A Comprehensive Guide on Payroll Process in the UAE

Proper payroll management and processing require extensive knowledge, clarity on legal regulations, accurate calculations, and the latest payroll tools. Our guide provides you with a comprehensive overview of labor laws, major salary components, core Wage Protection System factors, and best practices to ensure that your workers are paid accurately and on time. Let us take a detailed look at everything you need to know. 

The payroll process in the UAE is governed by Federal Decree-Law No. 33 of 2021, which outlines contractual obligations, working hours, leave entitlements, and termination policies. Some critical payroll-related points include:

• Salary Payment Timeline: Salaries must be paid at least once a month or as agreed in the employment contract. Delay beyond 15 days may attract penalties.
   
• Working Hours: Standard working hours are 8 hours/day or 48 hours/week. During Ramadan, hours are reduced by 2 hours daily.
   
• Leave Management: Employers are responsible for tracking and compensating for annual, sick, maternity, and other statutory leaves.

It is essential to comply with the MoHRE (Ministry of Human Resources and Emiratisation) regulations to avoid fines and diminish work permit suspensions.

Multiple components of a strong and well-managed payroll system determine the calculation and disbursement of salaries. These elements include:
 

• Basic Salary: The fixed component of an employee’s compensation, which serves as the basis for end-of-service benefits as well as leave salary.
   
• Primary Allowances: Information on these allowances is typically provided in the employment contract and includes housing allowance, transportation allowance, utility allowance, and role-specific allowances. 
   
• Compensation for Overtime: Employees who work beyond the required work hours are entitled to:
   
• 125% of hourly wage for regular overtime.
• 150% for late-night, holiday, or Friday shifts.
   
• Pay Deductions: Deductions can be taken for unpaid leaves, disciplinary penalties as per the UAE regulations, and employee social contributions. 
   
• End of Service Gratuity: This is calculated based on the employee’s recent basic salary. Make a note that gratuity is not applicable if the employee resigns before completing one year at the organization. This includes 21 days' wage/year for the first 5 years of service and 30 days' wage/year for every additional year. 

Launched by the central government of the UAE and the MoHRE, the Wage Protection System is an electronic salary management platform to oversee and manage timely salary payments to employees with complete transparency. 
 

Organizations and employers must submit salary files through WPS-compatible systems and approved banks. Failure to comply with WPS regulations can cause suspension of new work permits, fines, and a downgrade in the organization’s rating. The WPS file requirements include:
 

• Employee details (ID, labour card number)
• Salary amount
• Bank account details
• Payment dates
   

It is recommended to use payroll software that enforces WPS compliance for prompt and error-free submission. 

Let us have a look at the steps included in a standard payroll cycle in the UAE:
 

Step 1: Employee Data Collection

The payroll cycle begins with gathering all necessary employee data:

• Full name and Emirates ID
• Employment contract details (salary, allowances, benefits)
• Attendance and overtime records
• Approved leave or absence
• Bank account details (for WPS)
   

Step 2: Salary Calculation

The gross salary is calculated using the data collected:

• Basic salary
• Allowances (housing, transport, etc.)
• Overtime pay
• Bonuses or commissions (if applicable)
   

Then, apply deductions for:

• Unpaid leave
• Absence penalties
• Social contributions (for UAE nationals)
   

The result is the net salary to be paid.
 

Step 3: WPS File Preparation

The UAE mandates salary payment through the Wage Protection System (WPS). Employers must:

• Generate a WPS file containing employee and salary details
• Ensure correct formatting and MOHRE compliance
• Submit the file through an approved bank or exchange house
   

Step 4: Salary Disbursement

After WPS approval, salaries are credited to employee accounts. Payslips should be issued, either digitally or physically, detailing:

• Salary breakdown
• Deductions
• Net pay
   

Step 5: Record Keeping and Reporting

Maintain payroll records for at least two years following UAE labor law. These include:

• WPS payment logs
• Payslips
• Leave and overtime reports
• Gratuity calculations
   

Step 6: End-of-Service Benefits (When Applicable)

If an employee resigns or is terminated, calculate and pay their end-of-service gratuity based on:

• Length of service
• Final basic salary
• Applicable UAE gratuity rules

Social security contributions are mandatory for UAE nationals. 
 

• Employer: 12.5% of basic salary (15% in Abu Dhabi)
• Employee: 5%
   

In the case of GCC nationals, the social security contributions vary depending on the employee’s home country, as per the Gulf Cooperation agreement. Note that expatriate employees are not subject to income tax or social contributions, but they must receive their salaries on time. 

Integrating the following practices into your payroll operations can guarantee better accuracy and legal compliance and contribute towards employee satisfaction. 
 

• Automate Payroll: Choose cloud-based payroll software integrated with WPS and time tracking.
   
• Stay Updated on Labor Laws: Reforms are ongoing; regularly review legal changes or consult HR experts.
   
• Outsource When Needed: For SMEs or startups, outsourcing payroll to an experienced UAE provider ensures accuracy and compliance.
   
• Maintain Transparency: Always issue detailed payslips, and respond to employee queries promptly.

For proper, efficient payroll management in the UAE, one must pay proper attention to legal regulations, accurate calculations, and timely salary disbursements through the WPS. Partnering with an expert is crucial for successfully navigating this complex landscape. 
 

VGetter is your go-to partner for comprehensive and reliable payroll solutions in the UAE and trusted HR consultancy services in Dubai. With deep knowledge of UAE labor law, seamless WPS integration, and customized HR strategies, VGetter ensures your workforce is paid accurately and on time—every time. We design our solutions to minimize administrative overhead, reduce compliance risks, and provide your team with the freedom to concentrate on growth.