All You Must Know About Payroll Process in the UAE

All You Must Know About Payroll Process in the UAE

by Zaara 11, Nov 2021

The United Arab Emirates (UAE) has gone through a tremendous and accelerated transformation over the last few years. The country has long been attractive to expanding businesses around the world, offering favourable tax regimes, free zones and access to some of the largest and fastest-emerging markets on the planet.

Additionally to its strategic location, the country has a robust economy, which is down to several compelling factors. The UAE has firm financial reserves, progressive policies regarding diversification and benefits from increased foreign direct investment.

For businesses in the UAE, processing payroll is a vital operation business has to carry out. Laws and regulations determine procedures that companies adhere to regarding payroll management; however, they are often amended, which can be hard to keep up.

What is Payroll?

Payroll is the entire process that ensures all employees of a business are paid with the amount that is due to them promptly. Payroll involves keeping track of employee paid leave, work hours, as well as main calendar events.

In the UAE, all businesses are regulated by UAE labour law, which implies that it’s the duty of companies in keeping payroll systems well managed, allowing for the proper processing of wages of employees.

Processing Payroll in the UAE

There can be differences with regards to payroll system depending on the organization. Some businesses choose automated or software payroll solutions, while others do manual computation. In the UAE, companies choose outsourced payroll processing. Here are a few things to follow -

  1. Maintain/Contain Employee Master Files
  2. Correctly calculate the gross wage of every employee
  3. Calculate the overtime pay owed to employees
  4. Add additional allowances due
  5. Calculate salary deductions
  6. Make salary statements and payslips
  7. Make a WPS sif file

The process of payroll is a little complex and time-consuming; therefore it is always recommended to outsource your business's payroll function. Outsourcing payroll in the UAE will make sure the assistance of a team of trained payroll professionals, and it frees up the time of the companies, helping them focus on other projects that add value to their business.

Things you must know about the Payroll Process in the UAE.

Here are the few questions that we have answered for you -

1. What is the recurrence of making salary payments to employees in the UAE?

The law states in Article 56 that the interims for making salary payments to employees should be monthly or bi-weekly depending on the type of contract.

2. What are the statutory pay components included in employee salary?

The UAE labour law does not specify the components that should make up an employee’s salary; there are no particularised statutory components.

3. How is gratuity accrued in the UAE?

UAE Gratuity is accrued against the last drawn basic salary and calculated as under;

  1. 21 days pay for every year of the first five years of service.
  2. 30 days pay for every additional year.

Provided that the total compensation shall not pass two year’s pay. Days of absence from work without payment are not incorporated 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 maintain the funds on behalf of employees.

4. When is gratuity paid to an employee?

According to Article 132 of the UAE labour law, the employee who has completed one year or more in the continuous service, is entitled to the end of service pay at the end of his service. Gratuity paid is dependent on the type of separation and the type of contract.

5. Is employee Medical Insurance compulsory in the UAE?

An employer must offer medical insurance to the employee during the duration of employment. Some businesses are extending this coverage to employee’s dependents even though this is not compulsory.

6. Which are the currencies that can be used in making salary payments in the UAE?

The only accepted currency used in making salary payments in the Emirates is the country’s national currency which is the AED.

7. Is a bonus or incentives payment compulsory in the UAE?

Bonus and incentives payments are not compulsory in the UAE. Many companies in the Emirates have bonus or incentive schemes executed to keep employee motivation, and the structures vary from one business to the other based on their policy.

The UAE is fast becoming an excellent base for expanding businesses. There’s no direct tax for corporations, the business climate is increasingly distinct, and politically it’s very enduring. However, as with any country, there are challenges to overcome. Regulations and laws that are split across the seven Emirates change regularly, making for a complicated payroll journey, while jurisdictions and free trade zones can be equally confusing. It, therefore, makes sense to consider a worldwide payroll solution that can guide you through the various pinch points and help make your expansion in the UAE as smooth and easy as possible.

Contact us today for more information.

Start your Entrepreneurship Journey Today in UAE from AED 5,760

Commitbiz will help you with every step of your success journey. You can get one-on-one mentorship from our experts and get guidance on how to clear the legal proceedings and grow your business.

Know More