Payroll Process in UAE:- A brief overview
23 September, 2020
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.
- What is the frequency of making salary payments to employees in UAE?
The law states in Article 56 that the intervals for making salary payments to employees should be monthly or bi-weekly depending on the type of contract.
- 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.
- 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.
- What is the minimum salary payable in UAE?
There is no minimum salary payable in UAE.
- How is overtime calculated?
Overtime is any extra hours worked by an employee beyond the normal working hours. Article 67 states that the employee shall be entitled to remuneration equal to his normal wage plus an extra of at least 25% for extra hours beyond normal working hours. According to Article 68, if the overtime falls between 9 p.m. to 4 a.m. on a working day, the employee will be entitled to his normal wages plus an extra 50%. If the employee works on a designated rest day, he is entitled to normal wages plus 50%. Article 69 states that overtime may not exceed two hours per day unless otherwise permitted.
- 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
- 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. Gratuity paid is dependent on the type of separation and the type of contract.
For a comprehensive understanding of UAE gratuity accrual and settlement, please refer to our article on UAE gratuity policy and settlement.
- 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.
- 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%.
- 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 Ministry of Human Resources and Emiratization (MOHRE) and Economic Free zones 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.
- What are the types of Employment contracts available in UAE?
The UAE labor law defines two types of work contracts in the UAE as Limited contracts and Unlimited contracts. Limited contracts have a defined end date while unlimited contracts have an indefinite end date.
- 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.
- 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 worker shall be entitled to maternity leave with full pay for a period of forty-five days, including both pre- and post-natal periods if she has completed not less than one year of continuous service with her employer. A female worker who has not completed one year of service shall be entitled to maternity leave with half pay. On the expiry of the maternity leave, may discontinue work without pay for a maximum period of one hundred consecutive or intermittent days if such absence is due to illness which does not enable her to resume work.
D. Hajj Leave
Hajj leave is taken by Muslims to go perform pilgrimage. Article 87 states that ‘Each worker shall be entitled, once in the course of entire service, to special leave without pay for performing pilgrimage’. Hajj leaves shall not exceed 30 days and is granted once in the entire employment tenure.
E. Paternity Leave
The private sector employees shall be entitled to five-day paid leave to take care of their infants and this has to be availed within the first 6 months of the baby’s birth.
Please read our article on UAE leave policy here
- 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.
- Which are the currencies that can be used in making salary payments in UAE?
The only accepted currency used in making salary payments in the UAE is the country’s national currency which is the AED.
- Is bonus or incentives 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.
- What are the items included in End of Service Benefits calculation in UAE?
The employee is entitled to the following end of service benefits.
- 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:
- Air Ticket
- Annual Leave
- Sick leave
- Maternity Leave
- Paternity Leave
- Medical Insurance
- 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 clients’ entire payroll cycle that includes 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.
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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