27 April 2017

Employment Arrangements In The Islamic Republic Of Iran

Clyde & Co


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One year on from the implementation of the Joint Comprehensive Plan of Action (JCPOA), global companies in a variety of sectors are looking to identify opportunities for foreign direct investment into an exciting but challenging market.
Iran Employment and HR
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One year on from the implementation of the Joint Comprehensive Plan of Action (JCPOA), 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 Code) which has been supplemented over the years by by-laws and various regulations.

The Labour Code 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 article we have focussed on an employer's obligations under the Labour Code.


Non-Iranians (collectively Expatriates and, individually, an Expatriate) cannot (lawfully) work in Iran unless they obtain a work permit and work visa, save for the following exceptions:

  1. individuals travelling to Iran under diplomatic relations;
  2. approved journalists working for foreign news agencies; and
  3. persons working for the United Nations or organisations associated with the United Nations.

In order to obtain a work permit, the Expatriate's proposed Iranian employer will be required to show that:

  1. there is a lack of relevant expertise for the particular role among Iranian nationals;
  2. the Expatriate is suitably qualified to fulfil their role; and
  3. the Expatriate 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.

If an employer in Iran employs an Expatriate without obtaining the requisite approvals, fines and/or imprisonment of 91 to 180 days can be imposed on a representative of the employer and/or the Expatriate.

Employment contracts

Employment contracts may be for a fixed term or unlimited (i.e. permanent). The Labour Code requires copies of written employment contracts to 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 should be in Farsi (or Farsi and English) and must contain the following information:

  • Name of employer and employee
  • Date of the employment contract
  • Job title
  • Duties
  • 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
  • Termination provisions (permanent contracts only)

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 was recently increased to approximately 309,977 Rials (US$ 9.56). Employees are also entitled to an additional minimum monthly household allowance and, provided they have a year's service, a mandatory end of year payment.
  • 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.
  • Maternity leave – female employees working in the private sector in Iran are entitled to 180 calendar days' paid 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 nationals, Expatriates and their employers are required to make contributions to the Iran Social Security Organisation (SSO) which operates a state pension scheme and provides unemployment, sickness, maternity and disability benefits. Currently, private sector employers must contribute 23% of an employee's salary to the SSO, with the employee contributing a further 7% of his or her salary. Some Expatriates may be exempt from these social security obligations if their Government has entered into a bilateral or multilateral treaty with the Government of Iran.

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

Annual Salary (Rials) Tax Rate
Less than 240,000,000 Rials (approximately USD 7,500) Exempt
Between 240,000,000 Rials and 1,200,000,000 Rials (approximately USD 37,000) 10% of the difference between this amount and the exemption threshold
More than 1,200,000,000 Rials 20% of the amount earned in excess of 1,200,000,000 Rials

Termination of employment

The Labour Code 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 the employer restructures its business to remedy a decline in production due to economic, social and political conditions in accordance with Article 21(h) of the Labour Code (in the case of permanent contracts only); and
  6. in accordance with the termination provisions in the employment contract (in the case of permanent contracts only).

Notwithstanding the circumstances listed above, employment tribunals in Iran are particularly employee-friendly and we recommend that employers seek legal advice before proceeding with dismissing an employee.

End of service benefit

On the termination of their employment (for any reason whatsoever), employees are entitled to receive an end of service benefit calculated according to a statutory formula based on the employee's salary and length of service.

Dual employment arrangements

Many international companies who send Expatriates to work in Iran will do so under a dual employment arrangement (i.e. during the Expatriate'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 double-recovering contractual and statutory entitlements in multiple jurisdictions.

Employment Arrangements In The Islamic Republic Of 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.

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