However, Hird must still sit out his 12-month suspension until August next year and will go without pay for the entire 2014 calendar year.
In a statement released on Friday afternoon, the AFL said it accepted Essendon's position.
"James Hird will not be paid in 2014, and equally the AFL have accepted that the Essendon Football Club has the right to make payments to James Hird in the 2013 year as it sees fit," the statement said.
Click here to read the AFL's full statement
Essendon chairman Paul Little said Hird's pay had not been dealt with in the formal Deed of Settlement after his initial suspension for his role in the club's supplement scandal.
"It has been very difficult to have this matter adequately resolved whilst being played out in the public arena," Little said.
"To settle this impasse, the Essendon Football Club has resolved that it will pay James Hird in advance to cover the 2014 year consistent with Hird’s employment contract obligations.
"This also meets the implied terms of the Deed of Settlement. The implied terms of the AFL sanction indicate that James Hird cannot be paid for a 12 month period therefore he will not be paid during the calendar period January 1 – December 31, 2014."
Essendon chairman Paul Little said Hird's pay had not been dealt with in the formal Deed of Settlement after his initial suspension for his role in the club's supplement scandal.
"It has been very difficult to have this matter adequately resolved whilst being played out in the public arena," Little said.
"To settle this impasse, the Essendon Football Club has resolved that it will pay James Hird in advance to cover the 2014 year consistent with Hird’s employment contract obligations.
"This also meets the implied terms of the Deed of Settlement. The implied terms of the AFL sanction indicate that James Hird cannot be paid for a 12 month period therefore he will not be paid during the calendar period January 1 – December 31, 2014."
