Hire Contractors in Azerbaijan

The international workforce is evolving, with independent contractors and freelancers comprising more than 46% of the workforce across most sectors. 

Azerbaijan is no different, as an increasing number of professionals choose to be self-employed and work on a project basis. 

Hiring contractor in Azerbaijan is a great option for accessing skilled and flexible talent while complying with local laws. 

In this guide, we will discuss how to hire, pay, and find contractors in Azerbaijan while complying with the law. We will also explore how Skuad Agent of Record (AOR) can be a cost-effective HR solution for hiring and managing contractors.

How to Hire Contractors in Azerbaijan

Hiring independent contractor in Azerbaijan must be well-planned to ensure legal compliance, hassle-free payments, and efficient contract execution. 

Use these steps to hire contractors effectively:

Step 1: Decide Contractor vs. Employee Status

Prior to hiring, verify that the employee is an independent contractor under Azerbaijani law. A contractor:

• Works independently without specific working hours.
• Utilizes their own equipment and resources.
• Is not eligible for employee benefits such as paid time off or social security.
• May work for more than one client.

Step 2: Confirm Work Permit & Residency (If Hiring Foreign Contractors)

• Local contractors in Azerbaijan are not required to have special permits.
• Foreign contractors working in Azerbaijan need a Temporary Work Permit from the State Migration Service unless exempt.
• Remote foreign freelancers working outside of Azerbaijan do not require a work permit but must be tax-compliant in their home country.

Step 3: Write a legally binding contract

Draft a contract which explicitly states:

• Scope of work & deliverables
• Payment terms (currency, schedule, method)
• Intellectual Property (IP) rights
• Confidentiality & NDAs
• Dispute resolution (preferably arbitration)

Also, ensure that contracts are bilingual (Azerbaijani + English) for legal enforceability.

Step 4: Maintain tax compliance

• Azerbaijani contractors are required to be registered for taxes.
• Foreign companies paying Azerbaijani contractors can be required to withhold 10% tax unless a tax treaty is applicable.
• Select the best available Azerbaijan payroll systems. 

Step 6: Safeguard Intellectual Property (IP) and confidentiality

• Indicate that all work done is owned by your company (if relevant).
• Utilize Non-Disclosure Agreements (NDAs) to protect business information.
• When employing tech or creative experts, consider trademark and copyright registration.

Step 7: Create a dispute resolution process

• Azerbaijani courts are slow, so arbitration is included in the contract.
• The local option is the Baku International Commercial Arbitration Court.
• Use the London Court of International Arbitration (LCIA) or Singapore International Arbitration Centre (SIAC) for foreign disputes.

Hiring contractors through Skuad AOR

The biggest advantage of contractor outsourcing in Azerbaijan through ​​Skuad AOR is that we manage compliance, payments, and contract management on a single-click SaaS platform.

You can use Skuad to:

• Onboard contractor in Azerbaijan: Give hiring information.
• Compliance check: Guarantee that the contractor's classification conforms to Azerbaijani regulations.
• Contract creation:  Legally compliant agreement with clear terms.
• Payment & managing contractor tax in Azerbaijan – Skuad processes secure payments and tax reporting.
• Regular support: Includes documentation, work permits (if required), and compliance with laws.

How to find contractors in Azerbaijan

To locate contractors in Azerbaijan, you may rely on:

• Freelance platforms (Upwork, Fiverr, PeoplePerHour, Toptal)
• Local Job Portals (Boss.az, Rabota.az, Jobsearch.az)
• Look for companies on the tax ministry's website of the Azerbaijani government.
• Tap into industry connections in the area, especially Baku and 
• Ask for word-of-mouth suggestions for good contractors

How to pay contractors in Azerbaijan

Paying contractors in Azerbaijan demands a balance between compliance, cost-effectiveness, and speed. 

Below are the most effective approaches:

Hiring contractors directly vs Hiring contractors via Skuad

Here’s a quick summary of how hiring contractors via Skuad will benefit you more than hiring directly:

Cost of Hiring Contractors in Azerbaijan

Azerbaijan contractor hiring involves several costs, such as compensation, taxes, and administrative fees. Here is a summary of the major cost drivers:

How to Convert a Contractor into an Employee in Azerbaijan

There is no standard maximum time for a contract, but you must justify that a longer fixed-term contract is acceptable. Therefore, it is beneficial for you to convert your contractor in Azerbaijan to a full-time employee. 

However, the process involves legal, tax, and payroll changes to meet labor legislation. Follow this step-by-step process for a smooth conversion:

Step 1: Determine the need for conversion

• Determine if the contractor's job category will fit employee status (e.g., regular work schedule, company-provided equipment).
• Consider business advantages like retention, long-term commitment, and compliance risk reduction.

Step 2: Prepare an employment contract

• Prepare a written employment contract covering salary, benefits, working hours, and termination policy.
• Comply with the Labor Code of Azerbaijan, including minimum wage, probation period, and annual leave.

Step 3: Register the employee with the authorities

• Register the employee with the State Tax Service of Azerbaijan for tax and social security purposes.
• Report work information to the State Social Protection Fund for obligatory social insurance payments.

Step 4: Modify payroll & benefits

• Transfer contractor payments to monthly wage (in AZN).
• Withhold income tax (14%) and contribute to social security (25% employer, 3% employee).
• Provide obligatory benefits like paid vacation leave, sick leave, and overtime compensation.

Step 5: Compliance & onboarding ensure

• Issue an official offer letter and onboard the employee with HR policies, training, and company benefits.
• Modify internal systems to indicate new employment status.

If payroll, tax, and compliance management are overwhelming, Skuad’s employee-contractor management software takes care of the entire conversion process and facilitates fast, risk-free onboarding of your new employee.

Challenges of Hiring Contractors in Azerbaijan

If you want to hire contractors in Azerbaijan, be prepared to deal with certain legal, financial, and operational issues peculiar to the nation. Here is what you need to look out for:

1) Contractor misclassification risks

• The Labor Code of Azerbaijan distinguishes between employees and independent contractors. Suppose a contractor is proven to work under the same conditions as full-time employment (fixed hours, one client exclusively). In that case, authorities can reassess them as employees and impose penalties.
• Therefore, you must structure agreements carefully to maintain a clear contractor relationship.

2) Local taxation and payment compliance

• Independent contractors in Azerbaijan pay Simplified Tax (for those whose income is below AZN 200,000 per year) or Income Tax (14% for income of more than AZN 8,000 yearly).
• If your business is incorporated in Azerbaijan, you will be obligated to record keeping and ensure contractors pay taxes.
• The official currency is the Azerbaijani Manat (AZN), and currency exchange rates may affect contractor salary in Azerbaijan if you make payments in USD or EUR.
• Payment of contractors from foreign accounts may entail banking restrictions, extra charges, and delays.

3) Work permit and foreign contractor residency restrictions

• If you’re hiring a foreign contractor working physically in Azerbaijan, they may need a Temporary Work Permit issued by the State Migration Service.
• Foreigners who are not authorized can be deported, and your company can be fined for failure to comply.

4) Barriers to business contracts

• Most financial and legal paperwork must be in Azerbaijani, and official contracts must be translated and notarized to be legally binding.
• Numerous contractors understand English, but technical or legal terminology misunderstandings can lead to disputes.
• Azerbaijan's IP enforcement laws are developing, so contractually safeguarding your intellectual property is important.
• Have robust NDAs and IP transfer provisions in contractor contracts to avoid misuse of proprietary work.

Modern-day businesses use Agent of Record Azerbaijan-specific HR solutions like Skuad for contractor management even without establishing a local entity.

Hire Contractors in Azerbaijan with Skuad

Employing contractors in Azerbaijan involves legal compliance, taxation, and payment processing complexities. 

Skuad, however, simplifies the process by allowing businesses to hire, pay, and manage independent contractors without establishing a local entity.

Skuad AOR/EOR solutions let you:

• Onboard high-quality Azerbaijani talent within minutes while staying compliant with local labor regulations.
• Process global payments in multiple currencies with safe, timely settlement.
• Avoid risks of misclassification, safeguarding your company against legal issues.
• Simplify contract management using legally compliant agreements written specifically for Azerbaijani legislation.

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FAQs

Can I hire a foreign contractor?

Yes, you can hire foreign contractors. Many businesses use AOR solutions like Skuad to manage multiple contractors compliantly with local labor laws.  

What is the average salary in Azerbaijan?

The average salary in Azerbaijan is around 700 AZN monthly, or about 400 USD. EOR solutions like Skuad can help you manage payroll compliantly. 

Do I need to send a 1099 to a foreign contractor?

No, if you're hiring contractors in Azerbaijan, you typically don't need to give them a 1099 form. The IRS mandates Form 1099-NEC for reporting payments made to U.S.-based contractors, but foreign contractors are not required.

How do I legally hire an independent contractor?

You can legally hire an independent contractor by drafting well-written contracts. Alternatively, you can use Agent of Record (AOR) solutions like Skuad to hire contractors from more than 160 countries in compliance with local labor laws. 

What is the employment contract in Azerbaijan?

An Azerbaijani employment contract is a legally binding agreement between the employer and the employee. It must contain a stipulation regarding working conditions, social security contributions, paid holidays, and discharge compensation. It shall comply with the Republic of Azerbaijan Labor Code and may have a fixed-term or indefinite period. 

The agreement should be signed in the official Azerbaijani language and registered by the State Employment Service. Independent contractors are covered under civil agreements, not worker benefits, making classification and compliance vital in recruiting in Azerbaijan.