Two questions employees ask constantly, and employers frequently get wrong.
First: how much will you receive when you take annual leave? Second: how much will you receive if you fall ill?
These two payments are governed by different laws, different funds, and different formulas. In 2026, both underwent significant changes — one adding a minimum floor to the leave pay calculation, the other introducing an entirely new automatic mechanism. Social media in the meantime spread misinformation about both.
Let's clarify.
Part One: Annual Leave Pay
Legal Framework
Annual leave in Azerbaijan is governed by Articles 139 and 140 of the Labour Code. The payment mechanism is defined by the Cabinet of Ministers' "Rules for Calculating Average Wages".
The minimum annual leave entitlement is 21 calendar days. Certain categories receive more: workers under 18 — 42 days, teachers — per applicable norms, workers in hazardous conditions — additional days.
Leave is calculated in calendar days, not working days. Saturdays and Sundays are included within the leave period.
Calculation: What Changed, What Did Not
Early 2026 saw the spread of a claim on social media that leave pay can no longer be less than the employee's monthly salary. This assertion is not legally precise.
The actual position: the mechanism for calculating annual leave pay has not changed. Average earnings continue to be calculated based on actual days worked over the previous 12 months.
In 2026, an addition was made to Article 111 of the Labour Code: the payment to an employee during their leave period must be maintained at no less than their most recent salary. This does not change the calculation method itself — if the calculated average exceeds the last salary, the average is paid; if it falls below, the last salary is used as the base.
Calculation Formula
Annual leave pay is calculated in three steps:
Step 1 — Average Monthly Earnings: Total Gross income for the last 12 months ÷ 12
Step 2 — Average Daily Earnings: Average monthly earnings ÷ 30.4
(30.4 is the average number of days per month: 365 ÷ 12)
Step 3 — Leave Pay: Average daily earnings × number of leave days
If the result is less than the last salary, the last salary is used as the calculation base.
Worked Example
An employee's total Gross income for the last 12 months is AZN 24,000; actual days worked during that period — 230 days.
| Step | Calculation | Result |
|---|---|---|
| Average daily earnings | 24,000 ÷ 230 | AZN 104.35 |
| Leave pay for 10 days | 104.35 × 10 | AZN 1,043.50 |
It is not a legal requirement that this amount equals the employee's current monthly salary. The calculation follows the average earnings principle — the minimum floor described above is simply protected.
The Technical Trap: Counting Worked Days
For companies without an ERP system, the most common error in practice is manually counting actual days worked over 12 months. When sick days, unpaid leave, and other absences are not properly recorded, the average daily figure becomes inflated and the result is legally incorrect.
The key recommendation for HR professionals: do not maintain attendance records in a fragmented way.
When Must Leave Pay Be Paid?
Under Article 140.5 of the Labour Code, leave pay must be paid no later than 3 days before the start of the leave. This rule is frequently violated — and under the law, a delay gives the employee the right to extend their leave.
Is Annual Leave Pay Taxable?
Yes. Annual leave pay is subject to the same tax treatment as regular salary — income tax and SSPF contributions are deducted. This is the main reason employees notice a difference when comparing their take-home leave pay against their usual monthly salary.
Compensation for Unused Leave
Unused leave days accumulated during employment are paid as compensation upon contract termination. The calculation uses the same formula: average daily earnings × unused leave days. This payment is treated identically to regular salary for tax purposes.
Part Two: Sick Leave Benefit
The Biggest Change of 2026 Is Here
A reform that fundamentally changed Azerbaijan's social insurance system was adopted in 2026 for sick leave benefits. By Resolution No. 31 of Prime Minister Ali Asadov, dated 30 January 2026, the old Regulation — Resolution No. 189 of 1998 — was approved in a new edition.
What Changed — Three Core Reforms
1. Experience-based rates abolished
Under the old rules, the sick leave benefit depended on the employee's insurance record:
| Insurance experience | Benefit rate |
|---|---|
| Up to 3 years | 60% of average earnings |
| 3–8 years | 80% |
| More than 8 years | 100% |
Under the new rules: 100% is paid to all employees regardless of insurance experience.
This means new employees — with as little as 6 months of contributions — receive the full amount. Previously such an employee would have received only 60%.
2. Maximum payment period extended
Under the old rules, persons with disabilities received payments for up to 6 months; other employees up to 12 months. Under the new rules — 12 months for all. Additionally, the double benefit for caring for a child with a disability — previously limited to children of Chernobyl victims — now applies to all children with disabilities.
3. Proactive (automatic) assignment — from 1 May
Under the old system, to receive a benefit the employee had to apply, collect documents, the employer had to form a commission and write a protocol. Every link in this bureaucratic chain was open to delays, errors, and losses.
From 1 May 2026, four types of benefit are assigned proactively — that is, automatically:
- Temporary incapacity for work benefit (sick leave)
- Pregnancy and childbirth benefit
- Childcare benefit for children up to 3 years
- One-time funeral benefit
The employee does not apply. The system receives medical data, processes it together with the insurance record, and the SSPF payment is made automatically. A number of administrative obligations of the employer — the commission, protocol, and payroll statement — are eliminated.
Calculation Formula (New Rules)
Step 1 — Average Daily Earnings: Total Gross income for the last 12 months ÷ 365
Step 2 — Daily Benefit Amount: Average daily earnings × 100% (under old rules this was 60%, 80%, or 100%; now 100% for everyone)
Step 3 — Total Benefit: Daily amount × number of days on the sick leave certificate
Who Pays: First 14 Days — Employer, Thereafter — SSPF
This rule did not change in 2026. Under Resolution No. 31:
First 14 calendar days — paid from the employer's own funds. From the 15th day onwards — SSPF pays.
In the proactive system, SSPF technically performs the calculation, but the employer's financial obligation for the first 14 days remains.
Worked Example
An employee's total Gross income for the last 12 months is AZN 18,000. The sick leave certificate covers 20 days.
| Step | Calculation | Result |
|---|---|---|
| Average daily earnings | 18,000 ÷ 365 | AZN 49.32 |
| Total benefit (100%) | 49.32 × 20 | AZN 986.40 |
| First 14 days — employer | 49.32 × 14 | AZN 690.48 |
| Remaining 6 days — SSPF | 49.32 × 6 | AZN 295.92 |
Under the old 60% system, this employee would have received only AZN 591.84. Now they receive AZN 986.40. The difference — AZN 394.56 — is the concrete expression of the new system.
Is Sick Leave Benefit Taxable?
No. This is a fundamental difference from annual leave pay. Sick leave benefit is exempt from income tax and SSPF contributions. The employee receives the full calculated amount in hand.
The Transition Period: What Happened to Previously Opened Certificates?
Resolution No. 31 was signed on 30 January 2026 and officially published on 2 February 2026. Legally: the resolution came into force from the date of publication — 2 February. The proactive mechanism, however, was applied from 1 May due to technical preparation requirements.
Important rule: benefits that were already being calculated at 60% or 80% and paid out before the resolution are not recalculated. A sick leave certificate opened before the new resolution is closed under the old rules.
Minimum Insurance Experience Requirement Remains
Although the experience-based rate structure has been abolished, the requirement of a minimum 6 months of insurance contributions to be eligible for a benefit remains in force. An employee who does not meet this condition is not entitled to a benefit.
The same rules apply to sick leave certificates opened for care of a sick child (children up to 14 years).
Side-by-Side Comparison
| Annual Leave Pay | Sick Leave Benefit | |
|---|---|---|
| Calculation base | Last 12 months, actual working days | Last 12 months, divided by 365 |
| Payment source | Employer | First 14 days employer, then SSPF |
| Taxation | Income tax + SSPF deducted | Not taxed |
| Minimum experience | 6 months (for first leave) | 6 months |
| 2026 change | Minimum floor introduced | 100% + automatic system |
Practical Takeaways for Employers
The shift of sick leave benefit to the proactive system reduces the administrative burden on employers on paper. However, the integration of the SSPF system is not yet fully complete — a number of enterprises encountered transition problems even after 1 May.
Three points for employers to watch in 2026:
1. Cash-flow planning for the first 14 days. Even with the proactive system, the financial burden of the first 14 days remains with the employer. For small companies, simultaneous sick leave certificates from several employees can create a serious cash-flow problem.
2. The three-day rule for leave pay. This rule is violated frequently. A delay gives the employee the legal right to file a claim.
3. Twelve-month income records. Both calculations — leave pay and sick benefit — depend on accurate income data for the last 12 months. Record-keeping gaps corrupt the results.
Conclusion
In 2026, the annual leave pay system remained largely unchanged — the calculation method was not altered, only a minimum floor was added. Sick leave benefit underwent fundamental reform: experience-based rates were abolished, everyone receives 100%, and the process has been automated.
Understanding the difference between the two systems means knowing your rights as an employee and effective financial planning as an employer.
Want to calculate your annual leave pay? Enter your average monthly Gross income and number of leave days — the system shows the result under 2026 rules. → Go to Annual Leave Pay Calculator
Want to calculate your sick leave benefit? Enter the number of days on the certificate and your average earnings. → Go to Sick Leave Benefit Calculator
Prepared on the basis of Articles 111, 139, 140, 177, 179 of the Labour Code; Cabinet of Ministers Resolution No. 126 "Rules for Calculating Average Wages"; Cabinet of Ministers Resolution No. 31 of 30 January 2026 (new edition of Resolution No. 189); Articles 26–29 of the Law of the Republic of Azerbaijan "On Social Insurance".