Employment and Employment Contracts in Iran: A Comprehensive Guide for Foreigners and Foreign Investors

Foreign nationals considering employment, business activities or investment in Iran should understand the country’s employment and labour regulations before entering into an employment relationship or establishing a workforce in Iran

Iranian labour law establishes a relatively comprehensive statutory framework governing employment relationships. The Iranian Labour Law (Labour Code) applies broadly to employers, workers and workplaces and regulates matters including employment contracts, wages, working hours, overtime, holidays and leave, occupational safety, termination of employment and the settlement of labour disputes

For foreign nationals, however, employment in Iran involves an additional layer of regulation. A foreign national generally cannot lawfully work in Iran merely because he or she has entered the country or signed an employment contract. Immigration status, an appropriate entry visa and a work permit must also be considered

This article provides a practical overview of Iranian employment law, employment contracts, the rights and obligations of employers and employees, and the rules applicable to foreign workers. It is intended particularly for

• Foreign nationals intending to work in Iran;
• Foreign investors establishing or acquiring a business in Iran;
• International companies employing personnel in Iran;
• Iranian companies intending to employ foreign nationals;
• Foreign managers and technical specialists;
• Entrepreneurs establishing an Iranian company; and
• Legal and business advisers dealing with employment arrangements in Iran.

Because employment, immigration, tax and social-security regulations may involve separate authorities and may be amended from time to time, a specific transaction should be reviewed on the basis of the law and administrative requirements applicable at the time of implementation

The Main Sources of Iranian Employment Law

The principal legal framework governing employment relationships in Iran is the Labour Law of the Islamic Republic of Iran.

The Labour Law contains provisions covering, among other matters:

1. Definitions of workers and employers;
2. Employment contracts;
3. Wages and remuneration;
4. Working hours;
5. Overtime;
6. Weekly rest;
7. Public holidays;
8. Annual leave and other leave;
9. Occupational health and safety;
10. Employment of foreign nationals;
11. Termination of employment;
12. Severance and end-of-service entitlements;
13. Labour organisations;
14. Labour inspections; and
15. Labour dispute resolution.

The International Labour Organization’s NATLEX database identifies the Labour Law as the principal national labour code and records implementing regulations dealing with various aspects of employment.

For foreign investors, it is important to distinguish labour law from other areas of law that may affect employment, including:

• Immigration regulations;
• Work-permit regulations;
• Social-security legislation;
• Tax legislation;
• Corporate law;
• Foreign investment regulations;
• Occupational health and safety regulations; and
• Sector-specific licensing requirements.

Consequently, an employment arrangement involving a foreign national should normally be examined from both an employment-law and an immigration/work-authorisation perspective.

2. Who Is Considered a Worker Under Iranian Labour Law?

The Labour Law defines a worker broadly as a person who performs work for an employer in return for remuneration.

The definition is therefore based substantially on the existence of a relationship in which a person performs work under an employer’s direction in exchange for remuneration.

An employer may be an individual or a legal entity.

This distinction is important for foreign companies and investors because simply describing an individual as a “consultant”, “contractor”, “advisor” or “manager” does not necessarily determine the legal character of the relationship.

Where the actual circumstances demonstrate an employment relationship, the mandatory provisions of labour law may become relevant regardless of the terminology used by the parties.

The International Labour Organization similarly recognises that the factual characteristics of the relationship are important when distinguishing employment from independent contracting, particularly where the individual works under the direction of another party, has specified working hours, receives periodic remuneration and does not bear the normal commercial risk of an independent business.

3. Does Iranian Labour Law Apply to Foreign Companies?

The answer depends on the structure and nature of the business activity.

A foreign investor establishing an Iranian company, branch or other legally recognised business operation should assume that employment relationships carried out in Iran may be subject to Iranian employment regulations.

The Labour Law broadly applies to employers, workers and workplaces covered by the legislation.

Accordingly, a foreign investor should not assume that the use of a foreign corporate structure or a foreign-language employment contract automatically removes the employment relationship from the scope of Iranian mandatory labour regulations.

A foreign investor should assess separately:

• Where the employee will physically perform the work;
• Which entity is the employer;
• Whether the employer is established in Iran;
• Whether the employee is an Iranian or foreign national;
• Whether the individual requires a work permit;
• Whether the activity is subject to sector-specific regulation; and
• What tax and social-security obligations arise.

4. Employment Contracts in Iran

An employment contract is one of the central instruments governing the relationship between an employer and a worker.

Under the Labour Law, an employment contract may be written or, depending on the circumstances, arise from the parties’ employment relationship.

For practical purposes, particularly where a foreign investor or foreign employee is involved, a written employment agreement is strongly advisable.

A properly drafted employment contract should clearly establish the parties’ rights and obligations and reduce uncertainty concerning remuneration, duties, working hours, benefits, termination and other matters.

5. Essential Elements of an Employment Contract

An employment contract should normally identify at least the following matters:

5.1 The Parties

The contract should clearly identify:

• The employer;
• The employee;
• The employer’s legal status;
• The employee’s nationality and identification details;
• The registered address of the employer; and
• The employee’s address and contact information where appropriate.

Where the employer is a company, the contract should be signed by a person with appropriate authority to represent the company.

5.2 Job Title and Duties

The contract should specify:

• Job title;
• Main responsibilities;
• Reporting line;
• Place of work;
• Required qualifications;
• Working schedule; and
• Any special responsibilities.

For senior foreign executives and technical specialists, the job description should be particularly precise.

5.3 Duration of Employment

The employment relationship may be structured as:

• An indefinite-term employment relationship;
• A fixed-term employment relationship; or
• A relationship associated with a specific project or work.

The legal consequences of termination can differ depending on the contractual structure.

In particular, Iranian labour law restricts unilateral termination of fixed-term employment contracts before their agreed expiry. The ILO’s current country information specifically notes that neither party may unilaterally terminate a fixed-term or piece-work contract under Article 25 of the Labour Law.

Therefore, a foreign investor should not assume that a fixed-term contract can be terminated at will merely because the employer wishes to end the relationship.

6. Probationary Period

Iranian Labour Law permits the parties to agree on a probationary period.

The maximum probationary period depends on the nature of the job:

• Up to one month for unskilled and semi-skilled workers;
• Up to three months for skilled and specialised workers.

The probationary period should be specified in the employment contract.

During the probationary period, either party may terminate the employment relationship without the ordinary requirements applicable after the probationary period.

However, remuneration remains payable for work performed, and special rules apply where the employer or worker terminates the relationship during probation.

For senior foreign executives and specialists, it is therefore important to determine at the drafting stage whether the position falls within the category permitting a three-month probationary period.

7. Remuneration and Salary

The employment contract should specify the employee’s remuneration and the components of compensation.

Remuneration may include salary, wages and applicable allowances and benefits.

Iranian labour law establishes statutory minimum wage requirements. Employers cannot lawfully agree to remuneration below the mandatory statutory minimum applicable to the relevant employment. Regulations concerning wages expressly prohibit payment below the authorised minimum wage.

For foreign employees, compensation packages may additionally include contractual benefits such as:

• Housing;
• Transportation;
• Medical insurance;
• Travel expenses;
• Relocation expenses;
• Schooling or education allowances;
• Annual flight allowances;
• Accommodation;
• Communication expenses;
• Performance bonuses; and
• Other benefits agreed by the parties.

However, the contractual structure should be reviewed carefully to determine the legal and tax treatment of each payment or benefit.

8. Minimum Wage

Iranian law establishes minimum wages through the statutory wage-setting system.

The minimum wage is not simply a figure permanently fixed in the Labour Law; wage levels and related statutory benefits may be adjusted periodically.

Therefore, an employment contract should not rely on an outdated minimum-wage figure.

For an investor establishing a business in Iran, it is advisable to obtain the applicable minimum wage and statutory employment benefits for the relevant Iranian year before finalising the company’s employment budget.

9. Working Hours

The Labour Law establishes statutory rules governing working hours.

For ordinary work, the statutory normal working time is generally based on a maximum of 44 hours per week.

Special rules apply to shift work and certain categories of employment.

For example, Article 57 provides special rules for shift workers and permits working hours to exceed eight hours per day and 44 hours per week provided that the total working time within the prescribed four-week period does not exceed the statutory limit.

A foreign investor should therefore determine the applicable working-time rules before preparing employee schedules.

10. Overtime

Overtime is regulated by the Labour Law and is not simply a matter of contractual agreement.

Under the ordinary rule, overtime requires the worker’s consent and must be compensated at a rate higher than ordinary working time.

Article 59 provides for an additional 40% payment for each hour of overtime, subject to the statutory conditions. It also generally limits overtime to four hours per day except in exceptional circumstances with the mutual agreement of the parties.

Special rules apply in emergencies, including circumstances involving accidents, natural disasters or the prevention of anticipated losses.

Employers should therefore maintain accurate working-time records and ensure that overtime is authorised and compensated in accordance with the applicable rules.

11. Night Work

Iranian labour law provides additional protection for certain categories of night workers.

The Labour Law provides an additional payment for night work performed by workers who are not shift workers, subject to the statutory rules.

Article 58 establishes an additional payment of 35% of ordinary wages for each hour of night work for the relevant category.

The distinction between ordinary night work and shift work should therefore be considered when designing employee schedules and compensation structures.

12. Weekly Rest

Friday is generally recognised as the statutory weekly rest day under Iranian labour law.

The Labour Law requires workers to receive a weekly rest day with pay. Where another day is lawfully designated as the weekly rest day, statutory compensation rules may apply.

Employers operating internationally should therefore take Iranian weekly-rest requirements into account even where their global employment policies use a different working-week structure.

13. Public Holidays

Employees are entitled to statutory public holidays recognised under Iranian law.

Labour Day, 1 May, is also recognised as an official holiday for workers under the Labour Law.

International companies should therefore ensure that their Iranian payroll and work schedules properly reflect Iranian public holidays.

14. Annual Leave

Iranian Labour Law provides workers with paid annual leave.

The statutory entitlement is generally one month of annual paid leave, including four Fridays, while official holidays are not counted as part of the annual leave entitlement. Where employment lasts for less than one year, leave is calculated proportionately.

Workers performing arduous or harmful work have a higher annual leave entitlement under the Labour Law.

Employers should maintain accurate records of:

• Annual leave taken;
• Accrued leave;
• Leave carried forward; and
• Payments due upon termination where applicable.

The Labour Law also places limits on the amount of annual leave that may be carried forward.

15. Sick Leave and Other Leave

Iranian labour law contains provisions concerning different types of leave and suspension of employment contracts.

Depending on the circumstances, employees may have statutory rights relating to:

• Medical leave;
• Maternity-related rights;
• Marriage and bereavement;
• Pilgrimage leave;
• Unpaid leave; and
• Other legally recognised forms of absence.

The precise entitlement should be determined according to the applicable statutory provision and the employee’s circumstances.

For foreign employees, the employment contract may additionally provide contractual leave benefits, provided that the arrangement does not unlawfully reduce mandatory statutory rights.

16. Social Security

Employers operating in Iran should consider social-security obligations as a separate and important component of employment compliance.

Where an employment relationship is subject to Iranian social-security legislation, the employer generally has obligations concerning:

• Registration;
• Payroll reporting;
• Contributions;
• Employee records;
• Social-security inspections; and
• Reporting the commencement or termination of employment where required.

The cost of employing an employee should therefore not be calculated solely on the basis of the employee’s gross salary.

A foreign investor preparing an Iranian business plan should distinguish between:

Gross salary + statutory employer costs + benefits + tax/payroll administration + other employment costs.

The precise contribution rate and applicable exemptions should be verified for the relevant period and employment category before payroll is established.

17. Income Tax and Payroll Obligations

Employment income may also be subject to Iranian tax rules.

An employer may have payroll-related obligations concerning:

• Calculation of taxable employment income;
• Withholding;
• Reporting;
• Payroll records; and
• Submission of required information to the relevant tax authorities.

The tax treatment of a foreign employee can become more complex where the individual:

• Is paid partly outside Iran;
• Works for both an Iranian and foreign entity;
• Receives housing or other benefits;
• Travels frequently between countries;
• Has tax residence in another jurisdiction; or
• Performs services for a foreign parent company.

Accordingly, international remuneration arrangements should be reviewed from both Iranian and potentially foreign tax perspectives.

18. Employment of Foreign Nationals in Iran

Employment of foreign nationals is subject to specific provisions of the Labour Law.

This is one of the most important issues for foreign investors.

Under Article 120 of the Labour Law, foreign nationals generally may not work in Iran unless they:

1. Hold an entry visa authorising them to engage in a specific job; and
2. Obtain a work permit under the applicable laws and regulations.

This means that having a valid passport, business visa, residence status or company position does not automatically create a right to work in Iran.

A foreign national intending to perform employment duties in Iran should therefore determine the required immigration and employment authorisations before commencing work.

19. Conditions for Issuing a Work Permit

Article 121 establishes conditions concerning the employment of foreign nationals.

Among the statutory considerations are:

• Whether suitably qualified Iranian workers are available;
• Whether the foreign national possesses the required knowledge and expertise; and
• Whether the foreign national’s expertise can contribute to the training and eventual replacement of the foreign worker by Iranian personnel.

The Labour Law assigns a role to the competent labour authorities and the relevant technical employment mechanism in determining these matters.

For this reason, foreign investors should not assume that any foreign employee can automatically obtain a work permit simply because the investor or company wishes to employ that individual.

20. Who May Receive Special Treatment?

The Labour Law provides specific provisions concerning certain foreign nationals.

For example, the competent authority may issue, extend or renew work permits for certain categories, including:

• Foreign nationals with at least ten years of continuous residence in Iran;
• Foreign nationals married to Iranian citizens; and
• Certain immigrants, refugees or persons with specific immigration status, subject to the statutory conditions and required approvals.

There are also statutory exclusions for certain categories such as personnel of diplomatic and consular missions, approved personnel of the United Nations and certain foreign press correspondents, subject to the conditions specified by law.

21. Foreign Executives and Managers

Foreign investors frequently wish to appoint foreign nationals as:

• Chief executive officers;
• Managing directors;
• Technical directors;
• Project managers;
• Financial managers;
• Engineers;
• Technical specialists;
• Consultants; or
• Representatives of a foreign parent company.

The fact that an individual is appointed as a shareholder, director, manager or corporate representative does not, by itself, eliminate the need to examine the person’s immigration and work-authorisation status.

The appropriate structure should be determined according to the person’s actual activities in Iran.

A foreign investor should distinguish between:

Corporate authority — the legal authority to act on behalf of a company;

and

Employment/work authorisation — the legal right to perform work in Iran.

These are related but legally distinct issues.

22. Consequences of Employing a Foreign National Without Proper Authorisation

Employing a foreign national without the required work authorisation may expose both the worker and the employer to legal and administrative consequences.

Accordingly, before a foreign employee begins work, the employer should verify:

• Immigration status;
• Entry visa;
• Work authorisation;
• Work permit;
• Permitted occupation;
• Employer information;
• Duration of authorisation; and
• Renewal requirements.

The Labour Law specifically regulates foreign employment and provides for work-permit requirements.

23. Termination of Employment

Termination is one of the most sensitive areas of Iranian employment law.

Employment may terminate for legally recognised reasons, including circumstances such as:

• Expiry of a fixed-term contract;
• Completion of a specific project or work;
• Resignation;
• Retirement where applicable;
• Permanent disability or other statutory circumstances; and
• Lawful dismissal under the Labour Law.

Employers should not assume that an employment contract can always be terminated simply by giving notice.

The legal basis for termination should first be identified.

24. Fixed-Term Contracts and Early Termination

Fixed-term employment contracts deserve particular attention.

Under Article 25, where an employment contract is concluded for a fixed term or for a specific piece of work, neither party may unilaterally terminate it before its lawful end in the ordinary circumstances.

This is particularly important for foreign investors because international employment contracts sometimes contain broad termination clauses drafted under foreign law or based on common-law concepts.

Such clauses should be reviewed carefully before being incorporated into an Iranian employment relationship.

25. Dismissal

Iranian labour law places statutory restrictions on dismissal.

Where dismissal is based on employee misconduct or failure to perform duties, the employer may need to follow statutory procedures, including written warnings and the involvement of the appropriate labour representative or dispute-resolution body, depending on the workplace.

The current ILO country profile explains that, in relevant cases, termination for disciplinary reasons may require agreement of the applicable workers’ representative or, where such representation does not exist, the involvement of the Labour Dispute Resolution authorities.

Therefore, an employer should not treat dismissal as simply a contractual matter.

26. Severance and End-of-Service Benefits

Iranian labour law recognises end-of-service or length-of-service benefits.

For fixed-term contracts, Article 24 provides for a length-of-service allowance in the circumstances specified by law, including where the employment relationship has lasted for one year or more. The statutory framework also contains rules applicable to permanent workers and termination circumstances.

The calculation should be made according to the employee’s legally relevant wage and length of service and should be reviewed at the time of termination.

27. Resignation

An employee may resign from employment, but statutory requirements may apply.

A written resignation is strongly recommended from an administrative and evidentiary perspective.

The employer should retain:

• The employee’s resignation letter;
• Date of resignation;
• Notice-related documentation where applicable;
• Final payroll;
• Leave records;
• Social-security records; and
• Documentation concerning settlement of statutory entitlements.

For foreign employees, the employer should additionally review the effect of termination on the employee’s work permit and immigration status.

28. Termination of a Foreign Employee’s Employment

There is a specific statutory obligation concerning termination of employment involving a foreign national.

Under Article 125 of the Labour Law, where an employment relationship between a foreign citizen and an employer terminates, the employer must notify the Ministry of Labour and Social Affairs within 15 days. The foreign citizen must also surrender the work permit to the Ministry within the prescribed period.

This is an important compliance obligation for companies employing foreign personnel.

Therefore, the termination checklist for a foreign employee should contain both:

Employment termination procedures

and

Immigration/work-permit procedures.

29. Labour Disputes

Disputes between employers and employees are generally handled through the labour dispute-resolution system established under the Labour Law.

The system includes administrative and quasi-judicial bodies dealing with employment disputes.

Depending on the nature of the dispute, proceedings may involve:

• The Labour Office;
• Board of Inquiry; and
• Board of Dispute Settlement.

The Labour Law contains a specific dispute-resolution framework, and employment disputes are generally not treated in the same manner as ordinary commercial disputes.

For a foreign investor, this distinction is particularly important.

An employment agreement should therefore not assume that a conventional international commercial arbitration clause will automatically displace mandatory Iranian labour dispute procedures.

30. Occupational Health and Safety

Employers have statutory obligations concerning occupational health and safety.

These obligations may include:

• Providing safe working conditions;
• Supplying appropriate protective equipment;
• Implementing safety procedures;
• Providing necessary training;
• Preventing workplace accidents; and
• Complying with sector-specific safety regulations.

The Labour Law contains extensive provisions relating to occupational safety and health, and the ILO identifies occupational safety and health as a major component of Iran’s labour-law framework.

For industrial, construction, mining, energy and manufacturing businesses, occupational safety compliance should receive particular attention.

31. Non-Discrimination and Equal Legal Protection

The Labour Law contains general principles concerning equal protection and prohibits distinctions based on certain personal characteristics.

Article 6 states, among other matters, that workers are entitled to legal protection and refers to the prohibition of distinctions based on factors such as race, colour, language and ethnic origin.

Employers should therefore design recruitment, compensation and workplace policies consistently with mandatory legal requirements.

32. Confidentiality and Intellectual Property

Although confidentiality and intellectual-property provisions are not substitutes for the statutory rules of employment law, they are particularly important for foreign investors.

Employment contracts should consider appropriate provisions concerning:

• Confidential information;
• Trade secrets;
• Customer information;
• Technical information;
• Business plans;
• Financial information;
• Software and source code;
• Designs and inventions;
• Documents;
• Corporate records; and
• Post-employment confidentiality.

For businesses operating internationally, the employment agreement should also clarify how confidential information may be accessed, stored and transferred across borders.

Any intellectual-property assignment or restriction should, however, be drafted with regard to applicable Iranian law and the nature of the employee’s work.

33. Non-Competition and Post-Employment Restrictions

Foreign companies often use extensive non-compete clauses in international employment agreements.

In Iran, such clauses should not simply be copied from another jurisdiction.

Their validity and enforceability should be assessed under Iranian contract, employment and other applicable laws.

The employer should distinguish between:

• Confidentiality obligations;
• Protection of trade secrets;
• Non-solicitation;
• Intellectual-property rights; and
• Restrictions on future employment.

The more extensive a restriction is, the more important it becomes to obtain Iranian legal advice before relying on it.

34. Foreign-Language Employment Contracts

A foreign investor may wish to prepare an employment contract in English.

This is commercially practical, particularly where the employee or parent company is foreign.

However, the parties should ensure that the contract is compatible with Iranian mandatory labour legislation.

A bilingual contract may therefore be preferable for international employment arrangements.

The contract should also clearly determine:

• Which language is authoritative in case of inconsistency;
• How official documents will be prepared;
• Which law governs the relationship; and
• Which dispute-resolution mechanism applies, subject to mandatory Iranian law.

A foreign-language contract cannot lawfully eliminate mandatory statutory employee rights.

35. Governing Law

For employment performed in Iran, Iranian mandatory employment rules should be carefully considered regardless of whether the employer is foreign-owned.

A clause stating that the agreement is governed exclusively by the law of another country does not necessarily remove mandatory Iranian employment requirements.

This is particularly important where:

• The employee physically works in Iran;
• The employer is an Iranian entity;
• The employee is registered with Iranian social-security authorities;
• The employee holds an Iranian work permit; or
• The business is conducted through an Iranian company.

International investors should therefore obtain Iranian legal advice before relying on a foreign governing-law clause.

36. Foreign Investment and Employment Planning

Employment planning should begin before a foreign investor establishes operations in Iran.

An investor should determine:

Before entering Iran

• What type of business will be established?
• What activities will be carried out?
• Which positions will be required?
• Which positions require foreign expertise?
• Can the positions be filled by Iranian employees?
• Will foreign managers be required?
• What immigration permissions will be necessary?

Before hiring

• Who will be the legal employer?
• What type of employment contract will be used?
• What salary structure will apply?
• What social-security obligations arise?
• What tax obligations arise?
• What work permit is required?
• What documents must the foreign employee provide?

Before commencement of work

• Has the employee obtained the required authorisation?
• Is the job description consistent with the authorisation?
• Has the employment contract been properly executed?
• Has the employee been registered where required?
• Have payroll and social-security procedures been established?

37. Employment Budget for Foreign Investors

A foreign investor should not calculate the cost of employment solely by reference to the employee’s salary.

A realistic employment budget may include:

Cost Category	Examples
Base salary	Monthly or annual salary
Statutory benefits	Mandatory allowances and employment benefits
Overtime	Statutory overtime compensation
Annual leave	Paid leave and related settlement
Social security	Applicable employer contributions
Tax administration	Payroll withholding and reporting
Insurance	Statutory or supplementary insurance
Housing	Where contractually provided
Transportation	Company transport or allowance
Relocation	Moving and settlement expenses
Travel	Business and contractual travel
Work permit	Applicable administrative costs
Legal compliance	Employment and immigration advice
Severance	End-of-service liabilities
Recruitment	Recruitment and relocation costs

This broader calculation is particularly important for international companies preparing financial projections for an Iranian subsidiary or project.

38. Employment Policies for an Iranian Subsidiary

A foreign company establishing an Iranian subsidiary should consider preparing a local employment policy covering at least:

1. Recruitment;
2. Employment contracts;
3. Working hours;
4. Attendance;
5. Overtime;
6. Leave;
7. Compensation;
8. Payroll;
9. Social security;
10. Health and safety;
11. Confidentiality;
12. Information security;
13. Disciplinary procedures;
14. Grievance procedures;
15. Termination;
16. Foreign employee management; and
17. Data and document retention.

Global corporate policies may be used as a starting point, but they should be reviewed and adapted to Iranian mandatory employment rules.

39. Checklist for Hiring a Foreign Employee in Iran

A company considering the employment of a foreign national should consider the following checklist.

Corporate

• Identify the legal employer.
• Confirm the company’s authority to employ personnel.
• Confirm the position and job description.
• Check sector-specific requirements.

Immigration and Work Permit

• Confirm nationality and immigration status.
• Determine the appropriate entry visa.
• Determine the required work authorisation.
• Apply for the required work permit.
• Verify the permitted occupation.
• Monitor expiry and renewal dates.

Employment Contract

• Identify the parties.
• Define duties.
• Specify workplace.
• Specify working hours.
• Specify remuneration.
• Define benefits.
• Define probation, if applicable.
• Determine contract duration.
• Address confidentiality.
• Address intellectual property.
• Address termination consistently with mandatory law.

Payroll and Compliance

• Register the employee where required.
• Establish payroll procedures.
• Determine social-security obligations.
• Determine tax obligations.
• Maintain attendance records.
• Maintain leave records.
• Maintain employment documentation.

Termination

• Identify the legal basis for termination.
• Calculate outstanding salary.
• Calculate leave entitlements.
• Calculate end-of-service benefits.
• Complete required social-security procedures.
• Notify relevant authorities concerning foreign-worker termination where required.
• Address the work permit and immigration status.

40. Common Mistakes Made by Foreign Investors

Foreign investors entering the Iranian market should be particularly careful about the following mistakes.

Mistake 1: Assuming an English contract is sufficient

A sophisticated English-language contract may still fail to address mandatory Iranian employment requirements.

Mistake 2: Treating a foreign employee as an ordinary expatriate without a work permit

Foreign nationality creates additional regulatory requirements.

Mistake 3: Assuming a business visa automatically permits employment

Immigration status and employment authorisation must be examined separately.

Mistake 4: Using foreign employment templates without adaptation

Employment contracts prepared for the United Kingdom, United States, European Union or other jurisdictions may contain provisions incompatible with Iranian mandatory rules.

Mistake 5: Ignoring social-security obligations

The actual cost of employment may be considerably different from the employee’s nominal salary.

Mistake 6: Treating termination as purely contractual

Iranian labour law contains statutory rules affecting termination, particularly for fixed-term contracts and disciplinary dismissal.

Mistake 7: Ignoring foreign-worker termination procedures

The termination of a foreign employee may require additional notification and work-permit procedures.

Mistake 8: Failing to distinguish employment from consultancy

Calling an individual a “consultant” does not necessarily prevent the relationship from being treated as employment where its actual characteristics indicate an employment relationship.

41. Employment Contracts for Foreign Investors: Recommended Structure

For a foreign investor, a comprehensive Iranian employment agreement may be structured as follows:

1. Parties
2. Definitions
3. Position and Duties
4. Place of Work
5. Commencement Date
6. Contract Duration
7. Probationary Period
8. Working Hours
9. Salary and Remuneration
10. Allowances and Benefits
11. Overtime
12. Annual Leave and Other Leave
13. Social Security
14. Tax
15. Business Travel
16. Housing and Relocation
17. Confidentiality
18. Intellectual Property
19. Data Protection and Information Security
20. Company Property
21. Employee Obligations
22. Health and Safety
23. Disciplinary Rules
24. Termination
25. End-of-Service Entitlements
26. Foreign Work Permit
27. Immigration Compliance
28. Return of Company Property
29. Post-Termination Obligations
30. Applicable Law
31. Dispute Resolution
32. Notices
33. Language
34. Entire Agreement
35. Amendments
36. Signatures

The precise content should be adjusted to the position, nationality of the employee, employer structure and applicable Iranian regulations.

42. Practical Advice for Foreign Investors

The safest approach for a foreign investor is to treat employment compliance as part of the investment structure rather than as an issue to be addressed after the business has commenced.

Before employing personnel in Iran, an investor should ideally conduct an employment compliance review covering:

1. Corporate structure

Determine which entity will employ the personnel.

2. Immigration structure

Determine whether foreign personnel have the appropriate right to enter and work in Iran.

3. Employment structure

Determine whether the relationship is employment, consultancy, project work or another legally recognised arrangement.

4. Contract structure

Prepare a contract consistent with Iranian mandatory employment law.

5. Payroll structure

Establish salary, benefits, social-security and tax procedures.

6. HR structure

Implement appropriate procedures for attendance, leave, disciplinary matters and employee records.

7. Termination structure

Prepare procedures for resignation, expiry, dismissal and settlement.

8. Foreign-worker compliance

Maintain a system for monitoring work permits and immigration documents.

Conclusion

Employment in Iran is governed by a comprehensive statutory framework, principally based on the Iranian Labour Law. The law regulates the fundamental aspects of employment, including employment contracts, remuneration, working hours, overtime, leave, occupational safety, termination and dispute resolution.

For foreign nationals, however, employment involves an additional regulatory dimension. In general, a foreign national must have the appropriate authorisation to enter Iran for the relevant employment and must obtain the required work permit before undertaking employment. The Labour Law also establishes specific conditions and procedures concerning the employment of foreign nationals.

For foreign investors, the most important practical point is that employment law should be considered at the beginning of the investment process. The choice of corporate structure, recruitment of foreign personnel, employment contracts, payroll, social security, tax, immigration and eventual termination should be planned as interconnected legal and operational issues.

A well-prepared employment framework can significantly reduce legal and financial risks and provide greater certainty for both the investor and the employee.

For an individual foreign employee, expatriate manager, international company or foreign investor, the appropriate legal analysis will ultimately depend on the specific circumstances of the proposed employment, the identity of the employer, the employee’s nationality and immigration status, the nature of the work and the applicable sector-specific regulations.

Legal Disclaimer: This article provides general information about Iranian employment law and is intended for informational purposes. It does not constitute legal advice for a particular employment relationship, investment project or individual. Iranian employment, immigration, tax and social-security regulations may be amended or supplemented by legislation, regulations and administrative practice. Before employing a foreign national or establishing an employment structure in Iran, the applicable rules should be reviewed based on the specific circumstances and the law in force at that time.

Questions Frequently Asked by Foreigners About Employment in Iran