Understanding Payroll in Egypt: Complete Guide for Employers

Egypt boasts a swiftly growing economy and enjoys a reputation as Middle East and North Africa’s business hub. It is one of the few countries that continued developing after the COVID-19 pandemic. 

The country’s GDP increased by 3.6% in 2020 and 3.3% in 2021. Egypt’s GDP is expected to exceed 5% in 2022 and continue to grow in the coming years. The country’s GDP value contributes 0.02% of the world’s economy.  

Egypt presents a substantial domestic market, robust GDP growth, and a strategic location. It is one of the biggest recipients of Foreign Direct Investment (FDI) in the region. Moreover, Egypt is one of the most significant populous countries in North Africa and the fourth highest population on the African continent, with approx. 103 million residents. Those companies intending to enlarge their businesses in Egypt can benefit from the vast and knowledgeable talent pool the country has to provide. 

When establishing a company here, you must set up all-inclusive payroll policies and procedures in Egypt. These policies and practices adhere to the payroll compliance checklist in Egypt. 

Let’s go through the below guide describing everything you need to know about payroll in Egypt.

How Is Payroll Calculated in Egypt?

A typical payroll in Egypt comprises gross salary and social security contributions. However, payroll calculations also take into account other factors. These elements are as per the payroll compliance checklist in Egypt. 

The following steps eliminate your confusion on how to do payroll in Egypt and also discuss payroll rules and regulations in Egypt:

Income tax

All employers must calculate the Egypt employer payroll taxes and salary every month. These amounts should be remitted to the corresponding tax offices within 15 days of the following month.

Employees with “No Citizenship status” or “Temporary Residence Permit” must file a Tax Return on the 1st of January every year. Moreover, employers must file a quarterly tax return. You have one month at the end of each quarter to submit your quarterly tax return requests. 

The employer has to make an annual reconciliation of the salary tax at the year’s end. It helps to determine if any discrepancies exist. If found, it must be remitted to the reliable Tax Office within January of the following year.

When due dates are not abided by, firms must consider the penalties of 2% and the discount rate (currently 11%) confirmed by the Central Bank of Egypt.

Social security contributions

The Egyptian constitution mandates that the state cover health and social security services, unemployment, retirement, and old age pensions. Residents, non-residents, government, and non-government sector employees are covered under social security contributions.  

The social security system in Egypt includes the following:

• Occupational accidents insurance
• Unemployment insurance
• Old age, disability, and death insurance
• Sickness insurance
• Social care for pensioners 

The present Public Program in Egypt covers approximately 80% of employees, the maximum among the developing countries. Contributions depend on two components:

• Subscription wage: EGP 1,400
• Maximum limit: EGP 9,400

Payment for leaving employees

It is done on the employee’s last payslip during employment contract termination. The employee’s final payment should be paid by the end of the month, and employers should inform social security of the employment contract’s termination.

Expenses

The expenses are calculated in the payroll only if they are considered a part of the employee’s income. Each company should abide by their expenses policy.

Important Elements of Salary Structure in Egypt

Several elements comprise the salary structure in Egypt. These include: 

Cost to Company (CTC)

When a company hires an employee, it incurs an annual amount known as the CTC. It covers the employee’s net pay, gross pay, additional benefits, payroll deductions in Egypt, etc.

Gross salary

It sums up all the elements that constitute the employee’s compensation package. Gross salary denotes the total income before considering any payroll deductions in Egypt, like social security contributions, health insurance, etc.

Net salary

The amount left after calculating all deductions from the gross salary is called the net salary. It is added to the employees’ bank accounts.

Basic salary

The base salary is 35 to 50% of the total compensation. The basic pay is decided before any bonuses or deductions are considered. It depends on the employee’s designation within the organization and the sector’s activities. This is the amount an employee takes home after all the additions and deductions from the annual package.

Total package

It includes the base salary and employee benefits (including employer retirement contributions, vehicle costs, and other marginal benefits).

Allowances

They are work-related expenditures funded by employers to support their employees. Every employee is entitled to multiple allowances during their employment. But standard allowances are provided to all employees regardless of the industry and the company. The standard allowances include food, transport, accommodation, and medical allowance. Other standard allowances include dearness allowance and leave travel allowance.

How to Set Up a Payroll in Egypt

It can be challenging to set up payroll in Egypt if you are doing it for the first time. Check the process on how to do payroll in Egypt below:

Step 1: First, sign up for an Employer Identification Number (EIN). It denotes how the IRS recognizes employers. It is essential when paying taxes and filing tax forms.

Step 2: You are accountable for withholding taxes only for bonafide employees. So, you must determine if any of their staff members are independent contractors. Subsequently, you must evaluate all employees’ exemption status. 

Step 3: Request the employees to complete withholding certificates that help you to calculate the income tax to deduct from the employee wages.

Step 4: Carry out open enrollment to calculate the costs of benefits like retirement savings plans, health insurance premiums, and other employer-sponsored benefits. This will help you to account for their payroll correctly.

Step 5: Review state laws on pay frequency when creating a payroll schedule. You can select a payroll calendar that best suits you and your employees if there are no requirements. The payroll process in Egypt is organized monthly.

Step 6: Select a payroll system considering your payroll needs. The available options are talent aquisition an accountant, using traditional bookkeeping methods, buying payroll software, or outsourcing payroll processing to a reliable payroll provider. Usually, it is best to outsource to a payroll provider because it saves time, limits errors, and limits the threat of tax penalties.

Step 7: Save your payroll records in digital format or print to conform to the guidelines. Alternatively, you can use online payroll software that offers extra security for cloud-based data storage.

A Step-by-step Process of Payroll Processing in Egypt

Let’s look at all the steps involved in processing the payroll in Egypt:

Step 1: Choose a payroll system

Egypt uses three basic payroll systems:

• Manual payroll – The manual payroll is commonly processed on a spreadsheet or paper.
• Payroll software – If you use payroll software, you benefit from core payroll assistance, time tracking, and other services.
• Outsourced payroll – A third-party company handles payroll, payroll tax, and payroll accounting in outsourced payroll.  

The choice for these payroll systems depends on employee benefits, your business’ growth, and the intricacy of your state’s payroll tax.

Step 2: Create a payroll policy

• When creating a payroll policy, you need to review the local labor regulations, federal labor laws, and state overtime laws. 
• Some of the most important aspects to consider are pay dates, each pay period’s length, and the time when the employees get paid. 
• You must decide whether to pay the employers by direct deposit, cheque, or other payment modes. 
• The payroll deductions in Egypt and withholdings must also be considered.

Step 3: Collect employee information

The documents usually collected from the employees include the following:

• Employees’ name, email address, mailing address, and Social Security number
• Bank account details and routing numbers (if the employee opts for direct deposit)
• Job title, date hired, and work location
• Voluntary deductions (retirement plan documents and health insurance documents)
• Medical insurance forms
• Withholding certificates
• Copies of any existing garnishment orders
• Classification and exempt status

 Step 4: Check timesheets and attendance

• Next step in the Egypt payroll guide is to check employee timesheets.
• You need to decide whether to allow employees to manually update a time tracking sheet or track their time and attendance in software.
• Check the number of hours worked, overtime, leaves, and other aspects to calculate payroll.

Step 5: Calculate taxes and other incentives

• This step of the Egypt payroll guide involves reducing Egypt employer payroll taxes and including any incentives to the employee payslip.

 Step 6: Approve and submit the employee payroll

• This step of the Egypt payroll process involves checking the legitimacy of the hours the employee has worked. 
• After verifying all the employee time cards, you can process the payroll and release employee payments.

Step 7: Report and update payroll records 

• Employers should update the payroll records in the payroll system. They show all the necessary details about an employee’s salary. Moreover, they also show why the employees are being paid the ‘X’ salary for a specific month, contributions of payroll tax in Egypt, and additions.

Payroll Contributions 

Both employers and employees should contribute to social security in Egypt. It is one of the critical Egypt payroll requirements. These contributions differ according to the salary.  

Employers contribution

• Basic insurance: 26%
• Variable insurance: 24%

Employee contribution

• Basic insurance: 11%
• Variable insurance: 14%

Employee Income Tax

Payroll Cycle

The payroll frequency is monthly in Egypt. The payment should be released by the 5th of next month. Note that there is no legal provision for 13th-month salaries in Egypt.

Egypt Payroll Options for Companies

Depending on requirements and budget, an employer can choose various options to process payroll in Egypt payroll in Egypt. These options for HR payroll in Egypt are 

• Remote payroll: If the companies intend to add the subsidiary to the prevailing payroll, they can choose remote payroll via their parent company. But employees from every country will follow distinct payroll rules and regulations in Egypt.
• Internal payroll: If your company envisions a long-term business in Egypt, it can invest in an internal payroll within your subsidiary to pay the employees. However, it needs you to hire an HR workforce which will add up to the total expense. It will look after HR payroll in Egypt.
• Egypt payroll processing company: Companies can partner with a local Egypt payroll processing company to outsource their payroll. You are still compliant with your payroll if you choose this option.
• Egypt payroll outsourcing: Companies can join forces with a global EOR provider like Multiplier. It aims to fulfill Egypt’s payroll requirements. This option of the Egypt payroll guide removes all the hassles about payroll processing in Egypt and lets you focus on expanding the company. Our team of experts at Multiplier administers all the payroll processes and guarantees that all those procedures follow compliance standards.

Entitlement and Termination Terms

Employers are required to mention entitlement and termination terms on an employee’s employment contract. It protects you from any future legal complications. 

Entitlement Terms in Egypt

In Egypt, an employee gets the following benefits as vital Egypt payroll requirements:

Holiday accrual / Calculations:

According to Egyptian Labour Law, employees must receive 50% of the base salary as the holiday allowance. This same rule applies to the Christmas allowance. In some instances, the employer may provide a holiday allowance more than specified by the law.

Annual leave:

In Egypt, employees are eligible for 21 days of paid annual leave if employed for a minimum of 6 successive months. Those employees who have worked for ten years of consecutive employment or are over 50 years of age are eligible for 30 days of paid annual leave.

Maternity leave:

Female employees who have worked for ten successive months are entitled to a paid maternity leave of 90 days with a full salary. They are also entitled to up to 90 days after the birth of a baby. During maternity leave, the employer pays 100% of the salary. After returning to the workplace, the female employees are entitled to two thirty-minute nursing breaks or one-hour nursing breaks every day for up to two years from the baby’s date of birth.

Sick leave:

Employees are entitled to sick leave for up to 6 months in Egypt if they can furnish a professional medical certificate as proof of sickness.

This sick leave is paid at a rate ranging from 75% to 100% of the total wage. The employees are entitled to 75% of the standard salary rate for the initial 90 days of sick leave. Subsequently, it increases to 85% of the regular pay rate for 90 days.

Termination terms in Egypt

In Egypt, the notice periods are determined per the employment contract/agreement and collective agreement. It also depends on the employee’s service duration with the employer. The notice period is two months if the employee has finished less than ten years of service. The notice period is three months if the employee has completed more than ten years of service.

Usually, termination and severance can be difficult in many countries, including Egypt. Hence, we recommend you mention this data in the employment contract before selecting a payroll service in the country. Moreover, organizations should approach a special committee with judicial capabilities at the Ministry of Migration and Manpower to terminate a worker.

Egypt Payroll Processing Company

Setting up payroll in Egypt can be challenging for foreign investors. Companies need to take care of compliance with Egyptian Labor laws and local employment laws while setting up payroll. By partnering with an international PEO company like Multiplier, you can explore the maximum benefits of Egypt’s payroll policies and procedures.

How Can Multiplier Help With Global Payroll?

Egypt’s payroll management entails payroll processing, payroll cycle, and more. The entire process can be tedious and time-consuming for your business. You can easily set up the Egypt payroll process by contacting a global PEO platform like Multiplier. It can fulfill all the Egypt payroll requirements.

Multiplier is known globally for offering EOR solutions to international corporations in 150+ countries. Our professionals handle payroll processing, management, employee onboarding, and other related tasks. Our SaaS-based PEO services ascertain that your payroll process in Egypt accomplishes smoothly. Contact us to know more about our services.