diff --git a/.gitignore b/.gitignore
index d9424e7..f9b40b2 100644
--- a/.gitignore
+++ b/.gitignore
@@ -348,3 +348,6 @@ ASALocalRun/
 /**/bin/
 /**/obj/
 _site
+
+# Environment variables file for local development
+.env
\ No newline at end of file
diff --git a/DOCKER.md b/DOCKER.md
new file mode 100644
index 0000000..14901a9
--- /dev/null
+++ b/DOCKER.md
@@ -0,0 +1,75 @@
+# Payroll Engine Docker Stack
+
+This document describes how to set up and run the Payroll Engine stack using Docker.
+
+## Prerequisites
+
+- Docker
+- Docker Compose
+
+## Getting Started
+
+### 1. Environment Configuration
+
+The application uses a `.env` file to manage the database password. This file must be created in the same directory as the `docker-compose.yml` file (`PayrollEngine/`).
+
+Create a file named `.env` with the following content:
+
+```
+# PayrollEngine Docker Stack Configuration
+DB_PASSWORD=PayrollStrongPass789
+```
+
+**Important Password Requirements:**
+- Use **alphanumeric characters only** (letters and numbers)
+- **Avoid special characters** like `!`, `@`, `#`, `$`, etc.
+- Special characters can cause authentication failures that appear as misleading "sqlcmd not found" errors
+- Example of good password: `PayrollStrongPass789`
+- Example of problematic password: `PayrollStrongPass789!` (contains `!`)
+
+### 2. Build and Run the Stack
+
+To build and start all the services, run the following command from the `PayrollEngine/` directory:
+
+```sh
+docker-compose up --build
+```
+
+This command will:
+- Build the Docker images for the `backend-api`, `webapp`, and `db-init` services.
+- Start all the services in the correct order.
+- Initialize the database.
+
+### 3. Accessing the Applications
+
+Once the stack is running, you can access the following services:
+
+- **PayrollEngine WebApp**: `http://localhost:8081`
+- **PayrollEngine Backend API**: `http://localhost:5001` (HTTP) or `https://localhost:5002` (HTTPS)
+- **SQL Server Database**: Connect using a client on `localhost:1433` with the `sa` user and the password you defined in the `.env` file.
+-  **Verification:** : Test the SQL Server connection:
+```sh
+docker exec payroll-db /opt/mssql-tools18/bin/sqlcmd -S localhost -U sa -P "YourPassword" -C -Q "SELECT @@VERSION"
+```
+
+### 4. Stopping the Stack
+
+To stop the services, press `Ctrl+C` in the terminal where `docker-compose up` is running.
+
+To stop and remove the containers, run:
+
+```sh
+docker-compose down
+```
+
+To remove the database volume as well, run:
+```sh
+docker-compose down -v
+```
+
+
+ **Verification:**
+ Test the SQL Server connection:
+```sh
+docker exec payroll-db /opt/mssql-tools18/bin/sqlcmd -S localhost -U sa -P "YourPassword" -C -Q "SELECT @@VERSION"
+```
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diff --git a/docker-compose.yml b/docker-compose.yml
new file mode 100644
index 0000000..ced2756
--- /dev/null
+++ b/docker-compose.yml
@@ -0,0 +1,74 @@
+services:
+  db:
+    image: mcr.microsoft.com/mssql/server:2022-latest
+    platform: linux/amd64  # Force x86_64 for compatibility across platforms
+    container_name: payroll-db
+    environment:
+      ACCEPT_EULA: 'Y'
+      MSSQL_SA_PASSWORD: '${DB_PASSWORD}'
+      MSSQL_PID: 'Developer'
+    ports:
+      - "1433:1433"
+    volumes:
+      - mssql-data:/var/opt/mssql
+
+  db-init:
+    image: mcr.microsoft.com/mssql/server:2022-latest
+    platform: linux/amd64  # Force x86_64 for compatibility
+    container_name: payrollengine-db-init
+    depends_on:
+      - db
+    entrypoint: /bin/sh
+    command: >
+      -c "
+        echo 'Waiting for database to be ready...'
+        sleep 30
+        echo 'Testing database connection...'
+        /opt/mssql-tools18/bin/sqlcmd -S db -U sa -P \"${DB_PASSWORD}\" -C -Q \"SELECT @@VERSION\" || { echo 'Database connection failed'; exit 1; }
+        echo 'Creating database...'
+        /opt/mssql-tools18/bin/sqlcmd -S db -U sa -P \"${DB_PASSWORD}\" -C -Q \"IF NOT EXISTS (SELECT name FROM sys.databases WHERE name = 'PayrollEngine') CREATE DATABASE PayrollEngine\"
+        echo 'Executing SQL script...'
+        /opt/mssql-tools18/bin/sqlcmd -S db -U sa -P \"${DB_PASSWORD}\" -C -d PayrollEngine -i /sql/ModelCreate.sql
+        echo 'Database initialization completed.'
+      "
+    volumes:
+      - ../PayrollEngine.Backend/Database/ModelCreate.sql:/sql/ModelCreate.sql:ro
+
+  backend-api:
+    build:
+      context: ../PayrollEngine.Backend
+      dockerfile: Dockerfile
+    platform: linux/amd64
+    container_name: payroll-backend-api
+    ports:
+      - "5001:8080"
+    environment:
+      ASPNETCORE_URLS: 'http://+:8080'
+      ASPNETCORE_ENVIRONMENT: 'Development'
+      ConnectionStrings__PayrollDatabaseConnection: 'Server=db;Database=PayrollEngine;User Id=sa;Password=${DB_PASSWORD};TrustServerCertificate=True;'
+    depends_on:
+      db-init:
+        condition: service_completed_successfully
+    volumes:
+      - ../PayrollEngine.Backend/logs:/app/logs
+
+  webapp:
+    build:
+      context: ../PayrollEngine.WebApp
+      dockerfile: Dockerfile
+    platform: linux/amd64
+    container_name: payroll-webapp
+    ports:
+      - "8081:8080"
+    environment:
+      ASPNETCORE_URLS: 'http://+:8080'
+      ASPNETCORE_ENVIRONMENT: 'Development'
+      ApiSettings__BaseUrl: 'http://backend-api:8080'
+    depends_on:
+      - backend-api
+    restart: unless-stopped
+    volumes:
+      - ../PayrollEngine.WebApp/logs:/app/logs
+
+volumes:
+  mssql-data:
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