Payroll Process in UAE:- A brief overview

Sajin Rasheed, Director

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HLB HAMT - Accounting Firm in UAE

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    Payroll calculations require time, dedication, and knowledge; even a minor error can cause huge loss. Ensuring all the employees within an organization get paid the correct amount at the correct time with deductions/ allowances if any, is mandatory. It is equally important to comply with all the payroll rules and regulations. Here, our payroll experts in UAE takes you through a set of frequently asked questions that pertain to payroll processing in UAE.

    1. What are the statutory pay components included in employee salary?

      The UAE labor law does not define the components that should make up an employee’s salary; there are no defined statutory components.

    2. Which are the common pay components that are normally payable to employees?

      Fixed components may include Basic salary, House rent allowance, transport allowance and other allowances. The variable components may include Overtime, Sales commission, Bonus, Incentives, Relocation allowances, Mobile allowances etc.

    3. What is the minimum salary payable in UAE?

      There is no minimum salary payable in UAE.

    4. How is overtime calculated?

      Overtime is any extra hours worked by an employee beyond the normal working hours. Article 19 states that the employee shall be entitled to remuneration equal to his Basic Wage plus an extra of at least 25% for extra hours beyond normal working hours. If the overtime falls between 9 p.m. to 4 a.m. on a working day, the employee will be entitled to his Basic Wage plus an extra 50%. If the employee works on a designated rest day, he is entitled to a Basic Wage plus 50%. Overtime may not exceed two hours per day unless otherwise permitted.

    5. How is UAE gratuity accrued?

      UAE Gratuity is accrued against the last drawn basic salary and calculated as follows;

      • Twenty-one days’ pay for every year of the first five years of service.
      • Thirty days pay for every additional year.

      Provided that the entire total remuneration shall not exceed two year’s pay. Days of absence from work without pay are not included in computing the period of service.
      Dubai International Financial Center introduced a plan called DIFC Dews where the employer makes a monthly contribution of the employee’s gratuity accrual to a direct plan authorized to manage the funds on behalf of employees.
      Read more about DIFC DEWS here

    6. When is gratuity paid to an employee?

      According to Article 132 of the UAE labor law, the employee who has completed one year or more in the continuous service, is entitled to the end of service remuneration at the end of his service. For a comprehensive understanding of UAE gratuity accrual and settlement, please refer to our article on UAE gratuity policy and settlement.

    7. What are the statutory deductions that are made to employees in the UAE?

      In the UAE, payroll is not subject to income tax, and hence there are no mandated tax deductions. However, UAE nationals are subject to mandatory national pension plans contributions.

    8. How is UAE pension calculated?

      Monthly pension deductions are made on UAE nationals’ total fixed salaries to a maximum limit of AED 50,000/-. Private sector employees in Dubai contribute 5% of their total salary to this plan, the employer contributes 12.5%, and the government contributes 2.5%. In Abu Dhabi, the employees contribute 5% and the employer contributes 15%.

    9. What is UAE WPS?

      UAE WPS is an electronic salary transfer system that allows institutions and organizations in the private sector to pay their employees through banks, exchange bureaus and financial institutions approved by the UAE Central Bank. The purpose of WPS is to ensure wages are paid on time and in full. The initial objective was to protect the rights and interests of blue-collar workers but has transformed to require all salaries paid in the private sector under the jurisdiction of the Ministry of Human Resources and Emiratization (MOHRE) and Economic Free zones to be remitted via WPS. Currently, Jebel Ali Free Zone Authority (JAFZA) is the only free zone that has fully adopted the use of WPS. All government entities and public sector institutions are exempted from WPS compliance.

      Please read our detailed article on UAE WPS for more information.

    10. What are the types of Employment contracts available in UAE?

      All the Employment contract is prepared for specific term not exceeding (3) three years and it is permissible, by agreement of both parties, to extend or renew this contract for another similar term or for a shorter term, for once or more.

    11. Are Employees eligible for Air Ticket Benefits in UAE?

      Employers are required to provide their employees with a return air ticket once in every two years to their home country. However, many companies provide air tickets to employees annually and some of the companies extend this payout to employees’ dependents as well.

    12. What is the leave policy defined under the labor law?

      A. Annual Leave

      According to article 75 of the UAE labor law, annual leave is granted for 30 days per year, where the worker’s period of service is more than one year. Annual leave is based on calendar days and any public holidays and weekends that fall within are included in its determination. Annual leave is granted to all employees and is a paid type of leave.

      B. Sick leave

      According to article 83, a worker shall not be entitled to any paid sick leave during the probationary period. A worker who contracts illness following the probationary period, in the continuous service of an employer shall be entitled to a sick leave not exceeding 90 days, successive or otherwise, in respect of each year of service, to be calculated as follows-

      • The first 15 days: with full pay
      • The next 30 days: with half pay
      • Next 45 Days: Without pay

      C. Maternity leave
      A female employee working in UAE shall be entitled to maternity leave as given below.

      • 60 days out of which 45 days at full pay and 15 days at half pay for a female employee
      • After completion of the 60 days paid leave, a female employee is entitled to take unpaid maternity leave for a maximum period of 45 days. This leave can be continuous or taken in non-consecutive days.

      E. Study Leave
      An employee, who is studying in one of the UAE’s certified educational institutions is entitled to a paid leave of 10 days per year to sit for examinations. To apply for this leave must have completed at least two years of service with the employer.
      F. Bereavement Leave
      In case of death of the husband or wife 5 days are entitled to the employee starting from the date of death and in case of the mother, father, son, brother, sister, grandson, grandfather or grandmother 3 days are entitled to the employee starting from the date of death.
      G. Sabbatical Leave
      The national worker shall be entitled to a sabbatical paid leave to perform the national service, in accordance with the legislation in force in the state.
      H. Paternity Leave
      A Parental leave for a period of (5) five working days is entitled for the employee (either the father or the mother), who has a newly born child, in order to take care of his/ her child and the employee is entitled to such leave for a continuous or intermittent period, within (6) six months from the date of the child’s birth.
      Please read our article on UAE leave policy here

    13. Is employee Medical Insurance mandatory in UAE?

      It is mandatory that an employer provide medical insurance to the employee during the duration of employment. Some companies are extending this coverage to employee’s dependents even though this is not mandatory.

    14. Which are the currencies that can be used in making salary payments in UAE?

      The salaries shall be paid in UAE Dirham or any another currency which is agreed upon between both parties in the employment contract.

    15. Is bonus or incentive payment mandatory in UAE?

      Bonus and incentives payments are not mandatory in UAE. Many companies in the UAE have bonus or incentive schemes implemented to keep employee motivation and the structures vary from one company to the other based on their policy.

    16. What are the items included in the End of Service Benefits calculation in UAE?

      The employee is entitled to the following end-of-service benefits.

      • Gratuity
      • Repatriation ticket if applicable
      • Notice period pay if applicable
      • Any unutilized leave (Vacation) pay
      • Any other outstanding payment or deduction

    Summary of Employee Benefits in UAE:

    1. Salary
    2. Gratuity
    3. Air Ticket
    4. Annual Leave
    5. Sick leave
    6. Maternity Leave
    7. Paternity Leave
    8. Bereavement Leave
    9. Study Leave
    10. Sabbatical Leave
    11. Medical Insurance
    12. Overtime pay if applicable.

    The process of payroll is little complicated and time-consuming; hence it is always recommended to outsource your company’s payroll function. Outsourcing payroll will ensure the assistance of a team of trained payroll professionals and it frees up the time of the organization, helping them focus on other projects that add value to their business.

    One should be extra vigilant while selecting their payroll provider, as payroll data is highly sensitive, and one should opt for a provider that can ensure high levels of data security.
    As a leading payroll outsourcing company in UAE, HLB HAMT can help solve your payroll complexities through customized strategies. We take care of our client’s entire payroll cycle that includes the preparation of payroll reports, processing salary payment with WPS compliance, accrual management including Gratuity, pension funds, online portal for accessing payslips, and many more. Our leadership team spends necessary hours in every project, ensuring our clients get refined consulting services to take your business forward.

    Disclaimer:

    Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all-inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subjected to change and not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

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