Payroll Management for United Arab Emirates

1. Key Labour Laws Affecting Payroll

Employment Contracts from Federal Law No. 8 of 1980 of UAE:

• Working hours
• Leave entitlements
• Salary calculations
• Termination procedures

Working hours:

• 8 hours per day or 48 hours per week
• During Ramadan, working hours for Muslim employees are reduced by 2 hours per day

Overtime:

• Day time OT 125% of the normal wage
• Night time OT 150% of the normal wage

Annual Leave:

• 30 Calendar days of paid leave after completing 1 year of service

Sick Leave:

• Eligible after completing probation period
• First 15 days are full paid
• Next 30 days are half paid
• After that are unpaid

Leave Type	Duration	Pay
Annual Leave	30 calendar days	Full pay
Sick Leave (first 15 days)	15 days	Full pay
Sick Leave (next 30 days)	30 days	Half Pay
Martenity Leave	45 days	Full pay

2. Social Insurance Contributions

Social insurance is an essential component of the UAE payroll system, designed to provide financial security to employees. Employers are required to contribute to the social insurance scheme for their Emirati employees.

Pension and Social Security System:

The pension and social security system in the UAE is primarily for Emirati nationals. Expatriate employees are generally not covered under this system, but their employers may provide alternative benefits.

For Emirati employees:

• Employers contribute 12.5% of the employee’s salary
• Employees contribute 5% of their salary
• The government contributes 2.5%

It’s important to note that social insurance contributions are calculated based on the employee’s basic salary plus allowances.

Note: Only for emirati employee and GCC employee (based on their country norms) not expats

3. Gratuity and End-Of-Service Benefits (for both nationals and expats)

Gratuity is an end-of-service benefit that employers are required to provide to employees upon the termination of their employment.

UAE Employee Gratuity:

• Gratuity is calculated based on the employee’s basic salary at the time of termination, excluding allowances and bonuses.
• If an employee resigns before completing five years of service, they are entitled to a reduced gratuity.
• Gratuity payments are exempt from UAE income tax. (home country tax norms for expats)

Tax Rules for Expat Employees in the UAE:

• No UAE Income Tax: There is no personal income tax, capital gains tax, or withholding tax on personal income for expats in the UAE.
• US Citizens / Green Card Holders: Must file a US tax return every year, can likely use the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit to reduce or eliminate your US tax liability on UAE earnings.
• Indian Expats: Income earned in the UAE is generally not taxed in India if, a non-resident. For a “deemed resident” or have income originating from India (e.g., rent, dividends), you may be taxed.

Years of service	Gratuity Calculations
Less than 1 year	No Gratuity
1-5 years	21 days basic salary per year
More than 5 years	30 days basic salary per year (max 2 yrs salary)

4. UAE WPS (Wage Protection System)

UAE WPS is under UAE Ministry of Human Resources and Emiratisation (MOHRE)

Working of UAE WPS:

• Employee must have a bank account for salary
• Employer transforms salary to employee through electronically to their bank account
• Central bank of UAE monitors the salary settlements from employer to employee

5. Components of Payroll Process in UAE

Deductions and with holdings:

• Employee pension contribution:
  • For UAE nationals, its mandatory contribution
  • 5% from employee salary
  • 12% from employer contribution
• Social Security:
  • For non UAE nationals are not contribute social security
• Health insurance:
  • Not a direct payroll deduction in most cases
  • Usually paid by employer, but in some cases a part may be shared with the employee
• Housing load repayments:
  • If the employer provides housing or a loan, the repayment may be deducted from the employee’s salary

Deduction Type	Applicable To	Typical Rate
Pension Contribution / Social Security	UAE nationals	5% of salary
Health insurance	All employees	Varies (usually employer paid)
Housing loan repayments	As applicable	Varies

Leave Entitlement and Impact on Payroll:

• Annual Leave: Employee have 30 days of calendar paid leave after complete 1 year of service
• Sick Leave: Employee have 90 days of sick leave per year with different pay rates
  • First 15 days full pay
  • Next 30 days half pay
  • Remain 45 days unpaid
• Maternity Leave: For female employee 45 days of calendar days full paid, addition of 15 days half paid
• Paternity Leave: As of 2020, for new fathers are entitled to 5 days paid leave
• Hajj leave: Muslim employees are entitled to 30 days unpaid Hajj leave once during employment

Overtime Calculations:

• Normal working hours: 8 hours per day or 48 hours per week
• Overtime rate: 125% more than normal working hours
• Weekend and holiday overtime rate: 150% more than normal working hours
• Hourly rate = (Monthly salary × 12) ÷ (52 weeks × 48 hours)
• Regular overtime = Hourly rate × 1.25 × Number of overtime hours
• Weekend/Holiday overtime = Hourly rate × 1.5 × Number of overtime hours

Allowance and Benefits:

• Housing allowance: 25% – 50% of basic salary
• Transport allowance: 10% – 15% of basic salary
• Utility allowance
• Phone allowance
• Children’s education allowance
• Flight ticket
• End of Service benefits

Allowance Type	Typical Range
Housing	25% – 50% of basic salary
Transportation	10% – 15% of basic salary
Utility	Varies
Education	Varies based on no. children

6. Payslip Structure

• Employee full name and ID
• Pay period
• Basic salary
• Allowance
• Overtime pay
• Gross pay
• Deductions
• Net pay

7. IBAN Number for UAE

UAE (United Arab Emirates) contained 7 emirates are:

• Abu Dhabi
• Dubai
• Sharjah
• Ajman
• Fujairah
• Ras Al Khaimah
• Umm Al Quwain

UAE IBAN Structure for Bank Accounts:

• All bank account in UAE has 23 character code of alpha numeric called IBAN (International Bank Account Number). Eg: AE07 033 1234567890123456
• In UAE bank account always starts with AE (country code)
• 07 is sample, are calculated using a mathematical algorithm to verify the entire IBAN is valid and typed correctly
• 033 is bank country code (National Bank of Abu Dhabi)
• 1234567890123456 – followed by numbers