Payroll in UAE

What does the payroll process in UAE involve?

Used to running a payroll process back home? Then the following workflow will probably look pretty familiar. When you hire and pay employees or contractors anywhere in the world you have to:

• Collect information from your employee or contractor – so you have all relevant personal details on file
• Calculate gross pay – this is the amount your employee earns in a month based upon the hours worked, any overtime, and the agreed rate of pay
• Calculate net pay – time to deduct tax and social security contributions from gross pay
• Pay your workers – transfer funds via your employee’s chosen payment method, provide a payslip and update your own payroll records
• Transfer deductions to the relevant authorities – you’re responsible for paying any tax and social security contributions on behalf of your employees.

While the process may look straightforward, things get a lot more complicated when you start discovering the idiosyncrasies of labor law and payroll in the UAE.

Did you know that employees in the UAE don’t work Fridays? Or that expats are treated differently to UAE nationals when it comes to social security contributions?

There’s a lot to learn before you go ahead and hire your first UAE employee.

Want some help navigating the UAE payroll process? There’s no need to read further! Get in touch with Skuad to see how we can do it for you.

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

Let’s take a closer look at what you need to know to run a UAE payroll process.

A few UAE payroll basics

The currency in the UAE is the United Arab Emirates dirham (د.إ, AED). Employers pay employees on a monthly basis, with payments typically made on the last day of the month.

Working hours in the UAE

The standard working week in the UAE is 48 hours, with employees working up to 8 hours each day.

Employees in the UAE usually work from Sunday to Thursday each week. They tend to start work at 8am, take a long lunch break from 1pm until 4pm (when temperatures are at their hottest), and then continue working until 7pm.

During the holy month of Ramadan, the working day is usually reduced by two hours daily.

Companies operating in one of the UAE’s 45 Free Zones (free-trade zones) may impose different working hours, however.

Overtime rules in the UAE

If an employee in the UAE works for more than 48 hours per week, employers have to pay overtime. Overtime is paid at a rate of at least 125% of the usual salary.

If an employee in the UAE works on a Friday, they are entitled to an additional paid day off as well as overtime pay for the time worked.

Minimum wage requirements in the UAE

For UAE nationals, minimum wage requirements vary depending upon the employee’s level of education.

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

There are no minimum wage requirements if you employ expats working in the UAE.

Severance pay in the UAE

Employers have to give employees a minimum of 30 days’ notice if they wish to terminate a contract. If an employee is still in their probation period, the notice period is reduced to 14 days.

Severance pay, where applicable, is calculated based on an employee’s years of service.

• 1-5 years of service: 21 days’ salary for every year of employment
• 5+ years of service: 30 days’ salary for every year after five years of employment

If the reason for the contract termination doesn’t meet UAE labor laws, employees may be entitled to an additional three months’ full pay as compensation.

Labor law states that the total amount of severance pay should not exceed a total of two years’ salary.

Already feeling in over your head? Skuad’s payroll experts are already fully trained on the UAE’s payroll process. Get started with payroll outsourcing for the UAE with us today.

UAE payroll taxes and deductions

According to UAE labor law, employers and employees need to make the following contributions.

Employer contributions

12.5% - Social Security

This contribution covers social security and a housing allowance. It’s payable on a maximum income of 50,000 AED.

The government makes a 2.5% contribution.

In Abu Dhabi, both employers and the government pay an increased contribution. Employers pay social security at 15%. The government pays social security at 6%.

Social security contributions apply to companies operating in Free Zones. However, if you employ an expatriate living in the UAE, you don’t make any social security contributions.

Employee contributions

5% - Social Security

Employees pay social security contributions at 5% no matter where they live or work within the UAE. Expats do not make any social security contributions.

Income tax

Neither UAE nationals nor expats working in the UAE are required to pay any income tax.

As we’ve just seen, there are quite a few differences between UAE payroll and the country you’re headquartered in. Don’t waste time navigating unnecessary workflows, outsource your UAE payroll instead.

Employee leave entitlement in the UAE

Public holidays

In the UAE there are seven public holidays. This accounts for 14 days of leave as some public holidays last for a couple of days.

Paid leave

Employees in the UAE are entitled to a minimum of 30 days paid leave per year after one year of service.

Sick leave

When an employee has worked for you for a minimum of three months, they are entitled to paid sick leave. They can take up to 90 days sick leave per year as long as they provide a medical certificate within 48 hours of the start of their illness.

Sick pay is paid at the following rates:

• Up to 15 days of sickness: 100% of the regular salary
• 16 to 45 days of sickness: 50% of the regular salary
• 46 days+ sickness in one year: Unpaid

Maternity / Paternity leave

All female employees in the UAE can take 60 days paid maternity leave, before or after their due date.

The first 45 days of maternity leave are paid at 100% of the usual salary. The next 15 days of maternity leave are paid at a rate of 50% of the usual salary.

Women can take up to 45 days of unpaid leave due to a medical condition caused by either pregnancy or the delivery of their baby. These days of leave can be taken consecutively or intermittently.

Fathers can take five days paid leave at any time during the six months after their child has been born.

Breastfeeding leave

Women who return to work no later than six months after the birth of their child are entitled to one or two breaks per day (up to a maximum of one hour) to breastfeed her child.

Other leave allowances

Employees are entitled to:

• Five days compassionate leave after the death of a spouse
• Three days compassionate leave after the death of a parent, child, sibling ,or grandparent
• Ten days study leave for employees who have completed at least two years of service, as long as they are studying with an approved UAE educational institution

Payroll compliance in the UAE

If you’re employing workers in the UAE, it’s really important that you understand your payroll obligations.

Employers in the UAE are responsible for withholding and submitting employee social security payments to the correct social security administration. They’re also responsible for paying their employees on time.

Employers who fail to pay their employees or contributions on time are now subject to strict sanctions and fines.

Want to get started with payroll management in the UAE? Book a Skuad demo to understand exactly what’s expected of your business.

Payroll Providers in UAE: how to start building your team?

There’s not just one way to approach payroll in the UAE. Take a look at the three main options:

• Use your existing HR team – train your HR team to learn about and manage the UAE payroll process.
• Outsource payroll to a dedicated HR and payroll company in the UAE – get payroll services in the UAE to handle payroll for your UAE employees
• Outsource all payroll operations – use a global payroll provider like Skuad to manage payroll for employees in the UAE, at home, and anywhere else in the world

So what are the benefits of global payroll?  

• Simple workflow – one intuitive dashboard, one payroll partner, and a lot less opportunity for error
• 100% compliance – an expert team who understand payroll and employment law in the UAW and beyond
• Hiring flexibility – with a global payroll team, you can take on talent anywhere around the world
• Useful extras – like great exchange rates, benefits packages, and onboarding for all employees

Want to start hiring and paying in the UAE and across the world? Book a free platform demo to see what Skuad can do for your business.