Can electronic salary monitoring eliminate under-the-table payments in Azerbaijan?
Electronic salary monitoring in Azerbaijan
Azerbaijan plans to pay salaries through an electronic payment system selected by the Central Bank, based on data from the Ministry of Labour and Social Protection of the Population. Employees will still be able to choose which bank receives their salary. Deputy Labour and Social Protection Minister Zaur Aliyev announced the plans on 11 November at a meeting of the Milli Majlis Committee on Labour and Social Policy.
Aliyev said the aim of the new system was to monitor not only the salaries specified in employment contracts but also the actual amounts paid to workers.
“This will create a more effective monitoring mechanism to identify and prevent cases of delayed salary payments, underpayment or concealment of part of an employee’s earnings.”
Under proposed amendments to the Labour Code, employers will have to pay salaries in full into a bank account chosen by the employee. The Report news agency reports that the government expects the new system to strengthen oversight of timely salary payments and compliance with labour laws.
The initiative forms part of the same package of legislative amendments as the introduction of hourly pay. We have previously reported on who could benefit from such a system.
Will electronic monitoring put an end to under-the-table salary payments, or will it simply lead to new ways of concealing income?
What are under-the-table salary payments?
Under this arrangement, employers transfer part of an employee’s salary to their bank account and pay the rest in cash, unofficially. The salary stated in the employment contract is lower than the employee’s actual earnings. As a result, employers pay taxes and social security contributions only on the officially declared amount. Some workers do not have employment contracts at all.
Samed Shikhi, who has worked at various companies in Azerbaijan for around ten years, said that most of his employers had not offered him an employment contract.
“Getting an extra 50 manats (around $30) today is more beneficial for me than counting on a higher pension after the age of 65.”
He said most workers do not try to change the situation. Seeing the pensions that current retirees receive, they do not expect to get substantial payments when they grow old.
How widespread is the problem?
There are no precise figures, but official statistics offer an indication of the scale of the problem. According to the State Statistics Committee, Azerbaijan has more than 5.1 million employed people, while the number of salaried employees stands at 1,776,800. Of these, 942,600 work in the private sector.
At a parliamentary committee meeting, MP Vugar Bayramov said that 65% of employed people work without employment contracts. According to an International Monetary Fund report on Azerbaijan published this year, only 23% of private-sector workers have official employment contracts. The IMF estimates that the shadow economy accounts for around half of the country’s GDP.
Economist Rashad Hasanov believes that underreporting salaries is most common in the private sector, where it affects more than 40% of employment contracts.
“It is difficult to give an exact figure, but this is a fairly widespread phenomenon,” he said.
Independent economists consider the widespread practice of declaring minimum wages in employment contracts one indication of unofficial payments. This is particularly common in profitable industries such as construction, hospitality and retail.
For comparison, the State Statistics Committee reported that Azerbaijan’s average monthly nominal salary stood at 1,173 manats (around $690) in January–August this year. The minimum wage, meanwhile, is 400 manats (around $235).
According to figures published last year by the State Tax Service, the private non-oil sector had the highest number of registered employment contracts in retail (299,000), services (232,000) and construction (98,000).
Taxes rise as oversight tightens
The introduction of electronic salary monitoring comes alongside an increase in the tax burden. For seven years, starting in 2019, employees in Azerbaijan’s private non-oil sector were exempt from income tax on monthly earnings of up to 8,000 manats (around $4,705).
According to the State Tax Service, the number of employment contracts in the sector increased by around 470,000, or 87%, during this period. It exceeded one million in September last year. The agency attributes this growth to economic development and the tax incentives that remained in place for seven years.
The tax exemption expired at the end of 2025. Employees now pay income tax on monthly earnings of up to 2,500 manats (around $1,470) at a rate of 3% in 2026, 5% in 2027 and 7% from 2028 onwards. The first 200 manats (around $118) remain tax-free.
Last year, Bayramov wrote about how tax rules affect the number of employment contracts. He believes the decline in their number in the private sector is linked to a 2025 change that allowed micro-entrepreneurs to receive tax benefits without having to employ staff.
Hasanov warns that if the move towards official salary payments increases employers’ tax and social security costs, companies may try to pass the additional expenses on to workers:
“Given the high level of competition in the labour market, unemployment and the shortage of medium- and high-paying jobs, this could reduce the amount employees actually take home after taxes and contributions.”
What will the electronic system fail to detect?
Hasanov believes the new system will primarily monitor payments made under existing employment contracts, rather than bring undeclared salaries into the formal economy:
“This mechanism does not require employers to legalise under-the-table salaries, nor does it prevent them from declaring minimum wages in employment contracts.”
This means that if an employment contract specifies a salary of 400 manats and the employer transfers exactly that amount to the employee’s bank card, the system will not detect any violation. The remaining earnings, paid in cash, will remain outside its oversight.
Economist Akif Nasirli considers the new mechanism an “important step”. He believes that fully declaring salaries will increase workers’ pension savings. However, Nasirli also points to another practice:
“Sometimes an employer transfers the official salary to an employee’s bank card but pays the remaining amount in cash or demands that the employee return part of the money transferred.”
The economist says the authorities should compare salaries declared in employment contracts with actual pay levels, taking into account the industry, job position and workload. He also calls for an effective complaints mechanism for workers and measures to hold employers who break the law accountable.
Why don’t workers complain?
In response to a separate enquiry from Radio Free Europe/Radio Liberty, the State Labour Inspectorate said it could investigate violations in job advertisements if someone filed a complaint. If it confirmed a violation, “measures would be taken against the employer in accordance with the law”. This means that oversight largely depends on workers themselves reporting abuses.
Samed Shikhi believes the main reasons workers do not complain are fear of losing their jobs and a lack of faith that their complaints will achieve anything:
“The problem is that companies often have connections with certain officials or influential people.”
The electronic system will be able to monitor only salaries officially declared by employers. Detecting cash payments will largely depend on workers themselves. As long as employees are afraid to complain, under-the-table salary payments may continue with their tacit consent. The practice is becoming an even more pressing issue as the tax burden increases.
Electronic salary monitoring in Azerbaijan
