News & Events

Structuring employment arrangements in Iran

Submitted By Firm: Clyde & Co

Contact(s): David Salt, Emma Higham, Rebecca Ford, Sara Khoja

Author(s):

Ben Brown, Sara Khoja and Rebecca Ford

Date Published: 11/3/2016

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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.

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Client Successes

Altra Industrial Motion Inc.

Altra Industrial Motion Inc. has multiple locations in the U.S., as well as Central America, Europe, and Asia. The Employment Law Alliance has proved to be a great asset in assisting us in dealing with employment issues and matters in such diverse venues as Mexico, Australia, and Spain. We have obtained excellent results using the ELA network for matters ranging from a multi-state review of employment policies to assisting with individual employment issues in a variety of foreign jurisdictions.

In one instance, we were faced with an employment dispute with a former associate in Mexico that had the potential for substantial economic exposure. The matter had been pending for over a year, and we were not confident in the employment advice we had been receiving. I obtained a referral to the ELA counsel in Mexico, who was able to obtain a favorable resolution of the dispute in only a few days. Based on our experiences with the ELA, we would not hesitate to use its many resources for future employment law needs.

American University in Bulgaria

In my career I have been a practicing attorney, counsel to the Governor of Maine, and CEO of a major public utility. I have worked with many lawyers in many settings. When the American University in Bulgaria needed help with employment litigation in federal court in Syracuse, New York, we turned to Pierce Atwood, the ELA member we knew and trusted in Maine, for a referral. We were extremely pleased with the responsiveness and high quality of service we received from Bond Schoeneck & King, the ELA's firm in upstate New York. I would not hesitate to recommend the ELA to any employer.

David T. Flanagan
Member of Board of Trustees 

Arcata Associates

I really enjoyed the Conducting an Effective Internal Investigation in the United States webinar.  We are in the midst of a rather delicate employee relations issue in California right now and the discussion helped me tremendously.  It also reinforced things that you tend to forget if you don't do these investigations frequently.  So, many, many thanks to the Employment Law Alliance for putting that webinar together.  It was extremely beneficial.

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I recently participated in the ELA-sponsored webinar on the Employee Free Choice Act.  I was most impressed with that presentation.  It was extremely helpful and very worthwhile.  I have also been utilizing the ELA's online Global Employer Handbook.  This compliance tool is absolutely terrific. 

I am familiar with several other products that purport to provide up-to- date employment law information and I believe that this resource is superior to other similar compliance manuals.  I am delighted that the ELA provides this free to its members' clients.

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As an international operating outsourcing and consulting supplier Capgemini has used firms of the Employment Law Alliance in Central Europe. We were always highly satisfied with the quality of employment law advice and the responsiveness. I can really recommend the ELA lawyers.

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Stephen HirschfeldAs an employment lawyer based in San Francisco, I work closely with high tech clients with operations around the globe. Last year, one of my clients needed to implement a workforce reduction in a dozen countries simultaneously. And they gave me 48 hours to accomplish this. I don't know how I could have pulled this off without the resources of the ELA. I don't know of any single law firm that could have made this happen. My client received all of the help they needed in a timely fashion and on a cost effective basis.

Stephen J. Hirschfeld
Partner 

Hollywood Entertainment Corporation

As the Vice President for Litigation & Associate General Counsel for my company, I need to ensure that we have a team of top-notch employment lawyers in place in every jurisdiction where we do business. And I want to be confident that those lawyers know our business so they don't have to reinvent the wheel when a new legal matter arises. With more than 3400 stores and 35,000 employees operating in all 50 U.S. states and across Canada, we rely on the ELA to partner with us to help accomplish our objectives. I have been delighted with the consistent high quality of the work performed by ELA lawyers. I encourage other in-house counsel to use their services, as well.

Ingram Micro

Ingram Micro is the world's largest technology distributor, providing sales, marketing, and logistics services for the IT industry around the globe. With over 13,000 employees working throughout the U.S. and in 35 international countries, we need employment lawyers who we can count on to ensure global legal compliance. Our experience with many multi-state and multi-national law firms is that their employment law services are not always a high priority for them, and many do not have experts in many of their offices. The ELA has assembled an excellent team of highly skilled employment lawyers, wherever and whenever I need them, and they have proven to be an invaluable resource to our company.

Konami Gaming

Our company, Konami Gaming, Inc., is growing rapidly in a very diverse and highly regulated industry. We are aggressively entering new markets outside the domestic U.S., including Canada and South America. I have had the recent opportunity to utilize the services provided by the ELA. The legal advice was both responsive and professional. Most of all, the entire process was seamless since our Nevada attorney coordinated the services and legal advice requested. I look forward to working with the ELA in the future, as it serves as a great resource to the legal community.

Jennifer Martinez
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Until recently, I was unaware of the ELA's existence. We have subsidiaries and affiliates throughout the United States, as well as in Asia, the Middle East and Europe. When a recent legal issue arose in Texas, our long-time Nevada counsel, who is a member of the ELA, suggested that this matter be handled by his ELA colleague in Dallas. We are very pleased with the quality and timeliness of services provided by that firm, and we are excited to now have the ELA as an important asset to help us address employment law issues worldwide.

Palm, Inc.

The ELA network has been immensely important to our company in helping us address an array of human resources challenges around the world. I strongly encourage H.R. executives who have employees located in many different jurisdictions to utilize the ELA's unparalleled expertise and geographic coverage.

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Rich Products

As the General Counsel for a company with 6,500 employees operating across the U.S. and in eight countries, it is critical that I have top quality lawyers on the ground where we do business. The ELA is an indispensable resource. It has taken the guesswork out of finding the best employment counsel wherever we have a problem.

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We have direct sales and service offices all over the U.S., but have not necessarily had the need in the past for assistance with legal work in every state where we have a business presence. From time to time, we suddenly find ourselves facing a legal issue in a state where we have no outside counsel relationship. It has been a real benefit to know that the ELA has assembled such an impressive team of experts throughout the U.S. and overseas.

A few years ago, we faced a very tough discrimination lawsuit in Mississippi. We had never had to retain a lawyer there before. I was absolutely delighted with the Mississippi ELA firm. We received an excellent result. They will no doubt handle all of our employment law matters in Mississippi in the future. I have also obtained the assistance of several other ELA firms around the U.S. and have received the same outstanding service. The ELA is a tremendous resource for our company.

Roberts-Gordon LLC

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Sanmina-SCI

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