Payroll management in UAE can be challenging due to complex labor laws and constantly updating of payroll UAE regulations. As part of the UAE government’s efforts to protect the rights and interests of workers, the Ministry of Human Resources and Emiratisation (MOHRE) in 2009 introduced the Wage Protection System (WPS) payroll framework. UAE mainland companies and companies with offices in Jebel Ali Free Zone (JAFZA) are subject to adopting the WPS. In contrast, some other free zones and subsidiaries of the UAE government are exempt.
UAE’s centrally controlled payroll process relies on the WPS in order to ensure the timely payment of workers’ salaries. Employers need to ensure their employee master files contain accurate and up-to-date data in order to make payments on time and comply with WPS regulations.
As part of the UAE’s central government’s documentation model, master files are later translated into salary information files (SIF).
It can be beneficial for your company to gain a deeper understanding of the elements crucial to the payroll UAE process, including WPS compliance, employee master files, and SIF, as well as improving your overall business operations in the country.
It can be simply put that payroll is the process of making sure that employees receive their wages on time, accurately, and transparently. Employers must pay attention to these topics to ensure UAE payroll compliance.
1. Understanding the Wage Protection System (WPS)
Payroll UAE is handled digitally with the WPS, which credits salaries directly to employees’ accounts. The Central Bank of the United Arab Emirates requires all private institutions to register for WPS so they can pay their employees.
Salaries are made available via this system according to the contract terms agreed upon between employers and employees in the UAE, protecting their rights and interests.
2. Employee master files
Employee master files contain all the details about your employees, including their credentials, base salaries, contingent compensation, advance salary payments, salary increments, and any company allowances.
Master files are essentially compilations of all employee information. The document simplifies UAE payroll processing and payment by centralizing employee information.
Spreadsheets are a popular (manual) method of recording this information, but a smart payroll software system allows you to maintain employee master files much more efficiently.
Furthermore, payroll software allows for the automatic updating of employee data across a variety of internal platforms (such as an organization’s HR system) as well as through a WPS portal.
3. Gross wages/salaries
The gross salary an employee receives includes his or her base salary, allowances, and overtime. Your UAE payroll policy is based on this.
Calculating these three elements requires the following formula:
Base salary
Limited contract is the most common type of contract used in the UAE payroll process. At the beginning of a job, you sign a limited contract that specifies the start and end dates.
Depending on the employee’s contract, the base salary is a monthly (most often) or bi-weekly wage agreed to by the employer and the employee.
Calculating allowances
There are a variety of allowances in UAE payroll, including sales commissions, relocation bonuses, travel allowances, meal allowances, and entertainment allowances.
Employees receive these allowances immediately upon signing their contracts. Every time a person moves through the company or changes departments, their master files reflect this accordingly.
A tedious task can be calculating allowances under a variety of brackets (like travel allowance, house allowance, phone allowance) manually, especially since these amounts can vary from month to month.
Through an integrated digital payment portal, smart payroll systems help employers calculate allowances more easily. Companies of all sizes can access automated payroll systems, whether they are small, medium, or large. At the end of every month, companies can quickly and efficiently add these receipts to employees’ master files by automating the process.
Calculating overtime
UAE labour law is very strict when it comes to overtime. There are certain provisions within the legislation protecting overtime workers from exploitation and to receive reasonable compensation if they work overtime.
The UAE payroll process calculates overtime in the following way:
- A worker who works overtime between 10 pm and 4 am receives an extra 50% of his or her wages or salary.
- The minimum overtime compensation at other hours is 25% of the wage.
- The cost of overtime on rest days (weekends and public holidays) is also at least 50% of the worker’s salary or wages.
- The maximum number of overtime hours per day is two
4. Gratuity
There is a financial component known as a gratuity that is supplementary to an employee’s UAE payroll. In this way, the company acknowledges the employee’s contribution to the organization.
UAE calculates gratuity in the following manner:
- Pay of 21 days for each year of service during your first five years.
- A thirty-day pay is due for every subsequent year.
Throughout the entire service period, gratuities may not exceed two years’ pay, not including unpaid leaves.
5. WPS salary transfer file
To pay salaries through the WPS, the Ministry of Labour requires a Salary Transfer File or Salary Information File (SIF). A master file for employees contains a variety of information such as employee credentials, salary designations, and bonus information.
Payroll in UAE & Creative Zone Tax & Accounting
The popular payroll outsourcing option in Dubai is to outsource payroll services to external firms that are experts in WPS. The companies can approach Creative Zone Tax & Accounting if they want a more customized payroll solution in Dubai that meets their specific needs.
