How to Calculate Salary Per Month in UAE: An Employer's Guide

How to Calculate Salary Per Month in UAE: An Employer's Guide

When hiring new talent, salary expectations are crucial for employers and employees. Employers must determine a candidate’s salary based on their skills and the local market rate to attract the right talent while ensuring the amount aligns with the organisation’s budget. Understanding how to calculate monthly salary in the UAE helps candidates anticipate what to expect from their new role and how their skills influence their remuneration package. This article outlines how employers can calculate monthly salaries in the UAE to attract and retain top talent.

Cercli’s global HR system helps businesses streamline HR tasks, including salary calculations and employee remuneration management. With our tools, you can confidently determine the right salaries for your new hires and enhance your recruitment process in the UAE.

How To Calculate Salary Per Month In the UAE

The first step in calculating remuneration in the UAE is determining the employee’s basic salary. The basic salary refers to the fixed amount stipulated in the employment contract. It forms the basis for several statutory entitlements, including: 

• Annual leave pay
• Sick leave compensation
• End-of-service gratuity

For example, if an employee has a basic salary of AED 5,000 per month, this figure will be used to calculate their leave pay and end-of-service benefits. Typically, the basic salary comprises 50% to 60% of the total remuneration package.

Understanding Allowances in the UAE

You should identify the various allowances applicable to the employee’s salary. Allowances are monetary benefits added to the basic salary and may vary depending on the company or sector. 

Common allowances in the UAE include: 

• Housing
• Transport
• Utilities
• Mobile phone usage
• Food
• Educational support for dependents

For example, an employee might receive a housing allowance of AED 1,200 and a transport allowance of AED 800, bringing the total allowance to AED 2,000.

Calculating Gross Salary 

Gross salary refers to an employee’s total remuneration before overtime pay or statutory deductions. 

It is typically calculated using the formula: Gross Salary = Basic Salary + Allowances. 

For example, if an employee receives a basic salary of AED 5,000 and allowances amounting to AED 2,000, their gross salary would total AED 7,000.

Adding Overtime Pay

In accordance with UAE Labour Law, employees who work beyond standard hours are entitled to overtime compensation. Overtime is calculated at 125% of the basic hourly rate for regular hours and 150% for hours worked during the night, on public holidays, or designated rest days.

The following steps outline how to calculate overtime pay:

1. Determine the hourly basic rate: Basic Salary ÷ 30 (days) ÷ 8 (hours).
   For example: AED 5,000 ÷ 30 ÷ 8 = AED 20.83 per hour.
2. Multiply by the applicable overtime rate and the number of hours worked.
   For instance: 10 hours × AED 20.83 × 1.25 = AED 260.38

The resulting overtime compensation should then be added to the employee’s gross salary.

Applying Salary Deductions

Permissible deductions must be agreed upon in advance and confirmed in writing. These may include deductions for unpaid leave (calculated at a daily rate of Gross Salary ÷ 30), loan repayments, and contractually specified penalties for unauthorised absences. 

For example, if an employee with a gross salary of AED 7,000 takes two days of unpaid leave, the deduction would be AED 7,000 ÷ 30 × 2 = AED 466.67.

Calculating Net Salary 

The net salary is the final amount payable to the employee after all applicable adjustments. 

The formula for calculating net salary is: Net Salary = Gross Salary + Overtime − Deductions. 

Based on the previous figures, if an employee has a gross salary of AED 7,000, overtime pay of AED 260.38, and deductions of AED 466.67, the resulting net salary would be AED 6,793.71.

Disbursing Salary via WPS

If your organisation is registered with the Ministry of Human Resources and Emiratisation (MoHRE)-including all mainland companies and certain free zone entities such as those in DMCC and JAFZA-you are legally required to process salaries through the Wages Protection System (WPS). This includes:

• Preparing a Salary Information File (SIF) in the required format
• Ensuring that salaries are paid in AED, unless the contract specifies otherwise
• Disbursing salaries within 15 days of the contractual due date

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Payroll Entitlements In The UAE

Payroll in the United Arab Emirates (UAE) encompasses more than basic salary disbursement. Employers are legally required to factor in a range of statutory entitlements, including: 

• Leave benefits
• End-of-service gratuity
• Social contributions
• Specific sector schemes

Below is a comprehensive breakdown of mandated payroll components under the UAE Labour Law.  

Public Holidays

Employees are entitled to full pay for all official public holidays in the UAE, which is in line with the country’s robust and employee-friendly labour policies. If employees are required to work on a public holiday, employers must offer one of the following options:

• Grant a compensatory day off, or
• Pay 150% of the employee’s basic wage for the hours worked.

Payroll Note: Public holiday pay should be calculated based on the basic salary, not the gross salary.

Paid Annual Leave

Employees are entitled to 30 calendar days of paid annual leave after one year of continuous service, which is in line with the UAE’s employee-friendly labour regulations. Employees between six and 11 months of service are entitled to two days of paid leave per month. Part-time workers are entitled to annual leave on a pro-rata basis, in proportion to the hours they have worked.

‍Payroll Impact: As per UAE Labour Law, annual leave is paid at the employee’s regular salary rate. Employers must also ensure that leave accruals are accurately reflected in payroll reports, in accordance with UAE labour regulations.

Maternity Leave

Female employees in the private sector are entitled to a total of 60 calendar days of maternity leave, in accordance with UAE Labour Law, which supports women’s health and wellbeing:

• 45 days of full pay
• 15 days of half pay

Additional provisions for maternity leave include the following benefits:

• 30 days of paid leave and an additional 30 days of unpaid leave in the case of child disability
• Up to 45 days of unpaid leave post-maternity if the mother is unable to return to work due to illness, ensuring continued support during recovery

Payroll Note: Maternity pay is based on the employee’s regular salary, which is typically derived from the basic salary component.

Parental and Paternity Leave  

• Parental Leave: Both mothers and fathers are entitled to five working days of paid leave, which must be used within six months of childbirth, in alignment with the UAE’s family-friendly policies.
• Paternity Leave: There is no additional statutory paternity leave beyond the parental leave entitlement in the private sector, though employers may offer extra support at their discretion.

Payroll Note: Parental leave is a distinct benefit and must not be deducted from annual leave or maternity leave, ensuring that employees receive the full entitlement."

Sick Leave 

Employees are eligible for sick leave following the successful completion of their probation period, with a maximum entitlement of 90 days per year, allocated as follows:

• First 15 days: full pay (100% of the basic salary)
• Next 30 days: half pay (50% of the basic salary)
• Remaining 45 days: unpaid, unless otherwise agreed by the employer

Payroll Note: In accordance with UAE Labour Law, sick leave pay is calculated based on the basic salary component only.

Bereavement (Compassionate) Leave  

Employees are entitled to paid bereavement leave as follows:

• 5 days in the event of the death of a spouse
• 3 days in the event of the death of a parent, child, sibling, grandchild, or grandparent

Study Leave

Upon completing two years of service, employees enrolled in educational institutions based in the UAE are entitled to 10 days of paid study leave per year to sit for examinations.  

End-of-Service Gratuity (Private Sector)  

This applies to expatriates employed in the mainland private sector:

• First five years: 21 days' basic wage per year of service
• After five years: 30 days' basic wage per year
• Cap: The gratuity cannot exceed two years' gross salary
  

Payroll Note: Days of unpaid leave are excluded from gratuity calculations. Bonuses and commissions are included only if explicitly specified in the employment contract as part of the basic salary.

Unemployment Insurance Scheme

Mandatory for most UAE employees (including expatriates and nationals), except:

• Investors
• Domestic workers
• Minors
• Pension-receiving retirees
• Temporary contract workers

Payroll Note: Monthly premiums are deducted from the employee’s pay.

• AED 5 per month for basic salary ≤ AED 16,000
• AED 10 per month for basic salary > AED 16,000

Minimum Wage

The UAE offers a flexible approach to compensation, allowing for market-driven wages that can be tailored to specific sectors and skills, benefiting both employers and talented professionals. Employers in the UAE are committed to offering competitive compensation packages that enable professionals to enjoy the exceptional quality of life that the Emirates is known for, and in line with the UAE’s commitment to fair and competitive wages.

While entry-level positions may range between AED 3,000 to 5,000, Dubai's dynamic economy offers excellent earning potential across various sectors, with competitive compensation packages that often include valuable allowances and benefits.

Taxation 

The UAE does not impose personal income tax, and employers are not required to deduct income tax from employee salaries.

‍Payroll Note: No income tax filings or deductions are necessary, simplifying payroll operations for businesses operating in the UAE.  

Social Security Contributions 

Applicable only to UAE and GCC nationals:

Outside Abu Dhabi (total contribution: 20%)

• Employer: 12.5%
• Employee: 5%
• Government: 2.5%

In Abu Dhabi (total contribution: 26%)

• Employer: 15%
• Employee: 5%
• Government: 6%

Payroll Note: Expatriate employees are not subject to social security contributions, making the UAE particularly attractive for international talent.

Empowering Workforce Excellence in the UAE and Beyond

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Legal Payroll Compliance: WPS And UAE Labour Law

The Wages Protection System (WPS) is an electronic salary transfer platform established by the Central Bank of the UAE in coordination with MoHRE. It ensures timely and accurate wage payments to private-sector employees. 

Key Requirements of WPS Compliance

Mandatory Participation

All companies registered with the Ministry of Human Resources and Emiratisation (MoHRE) are legally required to process salary payments through the Wages Protection System (WPS).

The system connects employers, employees, financial institutions, and MoHRE, ensuring transparent and secure payroll processing in line with the UAE’s commitment to fairness and labour market integrity.

Authorised Payment Channels

Salaries must be transferred through banks or financial institutions authorised by the Central Bank of the UAE. Cash payments or transfers via unapproved channels are considered non-compliant with UAE labour regulations.

Payment Timing

Salaries must be paid monthly unless the employment contract specifies a shorter pay interval. Wages become payable on the first day following the end of each wage period.

Grace Period and Defaults

Employers are granted a 15-day grace period following the salary due date. Failure to remit wages within this period may be deemed a default, unless a shorter timeframe is contractually specified. 

Permissible Currencies

While the Emirati Dirham (AED) is the standard currency of payment, alternative currencies may be used if expressly agreed upon within the employment contract.

Penalties for WPS Non-Compliance

The UAE's robust compliance framework ensures all employees receive their rightful compensation, maintaining the integrity of its world-class business environment. Thus, penalties have been implemented for non-compliance, like:

• Suspension of new work permit issuance
• Financial penalties imposed for each unpaid employee
• Downgrading of the company’s classification with MoHRE
• Referral to the Public Prosecution in cases of repeated non-compliance

Understanding UAE Labour Law Compliance 

The Federal Decree-Law No. 33 of 2021 (as amended) governs employment rights, including wage-related provisions. 

Core Legal Obligations

• Timely Salary Payment: Wages must be paid punctually and in accordance with the terms set out in the employment contract. Employers should specify the monthly salary payment date.
• No Income Tax Deductions: As the UAE does not levy personal income tax, employers must not deduct tax from employee salaries.
• Minimum Wage: Although there is no federal minimum wage, employers are expected to offer salaries that support a reasonable standard of living. Employment contracts must stipulate agreed wages in writing.
• Transparency and Record-Keeping: Employers must maintain comprehensive payroll records, including payment dates, amounts, and any deductions or allowances.
• Dispute Resolution and Reporting: Employees may file salary-related complaints with MoHRE in the event of delays or non-payment. MoHRE offers a structured platform for resolution, including mediation and, where necessary, legal escalation.

Why Payroll Matters More Than Ever

The UAE has implemented robust payroll regulations to safeguard employees and ensure they are paid punctually and in full. These regulations are primarily enforced through the Wages Protection System (WPS), which mandates that all companies in the UAE pay employees via electronic transfer, in coordination with the Ministry of Human Resources and Emiratisation (MoHRE), to ensure compliance.

Non-compliance may result in significant penalties for businesses, including financial fines, restrictions on new work permits, and reputational consequences. Compliance with labour legislation is not merely a legal obligation, but a strategic business imperative.

Proper Payroll Boosts Employee Morale and Retention 

Sound payroll practices are vital for sustaining employee morale and satisfaction. Reflecting the UAE's commitment to best practices in global workforce management, accurate and timely salary payments are fundamental to delivering a positive employee experience. When employees can depend on their wages to be paid consistently and without error, trust in their employer is cultivated. 

Conversely, payroll discrepancies frequently result in dissatisfaction, reduced motivation, and, ultimately, higher staff turnover. In a competitive labour market such as the UAE’s, renowned for its forward-thinking business environment, effective payroll management plays a pivotal role in fostering employee loyalty and engagement.

Proper Payroll Helps Business Financial Performance 

Payroll is one of the most significant ongoing expenditures for any business. When managed effectively, it yields accurate financial forecasting, budgeting, and strategic resource planning data. It also ensures that end-of-service benefits, leave entitlements, social contributions, and other obligations are accurately accounted for and adequately funded. In this sense, payroll serves as a mirror and a map, reflecting the organisation’s current position while guiding future financial decisions. This financial discipline aligns with the UAE's reputation as a premier global business hub known for its professionalism and excellence.

Accurate Payroll Minimises Legal Risks 

Errors in wage calculation, overtime compensation, or statutory deductions can expose an organisation to complaints, inspections, and potentially legal proceedings. Robust payroll practices mitigate these risks by ensuring all entitlements are calculated in accordance with the UAE Labour Law. They also demonstrate good faith in the event of a dispute, providing a transparent audit trail that safeguards the organisation against misunderstandings or sanctions.

Streamlining Payroll Improves Business Efficiency 

As organisations grow, manual or outdated payroll processes often become cumbersome, inefficient, and susceptible to error. Automating payroll through systems that incorporate compliance requirements, leave management, and employee self-service tools can significantly reduce the administrative burden on HR and finance teams. This enables organisations to focus less on resolving payroll issues and more on strategic growth initiatives.

Payroll Is A Strategic Investment In Business Success 

Ultimately, payroll is not just about paying employees. It’s about safeguarding the business, supporting its people, and ensuring it operates with integrity. In the UAE’s highly regulated and culturally diverse business environment, getting payroll right is essential. It signals professionalism, fosters transparency, and ensures long-term sustainability.

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