How to pay international contractors in Armenia
Navigating the intricacies of international payments can be a daunting task, especially when dealing with contractors in an unfamiliar country.
Nestled in the Caucasus region, the Republic of Armenia is a small country of 2.7 million people. Whether you’re hiring a contractor from the capital city of Yerevan or elsewhere in the country, it’s vital to get acquainted with Armenia’s unique regulatory framework—so you can pay your Armenian contractors quickly and compliantly.
We’ll explore the best payment methods, Armenian labor and tax laws, correctly classifying Armenian contractors, and more. Read on for your step-by-step guide on how to run payroll for contractors in Armenia.
Step #1: Classify your workers in Armenia
Misclassifying Armenian employees as contractors comes with many potential consequences: You could face fines, back taxes, and other penalties.
Employment relationships in Armenia are regulated by the Labour Code, Civil Code, Law on Employment, Law on Trade Unions, Law on Employers’ Union, and Law on Minimum Monthly Wage. On the other hand, the Civil Code regulates relationships with contractors.
To determine whether your new hire should be classified as an employee or a freelancer, refer to the following rules:
Contractors
Employees
High level of worker control.
Contractors determine how to complete their work and when to do it.
More employer direction. Employers provide guidance on how to perform the work and can set specific working hours.
Equipment and tools are owned by the worker.
Equipment and tools are often provided by the company.
Less integrated. Contractors are independent, meaning they’re more likely to work remotely.
Highly integrated. Employees are typically more integrated into the organization, for example, they may work on-premises.
No entitlement to benefits. Contractors don’t get the same benefits and labor protections as employees. They are responsible for their own taxes.
Entitled to benefits. Employees are entitled to employment benefits and protections, like minimum wage, overtime pay, paid time off, severance pay, public holidays off (such as First Republic Day, Genocide Remembrance Day, and New Year’s Day), maternity or paternity leave, and sick leave.
Time-bound engagement. Contractors are engaged for a specific period of time or on a single project.
Indefinite engagement. Employees are generally hired for an unlimited period.
Risk of loss. Contractors take on more risk and liability for their work.
No risk of loss. Employees are protected from liability for work-related issues.
Subcontracting. Unless otherwise stipulated, contractors can delegate work to be performed by another person or business.
No subcontracting. Employees should do their work themselves and can’t delegate responsibilities without company approval.
Step #2: Determine the best way to pay your contractors in Armenia
As you outline your contract agreement, determine how you’ll pay your contractors. Thanks to the rise of global workforces, employers have many options for sending pay to Armenian contractors, including:
- Bank wires. There are several options here. You may opt to open an Armenian bank account and use that to pay Armenian contractors. Another option is to use your bank to send global wire transfers.
- International money orders. While this is a long-standing payment method, it’s slow and inconvenient because the employer needs to purchase the money order physically. The contractor then needs to deposit it in person. There may be fees and/or poor exchange rates.
- Digital wallets or payment platforms. Not all digital payment platforms are available in Armenia. For example, Venmo only works within the United States. Wise allows for transfers to Armenia, and Idram is the largest payment system in Armenia. With most digital payment services, exchange rates can fluctuate, making your outgoings less predictable.
- Global payroll services. While contractors typically aren’t included in payroll because they aren’t subject to the same tax withholdings, Rippling allows you to pay Armenian contractors (and other global workers) in a single pay run.
Step #3: Use global payroll software to process payments for Armenian contractors
While there are many ways to pay contractors in Armenia, the fastest and simplest way is paying them through global payroll software like Rippling.
Rippling lets you pay your global employees and contractors in a single pay run. Here’s a peek at how Rippling’s global payroll system works:
Step #4: Ensure your Armenian contractors have the right tax information
In Armenia, contractors are responsible for paying their own taxes, health insurance premiums, and social security, and they may need to contribute to their unemployment funds and workers' compensation funds. Employers don’t have to withhold or pay income taxes on behalf of their Armenian contractors, but they should keep records of all payments made.
To file taxes, contractors should have a tax identification number (TIN), income records for any funds earned throughout the tax year, expense records, copies of invoices and contracts, and social security contributions. The contractor should supply their TIN, passport information, address in Armenia, and, if applicable, the state registration certificate number (issued when business activity begins).
Under the Law of Armenia on Tax Advantages for Self-Employed citizens, 23 self-employed professions in Armenia are tax-exempt, including:
- Footwear, clothing, leather accessory, carpet/rug manufacturing or repair
- Repair of hats, computer equipment, TVs, home appliances, musical instruments, watches, and personal goods
- Software maintenance
- Production/manufacture of wooden goods, furniture, home furnishing, bicycles, wheelchairs, porcelain or ceramic products
- Professional skills courses
- Language training courses
- Preparatory courses for admission to higher institutions
- Dancing and singing
In contrast, when it comes to employees, employers pay 7,000 Armenian drams (AMD) per month towards social security, as well as 15% of their employee’s monthly salary for earnings between AMD 20,000 to AMD1 00,000 and 5% of earnings above AMD 100,000. Employees pay 20% as a flat rate for personal income tax.
Feeling confused? A huge benefit of processing payments through a global payroll system like Rippling is offloading the paperwork. With Rippling, the calculations and filings are done for you.
Frequently asked questions about running payroll for contractors in Armenia
Do you need to withhold taxes when paying contractors in Armenia?
No, foreign companies aren’t required to withhold payroll taxes when paying contractors in Armenia. Rather, Armenian contractors are responsible for their own taxes.
Does the Armenian minimum wage apply to independent contractors in Armenia?
In Armenia, the minimum wage is 75,000 Armenian dram (AMD) per month. However, minimum wage laws don’t apply to independent contractors in Armenia, who negotiate their own pricing.
Do Armenian contractors get benefits?
While Armenian full-time employees are entitled to benefits, such as annual leave and maternity leave, independent contractors are not. In fact, offering benefits to freelancers may even increase the risk of misclassification.
Can you pay contractors in Armenia in your home currency?
The local currency in Armenia is the Armenian dram. It’s best practice to pay international contractors in their local currency so they don’t face issues with conversion. However, you may pay contractors in Armenia in your preferred currency if they agree to it in writing.
Can you manually pay contractors in Armenia?
Small business owners may choose to manually process contractor pay to cut costs. However, this practice can be time-consuming, especially for those with a growing business or multiple foreign contractors.
Furthermore, manually processing payments comes with serious risks:
- Compliance. If you run payroll manually, you assume risks like human error and omission. Rippling, on the other hand, helps enforce compliance with local employment laws—no matter where your workers live.
- Security. Manual payroll processing can be especially risky if you rely on spreadsheets or paper records, as sensitive employee information can be lost or stolen.
With Rippling, payroll is automatic. Rippling syncs payroll with HR data, eliminating the need for manual data entry. Your employees and contractors can be based around the world, and you can still pay them quickly, compliantly, and in a single pay run.
How do you turn a contractor into an employee in Armenia?
Converting a contractor is similar to hiring any full-time employee in Armenia. If you don’t already have Armenian employees, you’ll need to set up a legal entity or use an Employer of Record (EOR) before moving forward.
Once you’ve ensured they can legally work in Armenia, you can draft an employment contract that falls in line with labor codes, sets any probation periods, outlines the salary, and explains notice periods for termination. Make sure you’re paying your new employee in accordance with minimum wage laws, enroll them in employee benefits, and make payroll deductions for pension.
It can be complicated to juggle onboarding, administrative tasks, and compliance. Rippling streamlines the process. With Rippling, you can manage contractors and quickly transition them to full-time employees with legally compliant paperwork, benefits administration, payroll, and more.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
