Hire Employees in Timor-Leste

Two routes exist. Registering a Timorese entity gives you direct employment, followed by a business licence, tax registration and INSS enrolment for every employee.

An Employer of Record removes that setup. The EOR is the legal employer, runs payroll, withholds wage tax and remits contributions, while day-to-day direction stays with you.

Written contracts are mandated, and the consequence of not having one is unusual: where there is a dispute about an oral contract, the employer must prove the absence of a contract and its terms. The burden sits on the employer, not the worker.

Timor-Leste has one of the simplest payroll structures anywhere. Wage income tax is a flat 10% on monthly income above US$550, with income at or below that level tax-free and no progressive bands at all. There is no value added tax.

The US dollar is the sole legal tender, with local centavo coins at 1:100. Payroll runs in dollars and there is no conversion exposure, unusual for a market at this income level.

The economy rests on offshore oil and gas, with international employment concentrated in energy, infrastructure, maritime services and development work. The formal economy is very small: average formal-sector earnings are around US$350 a month, and most employment is in subsistence agriculture or the public sector.

Break-even rule of thumb: EOR fees begin to exceed the running cost of a Timorese entity somewhere between 15 and 25 employees. Model both, see EOR vs Entity for the framework.

Social security is administered by INSS under the national scheme.

On the figures sourced for this build, the employer contributes 4% of gross and the employee 2%, with contributions capped at US$1,500 of monthly salary, a maximum of US$60 from the employer.

Published rates vary and should be confirmed. Other figures circulate for the same scheme, and a contributory system introduced relatively recently may have transitional and steady-state rates that guides conflate. Verify the current position with INSS before running payroll.

Employers must register the business, obtain a licence, and register all employees with INSS within the required timeframes.

Contributions and withheld tax are remitted monthly, with returns filed with both the revenue authority and INSS.

Gross monthly salaries in US dollars. Employer INSS is capped, so the on-cost is effectively flat above US$1,500 of salary.

Benchmarks below are gross monthly salaries in US dollars, which is the sole legal tender. Average formal sector earnings are around US$350 a month.

Salaries are paid by the last working day of each month, and statutory deductions are remitted by the 10th to 15th of the following month along with the required returns.

Wage income tax is a flat 10% on monthly income exceeding US$550. Income at or below US$550 is tax-free. There are no progressive bands for wages, which makes the calculation trivial compared with most jurisdictions.

Non-wage income follows a different schedule. 0% on annual taxable non-wage income up to US$6,000 and 10% above it.

Residents are taxable on worldwide income; non-residents only on Timor-Leste-sourced income, with a flat 10% on sourced wages that is final.

Employers must issue detailed payslips showing all earnings and deductions, and maintain payroll records, timesheets and contracts.

Wage income tax operates as a single flat rate above a monthly threshold rather than as a graduated scale.

Employment is governed by the Labour Code, Law No. 4/2012. Note that one guide refers to a Labour Code of 2002, which predates the current statute.

The minimum wage is US$115 a month and has not been revised since 2016, set under Decree-Law 4/2012 and applying to private sector workers aged 17 and over. The government has been reviewing an increase, but no legislation had been enacted as of early 2026, so a decade has passed without adjustment despite rising living costs. Some sector minimums run higher, to around US$150.

The standard week is 44 hours across eight-hour days, with a rest break of at least one hour after five hours of continuous work. One source gives 40 hours instead, the 44-hour figure is the more widely supported.

Contracts may be maintained in Portuguese, Tetum or English.

Written contracts are mandatory, and the employer carries the burden of proof if an oral arrangement is later disputed.

Register the business, obtain a licence, register with the tax authority and enrol the employee with INSS before the first payroll run.

Probationary periods typically run between one and three months.

The standard week is 44 hours across eight-hour days, with a rest break of at least one hour after five hours of continuous work.

Overtime is tiered. The first two hours attract an additional 50% of the normal hourly rate; hours beyond that attract an additional 100%. Over-cycle work is compensated at an additional 200%.

The night work premium is not an overtime premium. The 25% uplift for night work applies even where the work falls within the normal 44-hour week, so a night shift inside standard hours still costs 25% more.

Public holiday and Sunday work is separately compensated at a higher rate.

Timor-Leste observes national and Catholic public holidays, several marking the independence struggle, alongside Islamic observances whose dates follow the lunar calendar.

Timor-Leste observes national and Catholic public holidays, several marking the independence struggle, alongside Islamic observances. Dates and any substitution rules are set out below.

INSS provides the statutory social protection, funded by the combined employer and employee contribution.

Statutory benefits under the Labour Code include annual leave of at least 12 working days, paid public holidays, sick leave and maternity leave.

There is no mandatory thirteenth month payment.

Because the formal economy is small and public sector wages sit above the private minimum, benefits are often the competitive differentiator rather than base pay.

Termination requires valid statutory justification and written notice, with notice running from 15 to 30 days depending on length of continuous service.

For economic terminations specifically, notice is 15 days where seniority is two years or less and 30 days above two years, with wages in lieu if notice is not given.

Final pay including accrued leave is due on separation and must appear in the month’s returns to both the revenue authority and INSS.

Keep contracts and payroll records, since they are the primary evidence if the terms of employment are later challenged.

Non-residents pay a flat 10% on Timor-Leste-sourced wages, and that is final, no further assessment follows.

Residents are taxable on worldwide income, so residence status materially changes the position for anyone spending significant time in country.

The dollar removes the usual expatriate currency question. With the US dollar as sole legal tender, there is no conversion risk between offer and payslip.

Employment contracts may be maintained in Portuguese, Tetum or English, which simplifies documentation for international employers.

Contribution rates need confirming. The figures used here are 4% employer and 2% employee capped at US$1,500, but other rates circulate for the same scheme. A relatively young contributory system may have transitional and steady-state rates that guides conflate.

The night work premium applies inside normal hours. Treating the 25% uplift as an overtime premium only will understate the cost of any night shift.

The minimum wage looks stale because it is. US$115 has stood since 2016 with an increase under review, check whether legislation has been enacted before assuming it still applies.

Note also that one guide cites a Labour Code of 2002 rather than Law No. 4/2012; that a 40-hour week appears in one source against 44 elsewhere; and that the employer bears the burden of proof on oral contracts.

Work backwards from the start date. An EOR hire takes three to six weeks; entity formation runs two to five months.

Confirm the current INSS rates before quoting, and put the contract in writing without exception.

Apply the flat 10% above US$550, budget the night premium separately from overtime, pay by month end, and file returns with both authorities by the 10th to 15th.