Payroll deductions: four headings
Four deductions are made from a salary in Azerbaijan, and each has its own brackets and its own sector differences. The point most often confused: some of it is withheld from the employee, and some is paid by the employer on top. "The salary is 1,000 manats" therefore means three different numbers - gross, take-home, and the employer's full cost.
The four deductions
| Deduction | From the employee | From the employer |
|---|---|---|
| Income tax | yes | - |
| Social insurance | yes | yes |
| Unemployment insurance | yes | yes |
| Compulsory medical insurance | yes | yes |
How the brackets work
Most of the deductions are bracketed: one rate applies up to a threshold and another above it. In some brackets the part up to the threshold is a fixed amount rather than a percentage.
From 2019 the non-oil private sector had a seven-year concessionary regime: income tax was zero up to 8,000 ₼ a month. That regime ended on 31 December 2025. From 1 January 2026 income tax is 3% up to 2,500 ₼, then 75 ₼ + 10% between 2,500 and 8,000 ₼, and 625 ₼ + 14% above 8,000 ₼. If monthly income is at or below 2,500 ₼, the first 200 ₼ is exempt (Tax Code 102.1.6).
The lowest bracket keeps rising: 5% in 2027 and 7% from 2028. This is not a one-off change but three consecutive years of updates.
Important: the percentages and thresholds change from time to time, and the concessionary regime has its own end date. The example below is calculated with ERPONA's starter rate table and must be confirmed with an accountant. This is not legal advice.
Worked example: a gross salary of 1,000 ₼
For the non-oil private sector:
| Line | Amount |
|---|---|
| Gross salary | 1 000,00 ₼ |
| Social insurance - employee | 86,00 ₼ |
| Unemployment insurance - employee | 5,00 ₼ |
| Medical insurance - employee | 20,00 ₼ |
| Income tax (1,000 - 200) × 3% | 24,00 ₼ |
| Employee take-home | 865,00 ₼ |
| Employer contributions | 189,00 ₼ |
| Total cost to the employer | 1 189,00 ₼ |
So a 1,000 manat position actually costs the company 1,189 manats, while the employee receives 865. In 2025 the same salary left the employee with 889 - the difference is the concessionary regime ending. The commonest budgeting mistake is planning with the first number.
To check your own figure: the payroll calculator.
How a system should handle this
Writing the rates into the program code is the most common mistake. On the day the law changes, the company has to wait for a release - and that day always comes. The right answer: rates are stored as table rows in the database, each with an effective date.
- The accountant adds the new rate themselves
- Past periods keep their old rates
- It is visible which row a calculation was based on
One more point is an accounting question: is income tax calculated on gross pay, or on gross less social insurance? That should not be hidden in code - the accountant must see which basis is in use.
Next
In ERPONA payroll is a monthly run that creates one journal entry for all employees: 45 separate entries for 45 people make the ledger unreadable. The accountants' page · Request a demo