Payroll in UAE

Are you recruiting staff members or using contractors in the United Arab Emirates? It is imperative that you become familiar with the nuances of payroll in the United Arab Emirates, regardless of whether you are recruiting in Abu Dhabi, Dubai, Sharjah, Ras al-Khaimah, Ajman, Umm al-Quwain, or Fujairah. With so many labor rules to follow and so many payroll obstacles to overcome, this may be a challenging process. The choice to outsource payroll services in the UAE is becoming more and more common among individuals looking to avoid such complications.

The complete payroll process can be handled by a trustworthy payroll service provider like EOR Services, giving you more time to focus on developing a talented and successful workforce in the UAE and beyond. For companies wishing to streamline payroll processing so they may concentrate on their main goals, this strategic outsourcing method provides a workable answer.

What does the payroll process in UAE involve?

Are you used to handling payroll processes in your native country? Then, the workflow that follows will probably match your experience. When hiring and paying workers or contractors abroad, you usually do the following actions:

1. Ask your contractor or employee for information, making sure that all relevant personal information is documented.
2. Compute gross compensation, taking into account the agreed-upon rate of pay, any overtime, and the monthly earnings based on worked hours.
3. Subtract taxes and social security contributions from gross income to find net compensation.
4. Pay your employees by sending money to them using the mode of payment they have chosen, giving them a payslip, and maintaining your internal payroll records.
5. You are in charge of paying any taxes and social security contributions on behalf of your employees, therefore send deductions to the appropriate authorities.

Despite the seemingly simple nature of this process, there are complexities when dealing with the UAE’s complex payroll and labor laws.

Did you know that Fridays are a non-working day for UAE employees? Or that when it comes to paying into social security, foreigners are treated differently from citizens of the United Arab Emirates?

There are a lot of things to consider when you hire your first worker in the United Arab Emirates. Want help understanding the payroll environment in the United Arab Emirates? There’s nowhere else to look! Get in touch with EOR Services to find out how we can help you with it.

What do you need to know about payroll in the UAE?

Explore the fundamentals of managing a payroll process in the UAE. Key aspects include:

Currency and Payment Frequency:

The official currency is the United Arab Emirates dirham (AED). Typically, employers pay their staff monthly, processing payments on the last day of the month.

Working Hours:

The standard workweek is 48 hours, with employees working up to 8 hours per day from Sunday to Thursday, starting at 8 am. A break from 1 pm to 4 pm is observed, and during Ramadan, working hours may be reduced by two hours. Free Zone companies may have different regulations.

Overtime Rules:

Overtime pay, at a rate of at least 125% of regular salary, is mandatory if an employee works beyond 48 hours per week. Friday work entitles employees to additional paid time off and overtime pay.

Minimum Wage:

For UAE nationals, minimum wage varies by education level:

• No high school certificate: AED 3,000 per month (approx. USD 815)
• High school certificate: AED 4,000 per month (approx. USD 1,090)
• College degree or higher: AED 5,000 per month (approx. USD 1,360)

No specified minimum wage exists for expatriates in the UAE.

Severance Pay:

Terminating an employee requires a minimum notice period of 30 days (or 14 days during the probation period). Severance pay, if applicable, is based on years of service:

• 1-5 years: 21 days’ salary per year
• 5+ years: 30 days’ salary per year after five years

In specific cases not compliant with UAE labor laws, employees may be entitled to an additional three months’ full pay, with the total severance pay not exceeding two years’ salary.

Feeling overwhelmed? EOR Services’ payroll experts are well-versed in the intricacies of the UAE’s payroll process. Simplify your experience by starting payroll outsourcing for the UAE with us today.

UAE payroll taxes and deductions

In accordance with UAE labor regulations, both employers and employees have responsibilities in the following areas:

Employer Contributions:

• 12.5% – Social Security: This covers social security and a housing allowance, applicable to a maximum income of 50,000 AED. The government contributes 2.5%, with an increased contribution in Abu Dhabi where employers pay 15%, and the government pays 6%. Social security contributions apply to companies in Free Zones, with expatriates in the UAE exempt from such contributions.

Employee Contributions:

• 5% – Social Security: Employees contribute 5% towards social security, irrespective of their location in the UAE. However, expatriates are exempt from making social security contributions.

Income Tax:

Both UAE nationals and expatriates employed in the UAE are not subject to any income tax obligations.

Given the distinct variations between UAE payroll regulations and those of your home country, navigating these intricacies can be time-consuming. Simplify your processes and avoid unnecessary complexities by outsourcing your UAE payroll with EOR Services.

Employee leave entitlement in the UAE

In the UAE, there are seven public holidays, amounting to a total of 14 leave days, considering that certain public holidays extend for multiple days.

Paid leave holds significant importance for employees in the UAE, with a minimum of 30 days granted per year after completing one year of service.

Employees become eligible for paid sick leave after three months of service, with the option to take up to 90 days of sick leave annually, supported by a medical certificate within 48 hours of illness onset. Sick pay rates follow this structure: 100% of the regular salary for up to 15 days, 50% for 16 to 45 days, and any sickness exceeding 46 days in a year is unpaid.

Maternity leave in the UAE encompasses 60 days of paid leave for female employees, to be taken before or after their due date. The initial 45 days are paid at 100% of the regular salary, followed by the next 15 days at 50%. Additionally, women can opt for up to 45 days of unpaid leave for medical conditions related to pregnancy or childbirth. Fathers are entitled to five days of paid leave within six months of their child’s birth.

Breastfeeding leave permits women returning to work within six months after childbirth to take one or two breaks per day, totaling a maximum of one hour, for breastfeeding.

Other leave provisions include five days of compassionate leave following the death of a spouse, three days for the death of a parent, child, sibling, or grandparent, and ten days of study leave for employees with at least two years of service, provided they are studying with an approved UAE educational institution.

Payroll compliance in the UAE

Comprehending your payroll responsibilities is crucial when managing employees in the UAE. Employers in the UAE are obligated to withhold and submit employee social security payments to the relevant administration, ensuring timely salary disbursements. Non-compliance with these obligations can lead to severe sanctions and fines for employers. If you’re entering the realm of payroll management in the UAE, consider scheduling a demonstration with EOR Services to gain a thorough understanding of your business’s expectations.

In the realm of UAE payroll, there are three primary approaches:

1. Leverage your existing HR team by providing them with training on the nuances of the UAE payroll process.
2. Entrust payroll tasks to a specialized HR and payroll company in the UAE, enabling them to manage payroll services for your UAE employees.
3. Opt for comprehensive outsourcing of all payroll operations by enlisting a global payroll provider like EOR Services. This option streamlines workflows through a user-friendly dashboard, ensures 100% compliance with expert teams well-acquainted with UAE payroll and employment laws, offers hiring flexibility for global talent acquisition, and provides additional advantages such as favorable exchange rates, comprehensive benefits packages, and efficient onboarding processes. If you’re contemplating expanding your hiring and payment operations in the UAE and globally, schedule a free platform demo to explore how EOR Services can elevate your business.