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payroll process

A complete guide to the payroll process in the UAE

Aside from its strategic location, the country has a strong economy due to several compelling factors. The UAE has strong financial reserves, progressive diversification policies, and benefits from increased foreign direct investment. Hence, there are thousands of people who want to do business in the UAE. This is why it is so important for them to be aware of the payroll process.

In this article, you will learn everything about the payroll process. Let us observe:

  1. Establishing a business in the UAE
  2. Payroll compliance issues in the UAE
  3. The UAE Employment Law
  4. Payroll processing procedures in the UAE
  5. How can Connect group help you?

1. Establishing a business in the UAE

Starting a business in the UAE is relatively simple due to government incentives. As a result, the process is very similar to that of other countries. The most important task is to decide on the type of activity in which your company will engage. It is critical because it may not be suitable for operation in the UAE.

The next step is to choose the most appropriate jurisdiction in the UAE, which includes determining whether you should locate your company in a free zone, on the Mainland, or offshore based solely on its business activity.

1.1. Registrations and entity formation in the UAE

The estimated timeframe for a legal entity incorporation process may vary significantly depending on the legal entity type. You can set up an entity in a free zone, for example, in 2-3 weeks; whereas legal entities registered outside of a free zone may take 2-3 months.

1.2. Preparing a business plan

A business plan’s main components are:

  • Market analysis.  
  • Executive summary.  
  • Organization/management.  
  • Company description.
  • Market plan.
  • Financial plan.
  • And the product/service.

In addition, you can read our article on how to make a great business plan. If you need further assistance, we will be glad to help you.

1.3. Document submission

You must submit a complete company registration application, as well as the proposed company name to the Department of Development. Furthermore, they require preliminary approvals from the Dubai Department of Economic Development (DED) license section before company registration.

1.4. The DED has received the Memorandum of Association

The Department of Economic Development (DED) will execute a standard Memorandum of Association in the presence of a notary.

1.5. Getting a Trade License

You must complete your license application in Arabic, signed by the entity representative; and file it with DED after the memorandum is notarized by the notary at the commercial registry.

Following that, if you incorporate your entity in Dubai, you must submit the original lease of your entity’s headquarter, your business name in Arabic and English, and a designated form for obtaining clearance on the agreement of the premises from Dubai Municipal Building Department.

To process payroll in the UAE, the company must have a legal entity established. They will complete all applicable payroll restrictions of the company during the process of establishing the legal entity.

1.5. Banking

They require making payments from an in-country bank once employees get registered under the Wage Protection System (WPS). They require the WPS for all legal entities registered outside of free zones. However, in certain free zones (for example, JAFZA and DAFZA), employees must also get registered and pay through WPS.

Typically, Islamic banks in the United Arab Emirates are open from 08:00 to 13:00. Except for Thursday, the store is open from Saturday to Wednesday (08:00 to 12:00). Few banks also have afternoon hours from 16.30 to 18.30 or even continuous hours throughout the day.

2. Payroll compliance issues in the UAE

2.1. Working times

In the UAE, regular working hours are typically eight hours per day or 48 hours per week. You will also have to give your employees overtime. If your employees must work between 9 p.m. and 4 a.m., the overtime payment is simple: 125 percent of their hourly wage or 150 percent of their hourly wage.

The rules may differ for businesses in the Mainland zones; however, Friday and sometimes Saturday are off days. Working on Saturdays is a common practice.

2.2. Minimum wage in the UAE

For expatriates, there is no mandatory minimum salary. On the other hand, the level of education of UAE nationals determines the minimum wage:

  • No high school diploma- 3,000 AED
  • 4,000 AED for a high school diploma
  • 5,000 AED for a college degree or higher.

3. The UAE Employment Law

Let us now look at the key provisions of the UAE’s Federal Labor Law, which apply to both onshore businesses licensed by the Department of Economic Development (DED) and companies incorporated within a UAE-free zone.

3.1. What safeguards do employees have?

The Labor Law provides employees with certain minimum protections. Working hours, vacation and public holidays, medical leave (including maternity and paternity leave), safety standards, termination of employment, and gratuity payments at the end of service

Apart from the financial free zones of the ADGM and DIFC, which have their labor regulations; any employee who works within one of the free zones will be subject to both employment regulations and labor law in the free zone in which the business is incorporated.

3.2. Obtaining a business license

After your business has received its business license, you must open a labor and immigration account by applying for an establishment immigration card (establishment card). Plus, you have to register your company with the General Directorate of Residency and Foreigners Affairs (a branch of the UAE’s Ministry of Interior in charge of regulating travel to and from the UAE).

Obtaining the establishment card will allow your company to hire foreign workers and apply for various visa types. This card has a one-year validity period and you must renew it annually before it expires.

3.3. Hiring and sponsorship in the UAE

For each new employee, onshore businesses must obtain a labor card from the Ministry of Human Resources and Emiratisation (MOHRE); while free zone employers must obtain an identity card from the relevant free zone authority.

To stay and work in the UAE, all non-resident UAE nationals must obtain a work permit and a residency visa. These visas are granted if the employee possesses the necessary skills and educational qualifications, and the employee must be sponsored by the organization. If your business is located on the mainland of the UAE, your company will sponsor its employee, and the free zone will sponsor free zone company employees.

3.4. Employment contract types

They will require all employees to sign a standard template offer letter stating the basic minimum terms of employment in both English and Arabic. Also included is a second contact with more specific commercial terms. According to Article 36 of the labor law, an employment contract must include the following basic information: 

  • The contract’s duration (limited or unlimited).
  • Work begins on this date.
  • What the nature of the work is.
  • The location of the work, as well as the amount of remuneration.

Few economic free zones require parties to enter into employment contracts based on specific template terms. The information that you must include in employment contracts varies by free zone, subject to labor law provisions.

3.5. Contract termination of an employee

You can terminate a contract for an indefinite period (an open-ended contract) without cause and with notice for a specific work-related reason. However, according to article 120, if an employee’s termination is not related to his or her work, it can be considered arbitrary for cause or any other justifiable reason.

In this case, an employee can easily claim arbitrary dismissal and receive up to three months’ pay from the competent court.

4. Payroll processing procedures in the UAE

Payroll processing is a necessary business operation for businesses in the United Arab Emirates. In terms of payroll management, laws and regulations determine the procedures that businesses must follow; however, they are frequently changed, making it difficult to keep up.

4.1. What is the definition of company payroll in the UAE?

Payroll is a process that ensures that all of your company’s employees get paid on time and in full. Payroll also entails keeping track of working hours, paid time off, and major calendar events.

All businesses in the UAE are governed by UAE labor law, which means that payroll systems must be well managed to properly process employees’ wages.

4.2. Payroll processing steps

The actual payroll calculation may differ from what is described below due to differences in the system used. For example, some businesses use automated or software payroll solutions, while others perform manual calculations, and the majority of businesses in the UAE use outsourced payroll processing. The following are the most likely payroll management responsibilities and procedures:

4.2.1. Keep or gather employee master files

An employee must keep all essential information such as basic salary, designation, allowance amount, contact number, and payable allowance types.

They require this information for payroll processing and must be updated regularly, particularly when employees’ wages change or increase. As a result, employees must properly care for and maintain the records.

4.2.2. Calculate each employee’s gross wage correctly

Before the end of each pay period, the business must compute the total gross wages owed to all employees. As a result, when calculating the employee’s gross salary, the basic salary is added to the allowance amount, and the total is recorded in the payroll records.

4.2.3.  Determine the amount of overtime pay owed to employees

It would be helpful if you calculated the overtime hours for each pay period for your employees who worked. They classify overtime hours into the following groups; the regular overtime, as well as the Friday Overtime.

The formula for calculating normal overtime is:

  • Salary/30 days x 1.25 hours
  • They calculate weekend overtime as salary/30 days/8 hours x 1.5.

4.2.4.  Include any outstanding allowances

Many employees in the UAE receive a monthly bonus, sales commission, bonus, car expenses, and other benefits. As a result, every employer must include an allowance in the employee’s salary for the pay period.

4.2.5.  Determine salary deductions

There are numerous deductions from an employee’s salary, such as violations, absences, fines, and so on. These deductions must be made from the basic or gross wages. It is possible for you to calculate the deductions by adding all necessary deductibles. The total deductions must then be subtracted from the total gross salary plus employee allowances.

4.2.6.  Create pay stubs and salary statements

After each pay period, a summary report or salary statement must be prepared that includes all salary components. It will contain:

  • The starting salary.
  • Deductions from pay.
  • Absences.
  • Allowances.

These payslips for each employee will assist in keeping track of the salaries paid each month. Furthermore, these payslips are prepared for the employees and include their salary calculations.

4.2.7. Make a WPS sif file

The payroll process is nearly complete as a result of the preceding steps. The final step is to create a sif, or salary transfer file.

The file format will then be defined by the Ministry of Labor. Following that, all exchanges and banks in the country followed suit. Please keep in mind that the government requires this to be one of the most important steps in payroll processing in the UAE.

5. How can Connect group help you?

In comparison to many other countries, expanding to the UAE is relatively simple. You can set up a company and run it in less than a month. However, understanding the nuances and practices of the payroll process in UAE free zones and Mainland businesses may require extensive local research.

Working with companies that provide relevant services in the UAE will save you from having to learn about payroll compliance issues in the UAE through trial and error. Hence, Connect Group can assist you with the best payroll outsourcing services in the market.

Are you interested in learning more about the payroll process?  Please contact our team whenever you need to. In this way, you can call us at +971 43 316 688 for questions and inquiries. Another way to reach us is via email through contact@connectgroup.co. Finally, a member of our team will guide you.

Do you want to find better job opportunities? There is everything you have been looking for on thetalentpoint.com. Send your CV to many companies looking for your expertise in the Middle East. Also, you can send it to contact@thetalentpoint.com.

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