For companies operating in the UAE, the local labour laws make for a unique payroll process. From the absence of income tax to payroll integration with the Wage Protection System (WPS), employers need to take several distinct measures to stay legally compliant. However, with the multitude of laws, it may be difficult to navigate this process, especially without proper knowledge or infrastructure.<\/p>\n
That\u2019s why here\u2019s a detailed step-by-step guide on understanding the payroll process in the UAE.<\/p>\n
Businesses operating in the UAE need to understand several important factors that impact the payroll process in the UAE. These elements, outlined in labour laws, need to be understood in detail as they ensure fair wages and protect workers from exploitation. Non-compliance with any of these can result employers into paying hefty fines or even getting trade licenses revoked.<\/p>\n
Here are some important things that businesses need to consider for properly processing payroll:<\/p>\n
The UAE mandates a 48-hour work week, with employee shifts being no more than 8 hours. In case of restaurants or hotels, the maximum is capped at 9 hours a day. This, however, excludes executives, supervisors and daily wage workers.<\/p>\n
Workers are entitled to one or more breaks if they\u2019re working for five consecutive hours. These breaks must be less than an hour and won\u2019t be counted as part of working hours.<\/p>\n
At times, workers many need to work overtime for operational reasons when there\u2019s surges in workload. Overtime rates in the UAE include the full wage of normal working hours along with 25% of the total added on to it. The additional amount can ever go up to as high as 50% of the overtime hours fall between 10 PM to 4 AM. This law excludes shift workers.<\/p>\n
Business days in the UAE differ from the standard Monday to Fridays. Workers, excluding daily workers must work for 6 days a week from Saturday to Thursday. Friday is usually considered as the weekly rest day where employees receive a paid day off.<\/p>\n
Employees in the UAE receive various kinds of paid leave like sick leave, maternity leave, study leave and sabbatical leaves. All these leaves are either fully or partially paid. Employees also receive an annual leave of 30 days that is fully paid, including basic salary and allowances.<\/p>\n
In addition to this, employees are also entitled to paid leaves on holidays like New Year\u2019s Eve and the Prophet\u2019s birthday. In case employees need to work on a public holiday, they are entitled to either an alternate rest day or overtime wages for the same.<\/p>\n
If an employee has worked for a minimum of one year with a company, they are entitled to gratuity benefits upon resigning. For an employee who\u2019s worked for more than a year but less than 5 years, they are entitled to 21 days\u2019 worth of monthly pay for every year worked.<\/p>\n
For employees who\u2019ve worked for more than 5 years, they are entitled to 30 days’ worth of pay for every year they\u2019ve worked. Gratuity amount is calculated on basic salary only and doesn\u2019t consider the standard allowances like housing allowance.<\/p>\n
Emirati and other GCC employees must contribute a certain percentage of their salary to social schemes under the General Pension Social Security Authority (GPSSA) retirement system. For UAE nationals, the contributions are calculated at 20% of an employee\u2019s gross salary out of which the employee pays 5%, the employer 12.5% and the government pays 2.5%.<\/p>\n
The amount, however, differs for other GCC nationals as their social security contributions are determined by their home country\u2019s regulations.<\/p>\n
The UAE does not levy personal income tax, hence there are no tax withholdings from individual salaries. However. There are still mandatory, and sometimes voluntary deductions, that employers are responsible for making.<\/p>\n
Mandatory deductions can include social security contributions, health insurance and garnishments like delinquent child support. Voluntary deductions need to be approved by the employee first and include life insurance, third-party retirement contributions, short-term disability plans or tuition fees for certifications.<\/p>\n
The WPS ensures that all employees are paid the right amount and on time. That\u2019s why the UAE government mandates that every business registered in the UAE needs to subscribe to the WPS. Businesses need to follow the established procedure of salary calculation and verification through the WPS to pay their employees\u2019 salary.<\/p>\n
Free trade zones in the UAE provide tempting business opportunities to foreign investors in terms of tax exemptions, easy approvals and complete ownership. However, each free trade zone has its own compliance policies. Different zones require different trade licenses. Similarly, payroll compliance rules can also vary. So, companies must be mindful in this regard when processing payroll.<\/p>\n
Companies in the UAE need to ensure compliance when it comes to the payroll process to avoid delays and fines. From registering with the WPS to sending timely SIFs, companies need to develop a full proof payroll strategy. Here\u2019s a simplification of the payroll process companies need to follow, including best practices to ensure complete compliance:<\/p>\n
Companies need to set up their payroll process to ensure smoother operations, right off the bat. Firstly, they need to register with the Ministry of Human Resources and Emiratization (MOHRE), providing trade license details, contact information and the details of company activities. After this, they can obtain a license that is necessary for work permits.<\/p>\n
Companies must ensure proper documentation and records of employee information. For instance, they need to draft employment contracts outlining terms like salary, employee benefits, work hours and leave entitlement. Employers also need to sponsor their expatriate employees\u2019 work permits and visas.<\/p>\n
Upon hiring, employers need to collect employee information about insurance, voluntary deductions and other relevant details. All this information also needs to be stored securely and for easy access for the payroll process.<\/p>\n
Businesses in the UAE have three options for a payroll system \u2013 do it in-house, outsource it or opt for a WPS provider. In most cases, businesses either choose to outsource it or partner with an employer of record. It is not only cost effective but also increases efficiency to have the payroll process done externally.<\/p>\n
Employers need to calculate salary according to number of hours worked. In addition to factoring basic salary, they also need to include allowances like housing allowance and vehicle allowance. This is also the stage where bonuses and commissions are added to the salary.<\/p>\n
After calculating salary, employers need to factor in overtime and paid leaves. In the UAE, employees receive 1.5 times their usual pay for overtime work. The leave salary for paid leaves can range from fully paid to partially paid depending on the type of leave and its duration.<\/p>\n
Employers are also responsible for making the necessary withholdings like national pension plans. There is also employee approved voluntary deductions like insurance and debt repayments that need to be made at this stage.<\/p>\n
After calculating salary, employers need to maintain the data for individual employees in salary information files (SIF). This document is usually in the form of an Excel spreadsheet and contains details like employee ID from the Ministry of Labour, banks details of employee, pay cycle dates, basic salary, allowances, lop days, employer ID and employer bank details.<\/p>\n
Once the file is ready, it is sent to the WPS agent who checks and sends the file to WPS which in turn, forwards it to the central bank. After this, the Central Bank cross checks with MOHRE to verify the details of the files for accuracy.<\/p>\n
Once the verification is complete and the results are positive, the WPS agent in then issued a payment order from the Central Bank and MOHRE. The WPS agent can then disburse the salary payments directly to the employees\u2019 bank accounts.<\/p>\n
In case the SIF checks reveal and discrepancies, the employers are sent an email notifying them of the errors.<\/p>\n
Employers must maintain a proper payroll records, from attendance and leave management data to salary calculations for a certain amount of time, even after an employee has left.<\/p>\n
The records must be maintained accurately so that they can be presented to the MOHRE upon request. Besides this, employers also need to issue pay slips to employees timely to ensure transparency of the salary process.<\/p>\n
With so many intricacies, payroll process in the UAE becomes difficult to navigate especially with HR teams who don\u2019t have access to the right tools. In 2023, nearly 33,000 cases of unpaid salaries<\/a> were fined in the UAE. This highlights the need for advanced payroll management software<\/a> that can be customised for different compliance policies.<\/p>\n For further ease of operations, companies can opt for a comprehensive human resource management software<\/a>. This can allow easy integrations between attendance tracking, leave management, and payroll, helping companies stay compliant while also boosting efficiency.<\/p>\n