Step-by-Step Payroll Process in UAE (An Employer's Guide)
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Step-by-Step Payroll Process in UAE (An Employer's Guide)
When onboarding a new hire, many employers prioritise the recruitment process in the UAE and overlook the payroll process. While the recruitment process in the UAE focuses on finding and hiring the right talent for the job, the payroll process in the UAE covers all the steps needed to pay your new employee accurately and on time. This blog will break down the payroll process in the UAE to help you get started.
Cercli’s global HR system can help you streamline the UAE payroll process to ensure compliance and mitigate risks.
Understanding UAE Payroll Regulations
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Complying with payroll regulations in the UAE is vital for employers to remain compliant with local labour laws and ensure fair treatment of employees. The system is governed primarily by the UAE Labour Law and the Ministry of Human Resources and Emiratisation (MoHRE) directives, which oversee private sector employment matters across the Emirates.
Payment of Salaries
Due Date & Frequency
The UAE's payroll regulations require an employee's salary to be paid on the due date specified in their employment contract. If the contract does not mention a specific due date, the law mandates that wages be paid at least once a month.
Grace Period & Default
If salary is not paid within 15 days of the due date, the employer is deemed in default, unless a shorter period has been agreed upon in the contract. This provision is designed to protect employees from unreasonable delays in payment.
The Wage Protection System (WPS)
The Wage Protection System is an electronic salary transfer mechanism developed by the Central Bank of the UAE and implemented by MoHRE. It ensures that salary payments are made securely and on time.
Key Requirements
- All employers registered with MoHRE must subscribe to WPS.
- Salaries must be paid through UAE-approved banks or exchange houses licensed by the Central Bank.
- Payments may be made in Emirati Dirhams or another currency, as long as the employment contract specifies.
WPS Exemptions include
- New employees in their first 30 days
- Employees on documented unpaid leave
- Employees involved in active wage-related litigation
- Certain employers, such as UAE nationals owning fishing boats or taxis, and places of worship
Minimum Wage
There is no statutory minimum wage in the UAE at the moment. However, the law stipulates that wages must be sufficient to cover an employee’s basic needs. This leaves room for individual employment contracts and sector-specific benchmarks to guide salary structures.
Robust Protections for Employee Compensation
Under Ministerial Resolution No. 598 of 2022, companies that delay salary payments or fail to pay altogether may face the following consequences:
- Suspension of new work permits
- Financial penalties
- Legal action
- Possible placement on MoHRE’s watchlist for non-compliance
Reporting Salary Disputes
Employees who experience delayed or unpaid wages can file a complaint with MoHRE. This can be done through:
- The MoHRE website or mobile app
- The Labour Relations Department
- Visiting one of MoHRE’s service centres directly
Timely reporting helps ensure prompt resolution and employer accountability.
Pension and Social Security Contributions
The UAE’s payroll obligations extend beyond salaries. Employers must participate in the pension and social insurance system overseen by the General Pension and Social Security Authority (GPSSA) for Emirati employees.
Contribution Breakdown
- Employer: 12.5% of the employee's pensionable salary
- Employee: 5%
- Government: 2.5% (for UAE nationals only)
Note: These contributions are calculated based on the employee's basic salary plus applicable allowances. Expatriate employees are not subject to this system, though many employers offer private health insurance and end-of-service benefits as a substitute.
Gratuity and End-of-Service Benefits
One of the most crucial payroll elements in the UAE is the end-of-service gratuity, a lump-sum payment made to employees when their contract is terminated, provided they’ve completed at least one year of continuous service.
Gratuity Calculation
- 1 to 5 years of service: 21 days’ basic salary for each year of service
- More than 5 years of service: 30 days’ basic salary for each year of service, capped at 2 years' salary
Key Points
- Gratuity is calculated based on the employee’s final basic salary, excluding bonuses or allowances.
- If an employee resigns before completing 5 years, they may receive a reduced gratuity, depending on the terms of their resignation and the contract type (limited vs. unlimited).
- Gratuity payments are not subject to income tax, as the UAE does not impose personal income tax.
UAE payroll compliance involves more than just timely salary payments; it encompasses a broad set of employer obligations, including WPS registration, social insurance contributions for Emiratis, and accurate gratuity calculation. Maintaining compliance enhances employer credibility and reputation in the UAE's prestigious business community.
To maintain full compliance, employers should:
- Regularly review employment contracts
- Keep accurate payroll and WPS records
- Consult with MoHRE or legal advisors for updates to legislation
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Essential Components of Payroll Process in UAE
The UAE offers a highly streamlined payroll deduction system, mainly due to the absence of personal income tax. Key deductions include employee pension contributions, which apply only to Emirati nationals.
The employee contributes 5 per cent of their salary, while the employer contributes 12.5 per cent. The government pays an additional 2.5 per cent. Social security is also only applicable to UAE nationals, as expatriates are not required to contribute.
Understanding Mandatory and Voluntary Salary Deductions for Employees
Health insurance is a mandatory requirement for employers, who must provide health coverage for employees. While this is typically employer-funded, in some cases, employees may share part of the cost.
Housing loan repayments can be deducted directly from salary if the employer has issued a housing loan. Voluntary deductions may include optional services like gym memberships, savings schemes, or other agreed-upon benefits.
What are Leave Entitlements and Payroll Implications?
The UAE Labour Law outlines various types of employee leave, each with distinct implications for payroll. Annual leave is 30 calendar days of paid leave after completing one year of service, prorated for incomplete years. Sick leave is up to 90 days annually, divided as follows: the first 15 days are full pay; the next 30 days are half pay; the final 45 days are unpaid.
Maternity leave is 45 calendar days at full pay, with an additional 15 days at half pay. Paternity leave is 5 days of paid leave, introduced in 2020 to support working fathers. Hajj leave is up to 30 days of unpaid leave for Muslim employees undertaking the pilgrimage, once during their employment. When processing payroll, employers must calculate leave pay accurately, adjusting for any paid or unpaid absences.
What’s the Overtime Situation?
Clear statutory rules govern overtime in the UAE. Standard working hours are 8 hours per day or 48 hours per week. Employees working beyond standard hours are entitled to 125 per cent of their normal hourly rate.
Work performed on weekends or public holidays must be compensated at 150 per cent of the hourly rate. Accurate timekeeping systems are essential to tracking overtime and ensuring legal compliance.
What About Allowances and Benefits?
Non-salary compensation is a significant component of UAE payroll, often structured to attract and retain skilled professionals. Standard allowances include:
- Housing allowance, which usually forms a large part of the salary package, ranging between 25 per cent and 50 per cent of the basic salary
- Transport allowance, typically 10 to 15 per cent of the basic wage
- Utility allowance, which helps offset electricity and water bills
- Mobile allowance, provided for work-related communication
- Education allowance, for school fee assistance for employees’ children
- Annual airfare, which many contracts include, return flight tickets to the employee’s home country
- Gratuity (end-of-service benefits) is legally mandated based on years of service and final basic salary.
Allowances must be itemised and considered when calculating payroll, especially when computing end-of-service entitlements.
What’s the Basic Salary Structure?
The basic salary is at the core of every payroll, the foundation for most calculations. Basic salary typically comprises 50 to 60 per cent of the total salary package. The UAE does not enforce a universal minimum wage, though specific industries may apply their thresholds. Salaries must be paid through the Wage Protection System, an electronic system monitored by the Ministry of Human Resources and Emiratisation, which ensures transparency and timeliness.
WPS compliance is mandatory for all employers registered with:
- MoHRE
- JAFZA (Jebel Ali Free Zone Authority)
- DMCC (Dubai Multi Commodities Centre)
To be fully compliant, at least 80% of the employer's workforce must be paid through the WPS. This benchmark applies each month, ensuring consistency in wage practices. Most employers pay monthly, though bi-weekly arrangements exist. Salaries are usually paid in UAE Dirhams (AED). During probation (often up to 6 months), employees may not be eligible for all benefits, though salary must be paid as agreed. UAE's progressive employment practices typically include performance-based salary increases in private and semi-government sectors.
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Step-by-Step Payroll Process in UAE
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The payroll process in the UAE begins with collecting employee information. Accurate employee data is the backbone of payroll. This includes the:
- Employee’s full name
- Nationality
- Passport and Emirates ID numbers
- Employment visa status
- Job title and grade
- Contract start date and end date (if applicable)
- Basic salary and agreed allowances
- Overtime eligibility
- Leave entitlements
- Bank account details for salary transfers
- Appropriate deductions (e.g., loans, advances).
Defining Payroll Elements: What’s Included in Payroll Calculations?
You need to define the components of your payroll. This ensures clarity and uniformity when calculating salaries. Key payroll elements include:
- Basic salary (core wage)
- Allowances (housing, transport, education, utility, phone)
- Bonuses or commissions
- Overtime (calculated according to UAE Labour Law)
- Deductions (e.g., fines, unpaid leave, loans, voluntary contributions)
- End-of-service benefits (gratuity), where applicable
Document each payroll component in the employment contract and align it with legal standards.
Ensuring WPS Compliance: The Legal Framework Governing Payroll in the UAE
If your company is licensed under the Ministry of Human Resources and Emiratisation (MOHRE), you’re legally required to pay salaries through the Wages Protection System (WPS).
To comply, register your company and employees with WPS, partner with a WPS-authorised bank, exchange house, or financial institution, and submit salary files in the prescribed SIF (Salary Information File) format. Pay salaries in AED unless otherwise agreed in writing. UAE's innovative WPS ensures excellent salary transparency, reliable timely payment, and effective labour law enforcement
Calculating Salaries: Crunching The Numbers
Once payroll elements are defined and WPS is in place, calculate salary. This includes:
- Calculating monthly wages based on working days
- Adjusting for paid and unpaid leave
- Factoring in sick leave
- Maternity leave
- Public holidays
- Adding overtime pay where applicable
- Deduct any approved salary advances, fines, or unpaid absences
Accuracy is crucial here. Any mistakes can lead to employee dissatisfaction or MoHRE penalties.
Record Keeping: Maintaining Payroll Files
Detailed and auditable payroll records are essential for compliance. These include:
- Salary slips
- Attendance sheets or clock-in/out data
- Overtime approvals
- Leave records
- WPS salary transfer confirmations
- Signed employee acknowledgements (digital or manual).
UAE law mandates that employers retain these records for at least two years in case of dispute or audit.
Payment Disbursement: Timely Salary Payments
Transfer salaries on time according to the employment contract. If the agreement does not specify a date, payment must be made at least once per month.
Employers default if salaries are unpaid within 15 days after the due date (unless a shorter time is contractually agreed). Delays may trigger warnings, fines, or company blacklisting under Ministerial Resolution No. 598 of 2022.
Compliance Monitoring: Ongoing Payroll Compliance
Assess payroll operations regularly to ensure ongoing compliance. Best practices include:
- Verifying WPS files for accuracy before submission
- Ensure consistency with UAE Labour Law, such as:
- Leave entitlements and gratuity calculations
- Keep contracts and pay structure aligned with legislative updates
- Avoid unapproved deductions
This step is essential to preventing future penalties or legal exposure.
Reporting and Auditing: Checking Payroll Accuracy
Payroll audits, whether internal or external, help validate accuracy and compliance. Consider monthly or quarterly checks to:
- Reconcile salary disbursements with bank statements
- Cross-check employee attendance and leave
- Verify that payroll reflects changes in:
- Salary
- Promotions
- Terminations
Confirm accurate WPS reporting, and keep a paper or digital audit trail for inspection by MoHRE or other authorities.
Engagement with MoHRE: How to Resolve Payroll Issues
If issues arise, especially regarding unpaid, delayed, or disputed salaries, employers and employees may contact MoHRE for resolution. This includes:
- Submitting complaints via the MoHRE helpline or app
- Responding to labour inspections
- Engaging in mediation or dispute resolution
MoHRE actively monitors employer behaviour through the WPS, and non-compliance may result in fines, work permit suspensions, or legal action.
The Importance of a Compliant Payroll Process in The UAE
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Legal compliance is critical to the UAE payroll process. Adhering to payroll regulations, such as those set by the Ministry of Human Resources and Emiratisation (MoHRE) and the Wages Protection System (WPS), is mandatory and helps avoid legal penalties. The WPS ensures workers receive their salaries on time and in full.
This system requires all companies in the UAE to pay employee wages through the banking system and report these transactions to the government. If there are any delays, the MoHRE will penalise the employer.
Avoiding Penalties and Payroll in the UAE
Non-compliance with payroll regulations can result in fines and other penalties, affecting the company's financial health. For example, companies failing to pay salaries on due dates could face fines. These start at AED 1,000 for the first delay and increase with every further delay. After the third delay, the company could face a fine of AED 5,000 and be blacklisted by the government.
Employee Satisfaction and Payroll in the UAE
Timely and accurate salary payments foster employee trust and satisfaction, reducing turnover and improving workplace morale. Late or incorrect salary payments can lead to confusion and frustration, creating distrust between employees and the employer.
Maintaining employee satisfaction is crucial for business continuity in a region like the UAE, which attracts talent from all over the globe.
Financial Accuracy and Payroll in the UAE
Proper payroll management ensures accurate financial reporting and budgeting, which is fundamental for business planning and operations. In the UAE, financial accuracy is particularly critical for companies operating in free zones.
These jurisdictions have specific regulations detailing how businesses should manage their finances.
Regulatory Updates and Payroll in the UAE
The payroll system must be updated and compliant with any regulation changes, such as amendments to the WPS as per Ministerial Resolution No. 598 of 2022. Compliance is crucial to avoid penalties and ensure smooth business operations.
Related Reading
- How To Calculate Salary Per Day In UAE
- Unpaid Leave UAE
- Leave Salary Calculation In UAE
- HR Duties And Responsibilities In UAE
- How To Calculate Public Holiday Pay In UAE
Book a Demo to Speak with Our Team about Our Global HR System
Transform your HR operations with Cercli, which is aligned with the UAE's vision for business excellence. It is the only platform built specifically for MENA businesses that unifies all your workforce management needs in one powerful system. Manage your entire team, whether local or distributed across 160+ countries, with our comprehensive solution that handles multi-currency payroll, leave management, onboarding, and compliance documentation tailored to the unique requirements of the MENA region.
