en
Information on Termination of Employment Contracts and Tax Matters in Case of Staff Reductions
Information on Termination of Employment Contracts and Tax Matters in Case of Staff Reductions
We hereby inform you that in the event of a reduction in the number of employees or staff positions, before the employment contract is terminated by the employer under Article 70, subparagraph "b" of the Labour Code, the employee must be officially notified by the employer based on their length of service within the following timeframes:
- if the employee’s length of service is less than one year – at least two calendar weeks;
- if the service is from one to five years – at least four calendar weeks;
- if the service is from five to ten years – at least six calendar weeks;
- if the service is more than ten years – at least nine calendar weeks.
We also inform you that when an employment contract is terminated under subparagraphs "a" and "b" of Article 70 of the Labour Code, the employee shall be paid severance compensation by the employer based on the employee’s length of service under the employment contract(s), in the following amounts:
- if the length of service is less than one year – in the amount of one average monthly salary;
- from one to five years – not less than 1.4 times the average monthly salary;
- from five to ten years – not less than 1.7 times the average monthly salary;
- more than ten years – not less than twice the average monthly salary.
Thus, when an employment contract is terminated under subparagraphs "a" and "b" of Article 70 of the Labour Code, the severance compensation is paid by the employer in accordance with the employee’s length of service under the relevant employment contract(s).
Additionally, we inform you that according to Article 102.1.14 of the Tax Code, with the exception of allowances paid due to temporary loss of working ability, the following payments are exempt from income tax: state allowances, non-refundable government transfers, state pensions, state scholarships, severance payments made upon termination of employment due to staff reduction as stipulated by the Labour Code of the Republic of Azerbaijan, as well as one-time individual payments or material assistance financed from the state budget based on the laws of the Republic of Azerbaijan or decisions of the relevant executive authorities.
Furthermore, in the case of termination of employment due to staff reduction, severance payments made in accordance with the Labour Code of the Republic of Azerbaijan are not subject to unemployment insurance or mandatory health insurance contributions.
Please also note that according to Article 108 of the Tax Code, all expenses related to the generation of income, as well as mandatory payments stipulated by law, are deductible from income, except for those expenses that are not allowed for deduction. Based on the above, severance compensation paid in accordance with the Labour Code is considered a deductible expense for the taxpayer.
We hereby inform you that in the event of a reduction in the number of employees or staff positions, before the employment contract is terminated by the employer under Article 70, subparagraph "b" of the Labour Code, the employee must be officially notified by the employer based on their length of service within the following timeframes:
- if the employee’s length of service is less than one year – at least two calendar weeks;
- if the service is from one to five years – at least four calendar weeks;
- if the service is from five to ten years – at least six calendar weeks;
- if the service is more than ten years – at least nine calendar weeks.
We also inform you that when an employment contract is terminated under subparagraphs "a" and "b" of Article 70 of the Labour Code, the employee shall be paid severance compensation by the employer based on the employee’s length of service under the employment contract(s), in the following amounts:
- if the length of service is less than one year – in the amount of one average monthly salary;
- from one to five years – not less than 1.4 times the average monthly salary;
- from five to ten years – not less than 1.7 times the average monthly salary;
- more than ten years – not less than twice the average monthly salary.
Thus, when an employment contract is terminated under subparagraphs "a" and "b" of Article 70 of the Labour Code, the severance compensation is paid by the employer in accordance with the employee’s length of service under the relevant employment contract(s).
Additionally, we inform you that according to Article 102.1.14 of the Tax Code, with the exception of allowances paid due to temporary loss of working ability, the following payments are exempt from income tax: state allowances, non-refundable government transfers, state pensions, state scholarships, severance payments made upon termination of employment due to staff reduction as stipulated by the Labour Code of the Republic of Azerbaijan, as well as one-time individual payments or material assistance financed from the state budget based on the laws of the Republic of Azerbaijan or decisions of the relevant executive authorities.
Furthermore, in the case of termination of employment due to staff reduction, severance payments made in accordance with the Labour Code of the Republic of Azerbaijan are not subject to unemployment insurance or mandatory health insurance contributions.
Please also note that according to Article 108 of the Tax Code, all expenses related to the generation of income, as well as mandatory payments stipulated by law, are deductible from income, except for those expenses that are not allowed for deduction. Based on the above, severance compensation paid in accordance with the Labour Code is considered a deductible expense for the taxpayer.