Businesses must comply with the Wage Protection System (WPS) for the payroll process in UAE. The payroll components generally include basic salary and allowances, deductions, overtime pay, gratuity, and leave entitlements. To process the payroll, employers are required to follow some steps. This includes collecting employees’ information, calculating their gross pay and deductions, generating payslips, and submitting the WPS file to the bank. To ensure payroll compliance in the UAE, employers can use payroll software, maintain updated employee records, and schedule payroll ahead of time.
What Employers Need to Know About Payroll Process in UAE?
In the UAE, the Federal Law No. 8 of 1980 governs the UAE payroll laws. It is led by the Ministry of Human Resources and Emiratization (MOHRE). After the introduction of Wage Protection (WPS) in 2009, many advancements were made in UAE labor laws.
What is the Wage Protection System (WPS)?
Wage Protection System (WPS) is an electronic salary transfer system. It can be through bureaus, banks, or any financial institution. But the transfer must be approved by the UAE Central Bank first. Well, the UAE was the first GCC country to implement a Wage Protection System. Now it’s commonly used in private organizations.
Who Must Comply with WPS?
All private sectors in the UAE that are registered with MOHRE must comply with WPS. The Ministerial Decree No. 739 of 2016 mandates private sector employers to pay their employees via the Wage Protection System. If the free zone companies are not registered with MOHRE, they must be registered with free zone authorities like DMCC and JAFZA. Thus, they must comply with WPS.
What Are the Penalties for Wps Non-compliance
The Ministerial Resolution No. 598 of 2022 issues penalties for employers that don’t comply with the Wage Protection System (WPS). If an employer doesn’t comply with WPS, he will face suspension of work permits and potential legal action and have to pay a fine ranging from AED 1,000 to AED 50,000. For each worker, the fine is going to be around AED 5,000.
Which Payroll Components Must UAE Employers Understand?
There are some payroll components that UAE employers must implement while issuing salaries to employees. They all must comply with the UAE Labor Law and Wage Protection System (WPS).
Basic Salary and Allowances in UAE
Basic salary is the fixed amount paid to the employee upon an agreed employment contract. It is a percentage of the gross salary that excludes any sort of allowances or benefits. In the UAE, the basic salary should be 60% of the gross salary, and the remaining 40% shall be made up with allowances. The allowances can be travel allowance, relocation bonus, sales commission, etc.
On average, salaries in the UAE vary by industry and job level. For instance, the overall monthly average salary in UAE ranges around AED 12,000 – 15,000, but this can differ greatly depending on the sector and experience. But the benefits, like gratuity and overtime, are calculated with the basic salary, not the gross salary.
Deductions and Social Security Contributions
The Federal Decree Law No. 57 of 2023 addresses payroll deductions and social security contributions. Employees who are UAE nationals shall contribute 5% of their salary to social security. For employers, it should be 15% in Abu Dhabi and 12.5% in most Emirates. The calculation for social security contributions is generally 20% of the employee’s gross remuneration. Other deductions include repayment of advances, loans, fines, disciplinary actions, etc. But the deductions cannot be more than 50% of the employee’s salary.
Overtime Pay and Calculations
As per Article 17 of Labor Law UAE 2021 (Federal Decree-Law No. 33), employees should be paid more for their overtime than for their regular hours. Overtime calculation in UAE ensures fair compensation for additional work hours, typically based on the employee’s basic salary. The overtime pay calculation isÂ
Overtime pay = {(Basic salary / 30) / 8} × Overtime hours × 1.25
Here, the basic salary is the salary agreed upon in the employee’s contract. 30 is to convert the monthly salary into daily salary. 8 is the working hours that are divided to get the hourly rate. Then we multiply the hourly rate with overtime hours and 1.25. Here, 1.25 is the 25% premium that an employee will get for his overtime hours.Â
This calculation applies to the overtime hours of the normal working hours. If the employee does overtime between 10 pm and 4 am, the calculation will be a bit different.
Overtime calculation for working hours between 10 pm and 4 am,
Overtime pay = {(Basic salary / 30) / 8} × Overtime hours × 1.5
When an employee does overtime in rotating schedules, like 10 pm to 4 am, his premium will be 50% for his overtime hours.
Gratuity (End-of-Service Benefits)
Article 33 of UAE Labor Law mandates employers to issue gratuity or end-of-service benefits to their employees. They should receive it upon their termination from employment. Here, the service duration must be at least 1 year to be eligible for receiving gratuity. For the first 5 years of service, employees will get their 21 days’ basic salary as gratuity. But if the service duration is more than 5 years, their gratuity pay will be their 30 days’ basic salary for the years after the fifth year. For a detailed breakdown and real-world examples refer to our guide on End of the Service gratuity in UAE.
Leave Entitlements Impacting Payroll
In the UAE, Article 29 of the Federal Decree Law addresses leave entitlements of employees. Employees can have 30 days of paid annual leave after completing one year of their service. The leave pay will include allowances and be based on the employee’s full salary.Â
In one year, employees can get 90 days of paid sick leave. Here, 15 days will be fully paid, and the rest of the 30 days will be half paid. On maternity leave, female employees will get 60 days of paid leave. In this case, the first 45 days will be fully paid, and the remaining 15 days will be half paid. Male employees can also get 5 days of paid paternity leave. Hajj leave is granted for up to 30 days, and it is considered as unpaid leave.
To calculate the leave salary, the UAE follows this formula led by MOHRE:
Daily wage = Basic Salary / 30
Leave salary = Daily wage × Number of leave days
Step-by-Step Payroll Processing in UAE
For a smooth payroll processing cycle, a UAE employer needs to go through the following steps.
- Step 1: Collect Employee Information and Attendance: This includes the employee’s name, nationality, employment visa status, passport, Emirates ID numbers, overtime eligibility, starting and ending date of contract, job title, overtime eligibility, leave entitlements, basic salary, agreed allowances, deductions, and bank account details.
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- Step 2: Calculate Gross Pay and Deductions: First, add allowances to the base salary. Include overtime pay, commissions, and bonuses if applicable. Then deduct insurance premiums, advances, loans, fines, penalties, and contributions to pensions. Also, you have to set aside the gratuity premium for each employee, making indirect deductions.
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- Step 3: Generate Payslips and Reports: After providing all necessary details and information, you are to generate a payslip, payroll summary, and audit-ready report of the employee. Using a HR & payroll software like Huduri helps to automate all the procedures and generate an error-free payroll report.
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- Step 4: Submit WPS File to the Bank: Now the employer is required to submit the WPS salary file (SIF) to the bank. It’s commonly in the form of an Excel spreadsheet. The bank will check if it abides by the rules of MOHRE and accept if everything is accurate.
How Can Employers Ensure Payroll Compliance in the UAE?
Employers can ensure payroll compliance by processing salary payments through the Wage Protection System (WPS). The following rules will help to comply with the payroll policy in UAE.
Use of Payroll Software or Outsourcing
Using payroll software or outsourcing will help automate calculations and manage wage protection systems (WPS) at the same time. Also, it integrates with government portals, ensuring timely salary payments of employees. An advanced HRM software allows employers to monitor Emiratization quotas and employees’ nationalities.
Maintain Updated Employee Records
Keeping real-time records of employees, like contracts, visa status, etc., helps with accurate reporting. Thus, there will be no error in the payroll file submission to WPS.
Schedule Payroll Ahead of Time
As per UAE labor law, employers must disburse the payment of employees before the deadline. Employers should set up reminders for salary delays. Or else, it can lead to penalties.
Conclusion
The payroll process in the UAE is streamlined with WPS. As per the UAE government salary rules, employers should disburse payroll at the start of the month or before the deadline. Before that, they must submit employees’ salary files to their registered banks. If it fulfills salary protection compliance and obligations, the bank will process the payment. And the salary will be transferred to the employee’s bank account. For better consideration and accurate records, it’s better to take advantage of payroll software. This will save the employer’s time and help to implement payroll as per UAE labor laws.
