UAE is a melting pot of diverse nationalities from more than 200 countries who contribute to the economic development and progress. As businesses thrive in this diverse nation, understanding payroll regulations becomes essential to ensure accurate salary payments while complying with legal requirements. Join us on a journey to demystify the payroll process in the UAE and empower organizations to navigate it with confidence.
To streamline salary payments and protect the rights and interests of workers, the UAE government introduced the Wage Protection System (WPS). This electronic salary transfer system enables businesses to pay employees through approved banks, exchange bureaus, and financial institutions. Compliance with WPS is mandatory for all private sector salaries under the Ministry of Human Resources and Emiratization (MOHRE) and Economic Free Zones. Notably, the Jebel Ali Free Zone Authority (JAFZA) fully embraces the WPS, while government entities and public sector institutions are exempt.
Employment Term and Renewal
In the UAE, employment contracts are typically for a specific term not exceeding three years. These contracts can be renewed for similar or shorter terms upon mutual agreement between employers and employees.
Components of Salary
While the UAE labor law doesn’t define statutory salary components, additional benefits like bonuses, discounts, and allowances may be provided. Fixed components can include basic salary, house rent allowance, transport allowance, and others. Variable components may encompass overtime pay, sales commission, bonuses, incentives, relocation allowances, and more.
Taxation and Pension
While UAE businesses enjoy exemption from income tax deductions, employers must provide medical insurance to employees. Businesses often voluntarily extend health coverage for an employee’s dependents as well. Registration with the General Pension and Social Security Authority (GPSSA) is mandatory for employers, while expatriates are not required to make pension contributions.
The monthly social security contributions deducted as pension range between minimum of AED 1,000 upto a maximum limit of AED 50,000 from total fixed salaries. In Dubai, private sector employees must contribute 5% of their total salary towards their pension plan, while the employer contributes 12.5%, and the government contributes 2.5%. In Abu Dhabi, the employees contribute 5% and the employer contributes 15%. Pension is deducted only for Emiratis and not for expats.
Payroll Distribution Schedule
Time-based payroll distribution is commonly practiced in the UAE. It can be weekly (every 7 days), biweekly (every 14 days), fortnightly (every 15 days), or monthly (every 29-31 days), depending on the agreed-upon period.
Mastering the intricacies of payroll compliance in the UAE brings multiple benefits for employers and employees alike. Stay tuned for our upcoming blog, where we delve into leave policies and gratuity in the UAE.