Iran: Structuring Employment Arrangements In Iran

Following the lifting of certain sanctions against Iran, global companies in a variety of sectors are looking to identify opportunities for foreign direct investment into an exciting but challenging market. One of the key considerations for any company looking to do business in Iran is how to appropriately resource their operations on the ground. In this bulletin we highlight some the key issues to consider when recruiting (or assigning) employees to work in Iran.

Legislative framework

Employment relationships in the public and private sectors in Iran are governed by the Labour Code of 20 November 1990 (the Labour Law) which has been supplemented over the years by by-laws and various regulations.  

The Labour Law does not apply to employees working in Iran's free trade zones, which are governed by the Regulations on Employment of Workforce, Insurance and Social Security 1994. For the purposes of this bulletin we have focussed on an employer's obligations under the Labour Law.

Employment relationships in the public and private sectors in Iran are governed by the Labour Code of 20 November 1990 (the Labour Law) which has been supplemented over the years by by-laws and various regulations.  

The Labour Law does not apply to employees working in Iran's free trade zones, which are governed by the Regulations on Employment of Workforce, Insurance and Social Security 1994. For the purposes of this bulletin we have focussed on an employer's obligations under the Labour Law.

Immigration

All expatriate employees working in Iran must be sponsored for entry visa and work permit purposes by an entity or person that has its own right to remain in Iran. An individual's entry visa must be obtained from the General Directorate for the Employment of Foreign Nationals before the individual arrives in the country.

The individual must normally obtain a work permit within seven days of arriving in Iran. To do so, they (and their sponsor in Iran) will be required to show that:

  1. there is a lack of relevant expertise for their particular role among Iranian nationals;
  2. they are suitably qualified to fulfil their role; and
  3. they will use their expertise to train an Iranian national to eventually assume their role.

These conditions are applied strictly, reflecting the Iranian government's desire to reduce unemployment rates among Iranian nationals.

In practice, the process of applying for a work permit is undertaken at the same time as applying for the entry visa. Work permits are normally issued to expatriates for one year only and the conditions referred to above will need to be satisfied in order to renew a work permit.

Employment contracts

Employment contracts may be for fixed or unlimited terms. Copies of written employment contracts must be retained by the employer and the employee and given to the Ministry of Cooperatives, Labour and Social Welfare (the Ministry of Labour) and the relevant Islamic Labour Council (or the employee's representative).

Employment contracts must be in Farsi (or Farsi and English) and must contain the following information:

  • Name of employer and employee
  • Date of the contract
  • Job title
  • Remuneration
  • Working hours and annual leave
  • Place of work
  • Duration of the contract (if fixed)
  • Other matters required by custom and practice in relation to the specific job and/or area of employment

Specific terms of employment

  • Probationary period – probationary periods must not exceed three months. Either party may terminate employment without notice during the probationary period. If the employer terminates the employee's employment during the probationary period, the employee will be entitled to receive their remuneration for the whole period of the probationary period.
  • Minimum wage - the minimum daily wage in Iran is set by the Supreme Labour Council and is currently approximately 237,475 Rials (US$ 7.56). Employees may also be entitled to additional minimum allowances if they are married and have children.
  • Working hours - employees in Tehran typically work Saturday to Wednesday, with Thursday and Friday off for the weekend. In more rural areas, it is common for employees to work Saturday to Wednesday (eight hours per day) and a half day on Thursday (four hours). Total normal working hours must not exceed 44 hours in a week.
  • Overtime - Employees are entitled to overtime pay of up to 140% of their hourly wage provided that any overtime must not exceed four hours per day.
  • Annual leave – employees are entitled to a minimum of one calendar month's paid annual leave and can carry over nine days' annual leave from one year to the next.
  • Maternity leave – female employees in Iran are entitled to 270 calendar days' maternity leave.
  • Haj – employees are entitled to take one month's unpaid leave to perform the Haj pilgrimage once during the course of their employment. 

Social Security and income Tax

Iranian national employees and their employers are required to make contributions to the Social Security Organisation which operates a state pension scheme and provides unemployment, sickness, maternity and disability benefits. Currently, private sector employers must contribute 20% of an Iranian national employee's salary, with the Iranian national employee themselves contributing a further 7%.  Expatriate employees can, by written agreement with their employer, opt out of making social security contributions.

Employers in Iran are also required to deduct employment income tax at source for all employees (subject to certain limited exceptions) at the following rates:

Annual Salary (Rials)

Tax rate

Less than 156,000,000 (approximately US$5,000)

Exempt

Between 156,00,000 Rials and 966,000,000 Rials (approximately US$30,100)

10%

More than 1,380,000,000 Rials (approximately US$ 44,000)

20%

Suspension of employment

Employees have the right to suspend their employment contract in a number of circumstances, including during any period:

  1. of military service;
  2. of academic study (for up to a maximum of four years);
  3. of detention which does not lead to a conviction; and
  4. during which the employer's workplace is closed due to force majeure.

Employers must reinstate the relevant employee at the end of any period of suspension referred to above and the employee's continuity of service during this period must be recognised for the purposes of calculating the employee's entitlement to end of service benefits.

Unless an employer can justify the non-reinstatement of the employee, the dismissal of an employee during an period of suspension referred to above will be considered unlawful. If the reinstatement can be justified by the employer and the employee's employment is terminated, the employee will be entitled to 45 days' salary for each year of service (inclusive of the period of suspension).

Termination of employment

One of the key issues for international companies to consider when recruiting in Iran is the difficulties faced by employers when terminating an employee's (and particularly an Iranian national's) employment.

The Labour Law permits termination of employment in the following circumstances:

  1. upon the employee's death, total disability or retirement;
  2. upon expiry of the employee's fixed term contract;
  3. where the employment contract relates to a specific project and the project comes to an end;
  4. upon the employee's resignation;
  5. where there is reduced production and structural changes imposed by economic, social and cultural developments requiring significant technological changes.

The Labour Law does not permit an employee to dismiss an employee summarily (i.e. without notice) for gross misconduct.

If an employer wishes terminate an employee's employment for misconduct and/or performance related reasons, they must first obtain approval from the relevant Islamic Labour Council or Guild Society by submitting supporting evidence of the employee's misconduct and/or poor performance (e.g. written warnings, minutes of disciplinary hearings etc). Similarly, if an employer wishes to terminate employees for redundancy (i.e. reason (e) above) they will likely be required to liaise with, and obtain approval from, a number of different authorities before proceeding with the dismissals.

However, given the Iranian government's desire to keep unemployment rates down, international companies are likely to find it different to obtain the requisite approvals to dismiss an Iranian national.

If an employer proceeds with dismissing an employee without first obtaining the necessary approvals it exposes itself to (i) penalties including fines and imprisonment; and (ii) the employee being awarded compensation and/or being reinstated to their role.

Employers must notify the Ministry of Labour of the dismissal of any foreign national within 15 days. In all cases, a foreign national must obtain an exit visa (with their employer's consent) before they will be allowed to exit Iran.

End of service entitlements

On the termination of their employment (for any reason whatsoever), employees are entitled to receive:

  • a payment in respect of their accrued untaken annual leave entitlement;
  • an end of service benefit equivalent to at least one month's salary for each year of service (employees who are made redundant may be entitled to up to two month's salary for each year of service); and
  • any otheraccrued contractual entitlements.

Dual employment arrangements

Many international companies who send expatriate employees to work in Iran will do so under a dual employment arrangement (i.e. during the employee's assignment in Iran they will continue to be employed under an employment contract in the company's host country). Companies should be aware of the implications of dual employment arrangements and should ensure that such arrangements are documented carefully to reduce the risk of an employee inadvertently double-recovering contractual and statutory entitlements in multiple jurisdictions.

Structuring Employment Arrangements In Iran

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Sara Khoja
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.