With the country’s economic dynamism combined with an environment that is accepting to expatriates, it’s no surprise UAE or the United Arab Emirates plays a massive role in the strategies of many international businesses keen in operating overseas.
Over the past two decades, UAE has become one of the leading business hubs in the world following improvements in terms of international connectivity, business policies, and infrastructure, which helped in fostering a vibrant and divorce labor force.
However, it’s worth noting the fact that the strengths of the UAE as the best place in living and work may lead businesses in losing sight of the complexities that are involved with the recruitment and retaining of talent.
Although the market can be transparent and international, it’s also required to abide by labor and employment regulations. If not managed by the business carefully and properly, the business may have to face serious consequences.
In this article, we will tackle everything you need to know about running payroll services in Dubai, most especially if you are an international business that wishes to operate or has commenced operations in the country.
Both foreign and UAE nationals are subject to employment and labor legislation in UAE, with some exemptions in certain categories. For a new hire, it is required to add his or her signature to a labor contract that is then registered with the UAE Ministry of Labor once the employment agreement has been signed. This is during the process of employment visa application for a foreign employee.
The standard workday, as well as workweek hours, can be different depending on the domain of a business, including the education or kind of individual that was hired. For instance, a typical UAE workweek that applies to the public sector will begin on Monday and then end on Friday. Private companies are able to make their own schedule. An ordinary workday is eight hours with a maximum of forty-eight hours.
Compensation and Severance Considerations
UAE minimum wage varies, depending on the education of the employee. Wages of all employees are to be paid through a salary transfer system of the UAE, which is known as the Wages Protection System. The probationary period is capped at six months at the most.
Hours worked that are beyond forty-eight in one workweek are to be compensated as overtime pay. Employees that are to work on Sunday are entitled to substitute rest days as Sunday is considered in UAE as the day of rest. The employee working on a Sunday can also be paid for hours worked instead of the substitute rest day. Women are not to work during nighttime from 10 pm to 7 am unless they are holding managerial positions or technical, service, or medical jobs.
With regards to the termination pay, it is mandatory in the country. There are some exceptions that are given to employees that are terminated because of a particular cause, employees that don't give proper notice, or employees that have quit prior to the completion of a contract that is of a definite term. A staff member that has finished 1 or more service years would be given 21 days as severance pay for every year for the first 5 years of employment. Thirty days of severance pay will be applicable for every extra year of service after the five years. There's a maximum payout which is two years.
Tax and Withholding Considerations
Employers are regulated by the UAE labor legislation and don’t have any federal obligations on tax withholdings as UAE doesn’t implement income tax for individuals and corporations except for certain fields and industries including foreign banking institution branches and companies that are engaged in gas and oil. The UAE Ministry of Finance, however, has a VAT of 5%.
Statutory pension contributions that are for local employees are at 5% while employers are to maintain compliance with regard to payroll outsourcing. A foreign national as an employee won’t receive or contribute to pension benefits. The salary has to be paid to a staff member through the WPS 2 weeks from the end of every single pay period.
Leave Regulations for Employees
UAE laws give all employees in the country leave that is related to vacation, sick, holiday, or maternity. A staff member that has been providing service for an employer for anywhere between 6 months to one year will receive 2 days as paid vacation every single month. The ones that are providing service for a year or more will be entitled to 30 days as paid leave. The UAE legislation mandates 7 paid holidays.
Apart from that, following the completion of 3 months of employment, an employee is entitled to 15 sick days and he or she shall receive full pay. Subsequent sick days will be given with no pay or partial pay. Pregnant employees will be eligible for forty-five days as maternity leave.
Call us today if you wish to consult with payroll specialists in the UAE.