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trAre income tax and other insurance contributions withheld from the benefit paid to an employee based on a sick leave certificate?
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Are income tax and other insurance contributions withheld from the benefit paid to an employee based on a sick leave certificate?
The benefit paid to an employee due to temporary incapacity for work is treated differently from salary in terms of tax and social insurance obligations. Therefore, it is particularly important for employers to determine which taxes and insurance contributions apply to an amount paid on the basis of a sick leave certificate.
The benefit paid for temporary incapacity for work is considered part of the employee’s monthly income from employment. Therefore, the benefit must be taken into account together with the employee’s other employment-related income earned during the month and subjected to income tax by the employer.
In other words, a benefit paid to an employee based on a sick leave certificate is not considered a payment that is fully exempt from income tax. The employee’s total income for the relevant month is determined together with other employment income, and income tax is calculated taking into account the exemptions and allowances provided by law.
But are social insurance contributions withheld from a sick leave benefit?
According to paragraph 15 of Article 15 of the Law of the Republic of Azerbaijan “On Social Insurance”, a benefit paid for temporary incapacity for work from the insurer’s funds is included among the types of income that are not subject to mandatory state social insurance contributions.
Therefore, mandatory state social insurance contributions are not calculated on the benefit paid to an employee for the period of temporary incapacity for work.
At the same time, payments that are not included in salary, including social and compensatory payments made to employees or to third parties for the benefit of an employee, are not considered income subject to unemployment insurance or compulsory health insurance contributions.
Thus, the key point is that a sick leave benefit is subject to income tax, but mandatory state social insurance, unemployment insurance, and compulsory health insurance contributions are not calculated on this payment.
Legal basis: Article 102 of the Tax Code, Article 9 of the Law “On Unemployment Insurance”, and Article 15 of the Law “On Social Insurance”.
The benefit paid to an employee due to temporary incapacity for work is treated differently from salary in terms of tax and social insurance obligations. Therefore, it is particularly important for employers to determine which taxes and insurance contributions apply to an amount paid on the basis of a sick leave certificate.
The benefit paid for temporary incapacity for work is considered part of the employee’s monthly income from employment. Therefore, the benefit must be taken into account together with the employee’s other employment-related income earned during the month and subjected to income tax by the employer.
In other words, a benefit paid to an employee based on a sick leave certificate is not considered a payment that is fully exempt from income tax. The employee’s total income for the relevant month is determined together with other employment income, and income tax is calculated taking into account the exemptions and allowances provided by law.
But are social insurance contributions withheld from a sick leave benefit?
According to paragraph 15 of Article 15 of the Law of the Republic of Azerbaijan “On Social Insurance”, a benefit paid for temporary incapacity for work from the insurer’s funds is included among the types of income that are not subject to mandatory state social insurance contributions.
Therefore, mandatory state social insurance contributions are not calculated on the benefit paid to an employee for the period of temporary incapacity for work.
At the same time, payments that are not included in salary, including social and compensatory payments made to employees or to third parties for the benefit of an employee, are not considered income subject to unemployment insurance or compulsory health insurance contributions.
Thus, the key point is that a sick leave benefit is subject to income tax, but mandatory state social insurance, unemployment insurance, and compulsory health insurance contributions are not calculated on this payment.
Legal basis: Article 102 of the Tax Code, Article 9 of the Law “On Unemployment Insurance”, and Article 15 of the Law “On Social Insurance”.