Egypt, located in North Africa, offers access to significant markets in the Middle East and Africa. Known for its rapidly growing economy, Egypt has diversified into sectors like manufacturing, technology, and services. However, establishing a business in Egypt can be challenging due to its complex payroll policies. Let’s delve into the payroll systems in Egypt and discover how Gloroots can simplify this process for your business.

How is payroll calculated in Egypt  ?

A standard payroll in Egypt  includes the gross salary and social security contributions. The gross salary is determined by combining the net salary with the income tax. The net salary represents the amount an employee receives monthly through their chosen payment method.

The general formula used is:

• Monthly Gross Salary + Social Security Contribution = Employment Cost

How to set up payroll in Egypt   

Establishing payroll in Egypt for the first time can be a complex task. Follow these detailed steps to ensure an efficient and compliant payroll setup:

Step 1: Obtain an Employer Identification Number (EIN)

Begin by signing up for an Employer Identification Number (EIN). This number is crucial as it identifies employers for the IRS. The EIN is essential for paying taxes and filing tax forms accurately.

Step 2: Determine Employee Classification and Exemption Status

Next, identify whether your staff members are bona fide employees or independent contractors, as withholding tax obligations apply only to employees. Assess each employee’s exemption status to understand who qualifies for overtime pay and other benefits.

Step 3: Collect Withholding Certificates from Employees

Request that employees complete withholding certificates, such as Form W-4 in the U.S., to determine the correct amount of income tax to deduct from their wages. This ensures accurate tax withholding and compliance with local tax regulations.

Step 4: Conduct Open Enrollment for Employee Benefits

Organize an open enrollment period to allow employees to sign up for benefits like retirement savings plans, health insurance, and other employer-sponsored benefits. Calculate the costs associated with these benefits to ensure accurate payroll accounting and deduction.

Step 5: Establish a Payroll Schedule

Review local laws regarding pay frequency when creating your payroll schedule. In Egypt, payroll is typically processed monthly, but you can choose a payroll calendar that best suits your business and employees if no specific legal requirements exist.

Step 6: Select an Appropriate Payroll System

Choose a payroll system that aligns with your business needs. Options include:

• Hiring an Accountant: An accountant can manage payroll manually, ensuring compliance and accuracy.
• Traditional Bookkeeping: This method involves manually tracking payroll information, which can be time-consuming and prone to errors.
• Payroll Software: Automated payroll software can streamline the process, reducing errors and ensuring timely payments.
• Outsourcing Payroll: Partnering with a reliable payroll provider often proves the most efficient option, saving time, minimizing errors, and reducing the risk of tax penalties.

Step 7: Maintain Payroll Records

Ensure you keep detailed payroll records in either digital or printed format to comply with local guidelines. Using online payroll software can offer added security through cloud-based data storage, making it easier to access and manage records while protecting sensitive information.

Discover the latest insights on Global Payroll Trends for 2024.

Payroll Process in Egypt 

Processing payroll in Egypt involves several crucial steps to ensure accuracy, compliance, and efficiency. Here's a detailed guide to help you navigate the process:

Step 1: Choose a Payroll System

Egypt offers three primary payroll systems:

• Manual Payroll: Typically managed using spreadsheets or paper, manual payroll is straightforward but can be time-consuming and prone to errors.
• Payroll Software: Utilizing payroll software provides core payroll assistance, time tracking, and additional services that can streamline the process.
• Outsourced Payroll: A third-party company handles all payroll activities, including payroll tax and accounting, allowing businesses to focus on other operations.

The choice of payroll system depends on the complexity of employee benefits, the growth stage of your business, and the intricacy of your state’s payroll tax regulations.

Step 2: Create a Payroll Policy

Developing a comprehensive payroll policy requires a thorough review of local labor regulations, federal labor laws, and state overtime laws. Key considerations include:

• Pay dates and the length of each pay period.
• The method of payment (e.g., direct deposit, cheque, or other modes).
• Payroll deductions and withholdings specific to Egypt.

Step 3: Collect Employee Information

Gather essential documents from employees, such as:

• Name, email address, mailing address, and Social Security number.
• Bank account details and routing numbers (for direct deposit).
• Job title, date hired, and work location.
• Voluntary deductions documentation (e.g., retirement plan, health insurance).
• Medical insurance forms.
• Withholding certificates.
• Copies of any existing garnishment orders.
• Classification and exemption status.

Step 4: Verify Timesheets and Attendance

The next step is to verify employee timesheets. Decide whether to allow employees to manually update a time tracking sheet or use software to track time and attendance. Review the number of hours worked, overtime, leaves, and other factors to calculate payroll accurately.

Step 5: Calculate Taxes and Incentives

This step involves calculating employer payroll taxes and incorporating any incentives into the employee payslips. Ensuring accurate tax calculations is crucial to maintaining compliance with Egyptian tax laws.

Step 6: Approve and Submit Employee Payroll

Before processing payroll, verify the legitimacy of the hours worked by employees. After confirming the accuracy of all employee time cards, process the payroll and release employee payments.

Step 7: Report and Update Payroll Records

Regularly update payroll records in the payroll system. These records should detail each employee’s salary, the rationale behind their specific salary for a given month, contributions to payroll tax in Egypt, and any additional adjustments. Keeping accurate and up-to-date records is essential for transparency and compliance.

Payroll Cycle

In Egypt, payroll is typically processed on a monthly basis, though a bi-monthly payroll schedule is also an option.

Payroll Processing

Efficient payroll processing in Egypt requires sophisticated tools for compliance and streamlined operations. Managing payroll schedules ensures timely salary disbursements, while accurate calculations minimize errors and legal issues. Gloroots simplifies payroll complexities, ensuring compliance and allowing businesses to focus on growth.

Payroll Management

To manage payroll effectively in Egypt, leveraging advanced payroll software can streamline calculations and disbursements, enhancing accuracy and efficiency. Keeping detailed records and staying updated with local labor laws is crucial. Robust auditing and cloud-based systems manage remote payroll efficiently.

Explore our  A Complete Guide to Payroll Management | Gloroots for in-depth insights

Payroll Components

Minimum Wage

Egypt's current minimum wage is set at 6,000 EGP.

Working Hours

In Egypt, the typical workweek is 40 hours, with 8-hour workdays.

Overtime

In Egypt, work exceeding 48 hours per week qualifies for overtime pay: 135% of the regular salary for daylight hours and 170% for night hours. Work on non-regular days is compensated at twice the daily wage plus an extra day off the following week, requiring mutual agreement.

Social Security 

Employer Payroll Contributions:

• Social Security: Employers contribute 18.75% of an employee's salary, with a higher rate of 21% for Board of Directors members. The minimum taxable wage is 2,000 EGP and the maximum is 12,600 EGP annually.
• Emergency Relief (ER) Fund: Employers also contribute 1.00% of the basic social insurance salary, set at 2,370 EGP.
• Total Employment Cost: Combining these contributions, the total employment cost for employers is 19.75%.

Employee Payroll Contributions:

• Social Security: Employees contribute 11.00% of their salary, with the same minimum and maximum taxable wages as employers.
• Total Employee Cost: This results in a total employee cost of 11.00%.
  

Sick Days

• Employees are eligible for up to 6 months of paid sick leave covered by social security.
• A certified medical certificate confirming the illness is required for eligibility.
• For the first 90 days, employees receive 75% of their regular salary.
• After the initial 90 days, the payment increases to 85% of their normal salary for the next 90 days.

Employee Income Tax Rates

For net income not exceeding 600,000 EGP, the tax rates are as follows:

• There is no tax (0.00%) on income up to 40,000 EGP annually.
• A tax rate of 10.00% is applied to income between 40,001 EGP and 55,000 EGP annually.
• Income between 55,001 EGP and 70,000 EGP is taxed at 15.00%.
• For income ranging from 70,001 EGP to 200,000 EGP, the tax rate is 20.00%.
• Income between 200,001 EGP and 400,000 EGP is subject to a 22.50% tax.
• Any income exceeding 400,000 EGP is taxed at 25.00%.

For net income between 600,000 EGP and 700,000 EGP:

• The first 45,000 EGP is taxed at 10.00%.
• Income between 45,001 EGP and 60,000 EGP is taxed at 15.00%.
• The tax rate for income ranging from 60,001 EGP to 200,000 EGP is 20.00%.
• For income between 200,001 EGP and 400,000 EGP, the rate is 22.50%.
• Any income over 400,000 EGP is taxed at 25.00%.

For net income ranging from 700,000 EGP to 800,000 EGP:

• The first 60,000 EGP is taxed at 15.00%.
• Income between 60,001 EGP and 200,000 EGP is taxed at 20.00%.
• A 22.50% tax is applied to income between 200,001 EGP and 400,000 EGP.
• Any income over 400,000 EGP is taxed at 25.00%.

For net income between 800,000 EGP and 900,000 EGP:

• The initial 200,000 EGP is taxed at 20.00%.
• Income from 200,001 EGP to 400,000 EGP is taxed at 22.50%.
• Any income exceeding 400,000 EGP is taxed at 25.00%.

For net income between 900,000 EGP and 1,200,000 EGP:

• The first 400,000 EGP is taxed at 22.50%.
• Any income over 400,000 EGP is taxed at 25.00%.

For net income exceeding 1,200,000 EGP:

• Income up to 1,200,000 EGP is taxed at 25.00%.
• Any amount over 1,200,000 EGP is taxed at a higher rate of 27.50%.

Find the Best Egypt Talent for Your Business Today

To recruit top talent in Egypt, focus on sectors where the country has a competitive edge, such as technology, telecommunications, and construction. Gloroots simplifies the hiring process by ensuring compliance with local labor laws and providing comprehensive payroll management services. Our expertise in mitigating risks, efficient onboarding, and seamless payroll integration enables businesses to focus on growth while we handle the complexities of payroll and talent acquisition. Trust Gloroots to manage these processes proficiently, ensuring smooth and effective operations in Egypt.