Your guide to payroll in the United Arab Emirates 

Managing payroll in the United Arab Emirates is not as simple as processing monthly salary transfers. To pay employees in the United Arab Emirates while adhering to all the local rules, employers need to navigate a structured regulatory environment that governs how compensation is calculated, recorded, and reported. 

The absence of personal income tax might make things seem straightforward, but that’s not the case. Employers still need to account for social security contributions, mandatory health insurance, end-of-service benefits, and other statutory requirements.

Employers also have to maintain documentation for proper payroll management in the United Arab Emirates for financial transparency. When businesses have a structured approach to pay employees in the United Arab Emirates, they can minimize risks related to payroll management. 

This article aims to cover the key considerations that businesses need to make for managing wages and how Payoneer Workforce Management can help with the payroll process.

United Arab Emirates Payroll: Wages and other payments

To pay employees in the UAE, you must follow specific payroll regulations that outline the approved currency of payment and the standard salary disbursement schedule in the United Arab Emirates.

Payroll cycle

In the United Arab Emirates, payroll processing for employees is typically done on the 28th of each month. Any expenses or payroll adjustments must be submitted by the 10th of the month. 

Minimum wages

The labour laws of the United Arab Emirates do not mandate a statutory minimum salary for employees. However, although there is no minimum wage in the United Arab Emirates, wages must be sufficient to enable employees to meet their basic needs.

Overtime pay

Under the UAE Labour Law, overtime pay is mandatory for employees in non-managerial roles. Managerial or supervisory employees are generally excluded and may instead be granted time off in lieu, subject to company policy.

Any hours worked beyond the normal working hours are treated as overtime and must be compensated as follows:

Sick pay

An employee is entitled to 90 days of sick leave per calendar year, provided they have completed their probation period. Sick leave during probation is generally unpaid unless otherwise stated in the employment contract.

The payment structure for sick leave is as follows:

• First 15 days – Fully paid leave
• Next 30 days – Half-paid leave
• Remaining 45 days – Unpaid leave

Maternity pay

Under the UAE Labor Law, female employees get 60 days of maternity leave, which are as follows:

Paternity pay

Employees in the UAE get full paid paternity leave for 5 days. 

Severance pay

Severance pay may be accrued at approximately 2.88% of the monthly salary, based on the employee’s gross monthly earnings.

Payroll in the United Arab Emirates: Contributions and deductions

Understanding the applicable tax structure and statutory deductions is essential for ensuring accurate payroll processing and regulatory compliance in the United Arab Emirates.

Income tax in the United Arab Emirates

The United Arab Emirates does not levy individual salary tax in the United Arab Emirates on an employee’s income. 

Other employee benefits

Employers in the United Arab Emirates must provide certain mandatory and regulated employee benefits in accordance with labour and social security laws.

Paid annual leave

The United Arab Emirates labour laws mandate annual leave for employees. Employees are entitled to 30 days of paid annual leave after completing one year of service. If the employment period exceeds six months but is less than one year, employees are entitled to two days of leave per month.

Part-time employees are entitled to annual leave in proportion to their actual working hours, as specified in their employment contracts.

Pensions

In the United Arab Emirates, public and private sector entities are required to register their Emirati employees with the General Pension and Social Security Authority (GPSSA). 

Employees who make monthly social security contributions in the United Arab Emirates are entitled to benefits such as retirement pensions, compensation in the event of work-related disability or death, and other applicable benefits.

The total monthly pension contribution is 26% of the pensionable salary. The insured employee contributes 11%, and the employer contributes 15%. 

For insured UAE citizens working in the private sector and earning less than AED 20,000, the government contributes 2.5% on behalf of the employer. This is done to support the employment of Emiratis in the private sector.

For employer contributions to apply, the employee must meet the following conditions:

• Should be an UAE national
• Must be older than 18 and younger than 60
• Must be medically certified as fit by a medical authority approved by the GPSSA

Gratuity pay

In the United Arab Emirates, full-time employees who have completed a minimum of one year of service are entitled to gratuity upon termination of employment. Days of absence are excluded from the calculation of the service period.

The calculation of gratuity pay is as follows:

• If a worker has served for less than one year, the employee is not entitled to gratuity pay.
• If a worker has served for more than one year but less than five years, the employee shall receive full gratuity pay based on 21 days’ salary for every year worked.
• If a worker has served for more than 5 years, the employee shall receive a full gratuity of 30 days’ salary for every year’s work for the first 5 years. 

In all cases, the total gratuity should not exceed two years’ wages.

United Arab Emirates payroll compliance best practices

Employers should follow some key regulatory requirements in order to maintain payroll compliance in the United Arab Emirates. Some of the best practices include:

• Salaries of employees should be processed through the Wages Protection System. It should be paid on time, as has been mentioned in the employment contracts. 
• The correct pension and social security contributions should be deducted and remitted to the employees. 
• Employers should maintain detailed payroll records such as payslips and other documentation, which may be essential for inspections and audits. 
• Employers should remain updated on the changes in the United Arab Emirates labor laws in order to stay compliant. 

Your options for payroll services in the United Arab Emirates

There are three main ways in which you can pay employees in the United Arab Emirates:

• Organizations can set up a legal entity which can help them hire employees and manage their payroll directly. However, this is a time-consuming process. 
• Employers may engage contractors if they want to reduce the employment costs in the United Arab Emirates. This reduces the hassle of having to look after payroll management and compliance rules. 
• Engaging talent through an EOR makes it simpler and quicker to maintain payroll in the United Arab Emirates. EORs not only support employee salary and documentation but also help you navigate statutory obligations,  including fulfilling the payslip requirements in the United Arab Emirates for employees.

Payoneer Workforce Management is a platform that unifies these services and encourages seamless global talent engagement and payments. 

Our unified platform allows employers to expand the market, work with multiple currencies, and comply with local regulations while simplifying the payroll experience for employers and employees. 

Get in touch with the experts and get started on your payroll management right away. 

FAQs

1. What is a Wage Protection System?

Wage Protection System in the United Arab Emirates is an electronic system of salary management that allows employers to pay employees in the United Arab Emirates through approved financial institutions. 

2. Does VAT affect payroll in the United Arab Emirates?

No, VAT does not directly affect the way in which employers pay employees in the United Arab Emirates. However, VAT may be levied if employers outsource their services or other employment-related operational costs are incurred. 

3. Who is entitled to get end-of-service gratuity in the United Arab Emirates?

Any employee who has worked in the United Arab Emirates for a minimum of one year shall receive an end-of-service gratuity. The amount, however, depends on the tenure of employment. Employees who have not been enrolled in the United Arab Emirates payroll processing system for at least a year are not entitled to receive gratuity pay.