s compensation is the benefit of monetary or non monetary reward of
employees from their organization in which they are working on it due to failure of
obligation of employer or due to the mandatory provision by labor law; and vice versa.
In the above definition, the payment is to be done a) to employees, b) to employer.
A) Employers pay to employees when it is mandatory to pay to them in which the law
obliges to pay to them in the following reasons:
✓ If the employer terminates the employment unlawfully;
✓ If the employer terminates employment due to bankruptcy;
✓ If the employee terminates his job if the employer violet his right, and the
humiliation action is deemed by law as an offence ;
✓ If the employer terminates the employment while the company ceases its
operation permanently;

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 ✓ If the employee terminates his job due to industrial safety measures;
✓ If the employment is terminated due to physical disability;
✓ If the employment is terminated due to the Death of the employee.
B) Employees pay to employers if they fail to obey the obligation made by the law: some
employees may leave their job without giving notice to employer and the work they
assigned on it may be stopped to be run so that the employer may lose the product
from that employee performance because of his leave without notifying to employer.
In this case the Ethiopian Labor law has a provision to pay compensation to employer
for his/her unlawful deeds.
THE MOST KNOWN TYPE OF EMPLOYEES COMPENSATION IN ETHIOPIA
The most known type of employee’s compensation in Ethiopia due work termination is
called Severance Pay. Severance pay is one of the compensation scheme in which
organizations oblige to pay while they terminate employees job by their own deliberate
decision or the compensation that is must be payable to employee if the employee leave
his own job on the ground of unlawful action or behavior of the employer; or job
termination made by employer against the provision of law; or the compensation which is
payable to employees if the employer need to reduce employee due to downsizing of
organizational structure which resulted from reduction of earning or profit or bankruptcy.
From the above broad definition we recognize that a severance pay is one of the
compensation type which is payable while the job is terminated permanently but not
applicable to retirement termination. Therefore the aim of severance pay is to aid workers
for resistances of hardship while unplanned job termination comes unto they get another
employment and hired by another organization. Basically we can categorize
compensation in to two:
1- Work leave compensation ,and
2- Compensation on work
The most identified work leave compensations are Severance pay and Retirement
Allowance
The practice of Job Termination compensation in Ethiopia.
Severance pay and Retirement allowance are the two widely known types of work
leave compensations to employees. Let us discuss in brief each of them.

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 A) Severance Pay
Severance pay is payable in Ethiopia in the following legal grounds and
provisions:

I - If the employer terminates the employment unlawfully- Severance Pay

and Back pay to be decided with court.

Employers may terminate employee’s job unlawfully due to their wrong

decision. In this case to get compensation in the form of severance pay
becomes very challenging because the action is taken by managers deliberate
or carless administrative decision. The reason to terminate job in this type of
unlawful termination can be:
• Inadequate knowledge of handling disciplinary measure ;
• Un adequate knowledge of managers about the work to be done;
• Hate of superior to subordinate or disturbed industrial relation of boss and
subordinate;

Inadequate knowledge of handling disciplinary measure: if superiors are not well

informed with the organization’s disciplinary procedures as well as their
countries grievance and disciplinary measure regulations; they can make faults
on discussion which may result employment termination or banning of
employment. Banning of employment is the decision of managers to forbid
employees temporarily from earning salary and duties to predetermined time.
This banning decision is made to restrict the suspected employees to further
investigation of fact finding by the disciplinary committee before taking the final
decision to rigorous faults.
If the employee loses his job with improper decision of the managers or the
committee he shall get his compensation. But the organization assumes as the
employee as fault maker and the termination is made by the ground of discipline.
So, it is not voluntary to pay any kind of compensation to the grieved employee.
In this case, the employee shall appeal to labor litigation courts or other tribunal
bodies. For example to Federal Ombudsman Commission by holding all his

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 relevant documents to win the employer. If he/she wins, the court decides to
him/her to earn all the compensation for unlawful termination of job with re
instating him on his job or not.
Compensation of the worker in the case of unlawful termination in the Ethiopian
labor law is to be decided by grievance hearing courts.
For instance in the Ethiopian labor law since its first declaration unto now the
court decides to compensate the employee if he/she wins the litigation based on
the following three reasonable judgment :

Unless otherwise the employment is terminated by the grounds of termination of employment by

law; which are
- termination of employment with the agreement of employer and employee;
- termination of employment with out and with notice ( related with disciplinary measure
which are allowed by law to employers ); and
- if it is reduction of employee due to cessation of employees in part or in whole resulting
in the necessity of a reduction of the work force which may be due to profit reduction or
technological change.
The court will decide from the following two options in the perspective of the judge but not to
the worker:
1) To pay to the worker compensation and termination of his job permanently;
2) To reinstate the employee to his previous job with compensation payment.
In the first case, if the court assumes in the perspective of the judge that dispute may arise if the
employee returned back to his job; for the dispute settlement ,tribunal may order the dismissal of
the worker upon payment of compensation even if the worker demands to be reinstate on his job.
The worker will get financial compensation but cannot return to his job. The financial payment is
as Severance Pay because the employee uses it to survive from upcoming living challenges and
problems unto he/she gets another job. The fact is, sometimes new jobs can’t be obtained within
three or four months even within a year; the challenging question is at this point. For example ; if
5 ( five) years experienced worker loses his job unlawfully and the court decides to pay for him
compensation in the form of severance pay, according to the labor law articles ( article 39-40 )
the severance payment is not more than the employees 5 ( five) month salary while you calculate
it. If someone served over 34 years and his job is terminated by his own request or by any means

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; his severance pay is not exceed his one year salary. According to the proclamation you can
derive the formula as follows:
Let y, be last month salary while employees leave his job;
Let x, be the number of years served after the first years of service year;
Based on the severance pay calculation:
Basic Severance pay ≤ [y+ (1/3y) x < 12 y]].

Therefore no one can get at least the sum of his 12 month salary for his severance pay; and to the
fact , most of the time it is challenging to obtain another equivalent job within one year in
Ethiopia.
In the second case, if the judge assumes that may not be industrial dispute arises among the
workers and the worker; the employee can be reinstate to his previous job with financial
compensation payment, and the compensation payment reaches to his 6 month salary if the case
is decided by the first instance regional labor court or the compensation reaches to 1 (one) year
salary payment if the case is rewind on the appeal hearing court with severance pay type of
compensation in according to the country’s proclamation.
Option 1- Compensation to Permanent employees if the court decides not to reinstate on job.
✓ If the decision will be finished at court:
Compensation = back pay of not more than six months salary+ compensation according to the
case of termination + notice period salary
Notice period salary :
- 1 months salary to employee who completed probation period and served up to a year;
- 2 month salary to employee who served from 1 year up to 9 years in the company ;
- 3 month salary who served over 9 (nine) years.
- 2 month salary to whom that are completed probation period and terminated his work
due to reduction of work force.

If the court approved that the employer did violate the worker human right and it is an offensive
act by the criminal law ; in the case of about to happen dangers ( imminent ) and the employer
was not aware to this industrial safety measures; and the employer has been repeatedly failed to
fulfill the obligation towards the worker which is included in the labor law proclamation the

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above severance pay is calculated as
Severance pay = basic severance pay + 2 month salary which is equals to Severance pay due to
bankruptcy ≤ [y+ (1/3y) x < 12 y]] + 2 month salary. Article 40 (1) and (2) are basic severance
pay and (3) is added to bankruptcy. Article 41 is added on article 40 (1) and (2) for violation of
employer on employee’s right.

Option 2- Compensation to Permanent employees if the court decides to reinstate on job.

✓ If the decision will be finished on the first instance court:
Compensation= back pay of not more than six months salary

✓ If the decision will be ended at appeal hearing court :

Compensation =back pay salary not exceeds from a year salary

(C) Compensation to temporary employees in which the court decides

Compensation = sum of wage up to completion date of the contractual agreement not
more than 6 (six) month salary.

NB: Before taking the case to courts if the employer is willing to make correction
on its wrong doing on the employee right; and if the employee agree to accept it; all the
above compensation paying methods which are mentioned in the above paragraphs of
“part I” can be payable by the employer without waiting before the court decides on the
case. Therefore the case will be terminated.

II- If the employer terminates employment due to bankruptcy;

In accordance with article 39 (A) of the labor law proclamation of Ethiopia, a contract
of employment can be terminated because of cease of the company’s operation
permanently due to bankruptcy or in any other reason. Any other reason means any
reasons which are causes to bankruptcy of the company. Employees who are expected
to be terminated are not more than 10 % of the average number of employed stuffs of
the company before 12 months of the reduction action. This means in big size
organizations number of employees who are not employed before a year are not

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 considered to reduction. Therefore the number of employees to be reduced is a few
while we compare with the total employee size of the company’s stuff. The reduction
of employees is must be undertaken to over 10 days, and the company shall notify to
its employees before 2 (two) months of job termination. (Refer article 29 and 35 (D)
of labor proclamation of Ethiopia).
Severance pay of compensation is payable while termination of employment is taken
by the company due to bankruptcy. The amount of severance pay in this case will be
two month salary increment on the basic formula of severance pay. i.e

Severance pay due to bankruptcy ≤ [y+ (1/3y) x < 12 y]] + 2 month salary +
notice period salary

II- SEVERANCE PAY IF THE EMPLOYEE TERMINATES HIS JOB BY HIS

OWN WILL
Employees can terminate their job by their own will in to two conditions
1- If they want to leave without the employer fault ;or
2- If they want to leave their job without notice by the employer unlawful behavior
and act.
In the first cause, the employee needed to leave the job for his own reason because he may not
want to stay more days on the job that he has been doing. In this case, he may get severance pay
if he served the minimum five years.
If he served above 5 (five) years in this organization, the employee shall be entitled to grant
severance pay which is only the basic severance pay in accordance with article 40 (1) and (2)
only; which is only Basic Severance pay ≤ [y+ (1/3y) x < 12 y]].
In the second cause, Employees may lose their job with employer’s unlawful action suddenly. In
this Cause , the employee shall get severance pay as of the notice period mentioned above with
basic severance payment.

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 B) PENSION
Pension is the mechanism of distributing loss among the entire employees of a country to pay
back some calculated allowance unto the death of employees after their retirement age. This is
done by pension fund. in accordance with the Ethiopian social security proclamation Pension
fund means the established fund for the purpose of collecting pension contribution and affecting
benefit payments (Eth Proc 715 (2) -12 ).
Most organizations which are established in accordance of their perspective law has a pension
plan to register in private organization Social security Agency if they are not government
owned; and others government owned organizations are registered in government organization
employees social security agency for their employees retirement plan.
Some organizations which are not government owned has an insurance policy purchased from
insurance company for their employees retirement compensable allowance if they don’t want to
be registered by private organizations social security agency. In accordance with Insurance
proclamation number 746/2003 of Ethiopia, article 24(4); organization can purchase among long
term insurance business services the pension insurance service to their employees.

CHAPTER TWO
COMPENSATION AND BENEFIT WITH OUT TERMINATION
OF JOB
As you learnt from yours formal management education or as you knew before, there are two
types of Compensation. Many literatures have ignored the defining and classifying compensation
in the perspective of without termination of and compensation with job termination Principles.
Broadly compensations are categorized in to two; which are described in the first chapter are:

✓ Direct Compensation,
✓ Indirect Compensation.
Without termination of job benefits and compensations are included in Direct
Compensation and Indirect Compensations; because both direct and indirect
compensations are payable or prepared to be as a gift to employees who are still working

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 their job, i.e. to employees who are not fired from job, or left their job by their will or by
any means.
The above two types of Compensations have overlooked the compensations which will
be payable while job terminates. Therefore for broadly employees compensation is
classified in to two, which 1) Compensation while the job terminated, and 2)
Compensation without termination of job. Broadly, these classifications are tailored as
the following:
1) COMPENSATION WITH OUT JOB TERMINATION
- Direct Compensation, and
- - Indirect Compensation
2) COMPENSATION WHILE THE JOB TERMINATED
- Severance pay
- Back pay salary
- Reinstating on the previous Job

Compensation is also payable to employees in cash or in material, or by giving to them a

physical rest while they are employees.

The main type of compensations which organizations are rendering to their employees are
categorized in to the following groups. All are compensation without job termination These are:

Indirect Compensations

- Occupational Injuries and Disablement Payment ;

- Occupational disease and Medical Benefit Payment
- Benefit of Rest from work
(Annual Leave, Maternity leave, weakly rest day, Public holiday rest, special leave for
marriage, death of relatives, leave for labor union representatives, leave for special
purpose sick leave)
- Education fees
- Telephone

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 - Obligatory material provision benefit / example : Shoe and Gown to Mechanics , Hand
Gloves to Cleaners
- Executive benefits / example: Car with fuel, Position allowance, house rent, etc/
Direct Compensations
- Salary increment,
- Performance Related Bonus,
-
1- Occupational Injuries and Disablement Payment

Occupational injuries can happen while employees are at work place by performing their work.
Most non government owned organizations has an insurance plan to their employees while an
occupational injury occurs for their disablement payment to compensate. Employees who work
in government owned organizations, unless otherwise the organization purchased an insurance
they are covered with Government Employees Social Security Agency’s Employments Injury
Pension and Gratitude Scheme. According to the social security’s proclamation of government
employees (proc no 714/2003 article 27); all government employees are insured for the
occupational injuries and they can accept the disablement payment if they are injured. According
to the degree of disability they will be payable for their disablement: according to the
proclamation, there are four types of disablement:

- Temporary disablement ,
- Permanent partial disablement,
- Permanent total disablement, and
- Death

All not government owned organization employees are beneficial if their organization is
registered in to Private Organization employees Social Security Agency as of Government
Employees. The provisions are made in Proclamation number 715 /2003 of Ethiopia. But the
observed trend is different. Most organizations purchase personal accident insurance according
to the insurance proclamation of Ethiopia. They pay the pension contribution as well as the
insurance scheme contribution by deducting from employee’s salary and from their company
contribution.

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2- Occupational disease and Medical Benefit Payment

Modern and profitable organizations have their own Medical Centers for their employee good
health. They establish health centers and hire health professionals to their employee’s health.
Therefore employees benefit from this and this is one type of compensation by their organization
for better performance.

To long years of time most Government owned organization employees specifically, the civil
service employees have not been guaranteed occupational disease and medical benefit payment
compensations unless otherwise they are employees of public enterprise that have been
established for profit making to government. This has been the disadvantage of being the civil
sectors stuffs in Ethiopia and the de motivating factor among other issues; for instance very low
payment salary scale issues of health sector professionals, every level teachers and university
lecturers and professors, municipality workers and professionals with down salary scales.
Defense force and other military force stuffs have well occupational and medical benefit
schemes since the emperor Haile Selassie era albeit their salary scale have not motivating others.

Others well managed private organizations or share companies, or Corporations purchase health
insurance schemes to their employees if they can’t provide medical centers at their work place.
Insurance companies used to refund the expense made by employees to their medical expense
and organizations usually pay the premium to insurers.

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 REFFERENCES
- Ethiopian labor law proclamation /2019
- Federal government employees administration Proclamation 1064/2018,
- Ethiopian Proclamation-no-799-2013-vehicle-insurance-against-third-party-risks-
proclamation,
- Ethiopian Proclamation-no-746-2012-insurance-business-proclamation,
- Ethiopian Government employees pension Proclamation 714/ 2011,
- Ethiopian Private Organization employees Pension Proclamation 715/2011.

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