en
az
ru
trIs the allowance paid to an employee called up for military service subject to taxation?
- Date
- Views 8
Is the allowance paid to an employee called up for military service subject to taxation?
One of the grounds for terminating an employment contract due to circumstances beyond the control of the parties is the employee's conscription into military or alternative service. According to Article 77 of the Labour Code, an employee's previous position and workplace are preserved throughout the period of compulsory military service. Individuals who were employed by an enterprise or by an individual employer before being called up for compulsory military service have the right to return to their previous or an equivalent position within no later than 60 calendar days after completing their military service. In addition, an employee is entitled to receive a one-time allowance upon being called up for military service. But is this payment subject to tax and social security deductions? Labour law expert Kamala Yusifova explains.
One of the recent amendments to the Labour Code increased the amount of the allowance payable to employees called up for military service. Under the amendment, where an employment contract is terminated pursuant to Subparagraph "ç" of Part 2 of Article 68 and Subparagraph "a" of Part 1 of Article 74 of the Labour Code, the employer must pay the employee an allowance equal to at least three times the employee's average monthly salary. Previously, the allowance amounted to at least twice the average monthly salary; it has now been increased to at least three times the average monthly salary.
The allowance is calculated in accordance with Article 177 of the Labour Code. The employee's average salary is determined by dividing the total salary earned during the two calendar months preceding the payment by the total number of working days in those months. The resulting average daily salary is then multiplied by the number of working days for which salary is preserved.
For employees who have worked for less than two months, the average salary is calculated by dividing the salary earned during the actual days worked by the number of days worked and multiplying the result by the number of payable working days.
Example:
An employee working a five-day workweek is called up for military service on 30 June 2026.
The previous two months are April and May.
June: 20 working days;
May: 17 working days, monthly salary: AZN 2,000;
April: 22 working days, monthly salary: AZN 2,300.
Calculation:
2,000 + 2,300 = AZN 4,300;
17 + 22 = 39 working days;
4,300 ÷ 39 = AZN 110.26 (average daily salary);
110.26 × 20 = AZN 2,205.20 (average monthly salary);
2,205.20 × 3 = AZN 6,615.60.
Accordingly, the one-time allowance payable to the employee called up for military service will amount to AZN 6,615.60.
The taxation of this allowance is regulated by the Tax Code. Under Article 102.1.14.16 of the Tax Code, the allowance paid by an employer to an employee called up for military or alternative service, within the amount prescribed by law, is exempt from personal income tax.
According to the Law "On Social Insurance", the allowance is subject to mandatory state social insurance contributions. However, under the Laws "On Unemployment Insurance" and "On Mandatory Health Insurance", this payment is not subject to unemployment insurance or mandatory health insurance contributions.
Deductions:
Personal income tax: AZN 0;
Mandatory State Social Insurance (MSSI): (6,615.60 − 200) × 10% + 6 = AZN 647.56;
Unemployment insurance: AZN 0;
Mandatory health insurance: AZN 0.
Therefore, the net allowance payable to the employee upon military conscription will be AZN 5,968.04:
AZN 6,615.60 − AZN 647.56 = AZN 5,968.04.
One of the grounds for terminating an employment contract due to circumstances beyond the control of the parties is the employee's conscription into military or alternative service. According to Article 77 of the Labour Code, an employee's previous position and workplace are preserved throughout the period of compulsory military service. Individuals who were employed by an enterprise or by an individual employer before being called up for compulsory military service have the right to return to their previous or an equivalent position within no later than 60 calendar days after completing their military service. In addition, an employee is entitled to receive a one-time allowance upon being called up for military service. But is this payment subject to tax and social security deductions? Labour law expert Kamala Yusifova explains.
One of the recent amendments to the Labour Code increased the amount of the allowance payable to employees called up for military service. Under the amendment, where an employment contract is terminated pursuant to Subparagraph "ç" of Part 2 of Article 68 and Subparagraph "a" of Part 1 of Article 74 of the Labour Code, the employer must pay the employee an allowance equal to at least three times the employee's average monthly salary. Previously, the allowance amounted to at least twice the average monthly salary; it has now been increased to at least three times the average monthly salary.
The allowance is calculated in accordance with Article 177 of the Labour Code. The employee's average salary is determined by dividing the total salary earned during the two calendar months preceding the payment by the total number of working days in those months. The resulting average daily salary is then multiplied by the number of working days for which salary is preserved.
For employees who have worked for less than two months, the average salary is calculated by dividing the salary earned during the actual days worked by the number of days worked and multiplying the result by the number of payable working days.
Example:
An employee working a five-day workweek is called up for military service on 30 June 2026.
The previous two months are April and May.
June: 20 working days;
May: 17 working days, monthly salary: AZN 2,000;
April: 22 working days, monthly salary: AZN 2,300.
Calculation:
2,000 + 2,300 = AZN 4,300;
17 + 22 = 39 working days;
4,300 ÷ 39 = AZN 110.26 (average daily salary);
110.26 × 20 = AZN 2,205.20 (average monthly salary);
2,205.20 × 3 = AZN 6,615.60.
Accordingly, the one-time allowance payable to the employee called up for military service will amount to AZN 6,615.60.
The taxation of this allowance is regulated by the Tax Code. Under Article 102.1.14.16 of the Tax Code, the allowance paid by an employer to an employee called up for military or alternative service, within the amount prescribed by law, is exempt from personal income tax.
According to the Law "On Social Insurance", the allowance is subject to mandatory state social insurance contributions. However, under the Laws "On Unemployment Insurance" and "On Mandatory Health Insurance", this payment is not subject to unemployment insurance or mandatory health insurance contributions.
Deductions:
Personal income tax: AZN 0;
Mandatory State Social Insurance (MSSI): (6,615.60 − 200) × 10% + 6 = AZN 647.56;
Unemployment insurance: AZN 0;
Mandatory health insurance: AZN 0.
Therefore, the net allowance payable to the employee upon military conscription will be AZN 5,968.04:
AZN 6,615.60 − AZN 647.56 = AZN 5,968.04.