Hiring Employees in Georgia: Taxes, Contracts & Compliance

Georgia has a flexible labor market with employer-friendly regulations. However, understanding the tax obligations, contract requirements, and pension system is essential before hiring your first employee. This guide covers everything you need to know.

Employment Costs Overview

When you hire an employee in Georgia, here's what you'll actually pay:

Component	Rate	Paid By
Income Tax	20%	Withheld from salary
Pension (Employee)	2%	Withheld from salary
Pension (Employer)	2%	Employer contribution

Total employer cost: Gross salary + 2% pension contribution

Employee receives: Gross salary – 20% income tax – 2% pension = 78% net

Example Calculation

For a 3,000 GEL gross salary:

• Income tax (20%): 600 GEL
• Employee pension (2%): 60 GEL
• Employer pension (2%): 60 GEL
• Net salary: 2,340 GEL
• Total employer cost: 3,060 GEL

Pension System

Georgia's mandatory pension system applies to employees born in 1974 or later. Key points:

Contribution Rates:

• Employee: 2% of gross salary
• Employer: 2% of gross salary
• Government: 2% (up to certain limits)

Exemptions: Employees born before 1974 can opt out of the pension system.

Administration: Contributions are reported and paid monthly through the Revenue Service portal alongside income tax.

Employment Contracts

Contract Types

Indefinite Term: Standard open-ended contract with no specified end date. Termination requires notice period.

Fixed Term: Contract for specific period or project. Cannot exceed 30 months for regular work.

Seasonal: For work tied to seasons (e.g., agriculture, tourism).

Required Contract Elements

Georgian labor law requires written contracts containing:

• Parties' identification
• Start date (and end date if fixed-term)
• Job title and duties
• Work location
• Working hours
• Salary and payment schedule
• Vacation entitlement
• Notice periods

Probation Period

Maximum probation period is 6 months. During probation, either party can terminate with 3 days' notice.

Working Hours & Leave

Working Hours

• Standard working week: 40 hours
• Maximum: 48 hours (including overtime)
• Overtime premium: 125% of regular rate
• Night work (10pm-6am): 120% of regular rate

Annual Leave

• Minimum: 24 working days per year
• Accrues from first day of employment
• Can be taken after 11 months of service
• Unused leave carries over (max 2 years)

Other Leave Types

• Sick leave: Up to 40 days annually (first 10 days unpaid unless company policy differs)
• Maternity leave: 126 days paid by government
• Paternity leave: Varies by company policy
• Unpaid leave: As agreed between parties

Hiring Process

Step 1: Draft Employment Contract

Prepare a contract compliant with Georgian Labor Code. Both Georgian and English versions are common for international companies.

Step 2: Collect Employee Documents

• ID or passport copy
• Tax identification number (TIN)
• Bank account details for salary
• Pension fund account (or help employee open one)

Step 3: Register as Employer

If this is your first employee, register as an employer with the Revenue Service (rs.ge). This is automatic when you submit your first payroll declaration.

Step 4: Set Up Payroll

Calculate and track:

• Gross salary
• Income tax withholding
• Pension contributions
• Net salary payment

Step 5: Monthly Compliance

By the 15th of each month:

• File payroll declaration
• Pay withheld income tax
• Pay pension contributions

Termination

Notice Periods

Standard notice periods (can be modified in contract):

• During probation: 3 days
• After probation: 30 days
• Mass layoffs: 45 days

Severance Pay

Required when terminating due to:

• Business closure
• Redundancy
• Long-term incapacity

Minimum severance: 1 month's salary (or as specified in contract).

Grounds for Immediate Termination

No notice required for:

• Gross misconduct
• Breach of confidentiality
• Criminal conviction
• Failure to meet qualifications

Hiring Foreigners

Georgia has no work permit requirements for most nationalities. Foreign employees can work immediately upon arrival.

Residency: Foreigners can stay visa-free for up to 1 year. For longer employment, a residence permit is recommended.

Taxation: Foreign employees are taxed the same as Georgians (20% income tax).

Pension: Foreign employees born 1974 or later must participate in the pension system.

Contractors vs Employees

Many businesses consider using contractors instead of employees. Key differences:

Factor	Employee	Contractor (IE)
Tax rate	20% income tax	1-3% turnover tax
Pension	Mandatory 4%	Voluntary
Leave/benefits	Required	Not required
Termination	Notice required	Per contract

Warning: Misclassifying employees as contractors can result in tax penalties and back payments.

Payroll Services

At Modern Consulting, we provide complete payroll services:

• Employment contract preparation
• Monthly salary calculations
• Tax and pension declarations
• Payslip generation
• Year-end reporting
• HR compliance advice