Basic Salary Requirements in the UAE Labour Law: What You Should Know

Last updated: April 2025

Understanding how to calculate basic salary under the UAE labour law is crucial to generating accurate compensation for employees.

Basic salary is not only the foundation of the net salary that employees will receive; it is also essential to the calculation of annual leave and end-of-service gratuity. And given the importance of basic salary in calculating the latter, it is one area you can’t afford to make mistakes. 

This is especially important as on February 2nd, 2022, Federal Law No. 33 of 2021 replaced Federal Law No. 8 of 1980 in the UAE Labour Law, meaning that some regulations you may have been previously familiar with have now been replaced by new ones. 

In this article, we’ll consider the regulations of the new UAE labour law regarding basic salary in the UAE. We’ll look at: 

1. What is basic salary?
2. Basic salary, allowances, and gross salary
3. Deductions and net salary
4. Other uses of basic salary
5. Is there a minimum wage in the UAE labour law?
6. How to pay salary in the UAE

At the end of this article, you’ll have all the information you need to compensate your employees accurately.

1. What is basic salary?

Basic salary refers to the fixed amount an employee earns for their work, excluding any additional allowances or benefits. According to Article 1 of Federal Decree-Law No. 33 of 2021, the basic wage is:

“The wage stipulated in the employment contract, which is paid to the worker in consideration of his work under the employment contract, on a monthly, weekly, daily, hourly or piecework basis, and which does not include any other allowances or benefits in-kind.”

Basic salary does not include:

• Housing allowance

• Transport allowance

• Mobile or communication reimbursements

• Overtime or incentive pay (unless contractually included)

 

What about commissions and bonuses?

Both the old and the new law did not specify if commissions and bonuses are part of basic salary (wage). Consequently, inclusion or exclusion will depend on the contract you have signed with your employees. 

However, in the case you didn’t specify the treatment of commissions and bonuses, the Dubai Court of Cassation “have made decisions that eliminated all doubts in respect of the commission and bonus being part of the basic salary,” according to Hamdan AlShamsi Lawyers & Legal Consultants, a legal firm operating in the UAE. 

“The judgements state that the salary includes everything that is given to the employee for the work performed, whether it is cash or any kind. Following this anything that is given to the employee which is not categorised as an allowance is considered a basic salary notwithstanding any category that the employer terms it, as long as it is related to the work performed.”

Given the above, the best approach is to include treatment of commissions and bonuses in your employment contract. 

For companies that pay commissions and bonuses, the importance of this section will be explained more below. 

2. Basic salary, allowances, and gross salary

It’s important to understand how basic salary differs from gross salary:

Key difference: Most legal entitlements in the UAE—like gratuity and leave salary—are calculated only on basic salary, not gross salary, unless your contract says otherwise.

Can Allowances Be Counted as Part of Basic Salary?

Allowances (like housing or transport) are not part of basic salary by default.

They can only be considered part of the basic salary if:

• Clearly stated in the contract (e.g. “basic salary includes AED 1,000 housing allowance”)

• The company has formally agreed to treat them that way in payroll

Otherwise, allowances are excluded when calculating end-of-service benefits and leave.

3. Deductions and net salary

The distinction between gross salary (wage) and net salary (wage) arises because of deductions (that is, net salary equals gross salary minus deductions). 

These are items that are commonly deducted from the salary (wage) of employees. In the new Labour Law (Article 25), the following are the deductions acceptable in the UAE: 

• The recovery of loans granted to the worker, within the maximum limit of the monthly deduction percentage from the worker’s wage stipulated in this Article, after obtaining the worker’s written consent and without any interest;
• The recovery of the amount paid to the worker in excess of his/her entitlements, provided that the amount deducted does not exceed (20%) twenty percent of the wage;
• The amount deducted for the purposes of calculating contributions to schemes, pension plans, and insurance, provided they are pursuant to the legislation in force in the UAE;
• The worker’s contributions to a savings fund, provided such a fund is approved by the Ministry;
• Installments for any social project or any other benefits or services provided by the employer and approved by the Ministry, provided that the worker agrees in writing  to participate in the project;
• Amounts deducted from the worker due to violations he/she commits, according to the regulation of penalties in force at the establishment and approved by the Ministry, provided that they shall not exceed (5%) five percent of the wage;
• Debts due to a legal judgment, without exceeding a quarter of the wage payable to the worker, except for the awarded alimony debt, as more than a quarter of the wage may be deducted. In case of several debts, the amounts to be paid shall be distributed as per the privilege categories;
• Amounts necessary to rectify damage(s) caused by the worker, as a result of their  mistake or violation of their employer’s instructions, that led to the destruction, demolition or loss of tools, machines, products or materials owned by the employer, provided that the deducted amounts do not exceed the wage of five days per month. It is not permissible to deduct an amount greater than that except with the approval of the competent court.

The law also restricts all deductions to 50% of the gross salary (wage).

4. Other uses of basic salary

Basic salary in the UAE labour law is important, as seen above, because it is the foundation of the worker’s take-home pay (net salary). But it is also important because it is the foundation for the calculation of an employee’s annual leave and end-of-service gratuity. Let’s consider them in turn:

Annual leave

Full-time employees who have worked for a year in your company are eligible for 30 days paid annual leave while those who have worked for only six months are entitled to 2 days leave per month until they have worked for a year.

According to the UAE Labour Law (Article 26), annual leave must be calculated on the last full wage (gross salary) the employee received: basic salary and allowances. You can read more on annual leave calculation in our article, How to Handle Leave Salary Calculation in the UAE.

End-of-service gratuity (also called end-of-service benefit)

The end-of-service gratuity (defined in Article 31 of the new labour law) is calculated based on basic salary in the UAE, without the addition of allowances (unlike in the case of annual leave). 

Employees who have worked for five years and above are entitled to 21 working days of basic salary for each year of service (up to the fifth year of service). For years of service beyond the fifth year, they are entitled to 30 days of basic salary. 

Let’s consider Mr. A who has worked in Company A for 10 years and earned AED 3,673 as his last basic salary. First, we have to convert the monthly basic salary to a daily salary. In this case, that is AED 3,673 divided by 30, which is AED 122.4. 

For the first five years, he will be entitled to 21 working days of basic salary, which is AED 2,570.4 (AED 122.4  multiplied by 21). Also, for the next five years, he will be entitled to 30 working days of basic salary, which is AED 3,672 (AED 122.4 multiplied by 30). Total gratuity payable to Mr. A is AED 6,242.4. 

This is one area where commissions and bonuses are important. If they are part of basic salary, then they must be used to calculate end-of-service gratuity provided they are part of the last salary the employee received. On the other hand, if they are part of gross salary rather than basic salary, they cannot be used for such calculation. 

Again, this is why it is important to ensure you specify how you treat commission and bonuses in the employee contract. 

The new labour law also includes certain provisions for end-of-service gratuity: 

• Partial years will be prorated. If an employee worked for nine-and-a-half years, the last six months will be prorated (15 days of basic salary instead of 30 days)
• The end-of-service gratuity cannot be lost or reduced if an employee resigns or is laid-off without notice. 
• The total gratuity payable is limited to two years’ worth of the employee’s full salary.
• If a worker dies, the gratuity is payable to his family within 10 days.

5. Is there a minimum wage in the UAE labour law?

As of 2025, there is no UAE minimum wage set for expatriate workers in the UAE private sector.. Also, there is no basic salary percentage in the UAE Labour Law; meaning the law does not require that the basic salary be a certain percentage of the gross salary.

However:

• The law requires that wages be fair and sufficient to cover basic needs

• Emiratisation schemes may set recommended salary levels for UAE nationals

• Salaries are negotiated contractually, so clarity in the offer letter is crucial

6. How to pay salary in the UAE

According to the Ministerial Decree No. 788 issued 2009 and the Ministerial Decree No. 739 of 2016, all private companies in the UAE and Jebel Ali Free Zone (JAFZA) must pay salaries through the Wage Protection System (WPS). 

This requires that you complete and submit a Salary Information File (SIF) to a WPS agent who will confirm the details therein with the Ministry of Human Resources and Emiratisation (MOHRE). You can find out additional information about Salary Information Files from our article here.

Every salary must be paid through this WPS system, which is designed to ensure that you are paying your workers the right amount at the right time. Fore more on the on the Wage Protection System, read What is WPS in the UAE: All You Need To Know About The Wage Protection System (2022).

NOW Money is a WPS agent that also doubles as a digital payroll solution. The NOW Money platform is a cost-effective, easy, quick, flexible, and efficient way to pay your employees their salaries.

Common Mistakes Employers Make

• Using gross salary to calculate end-of-service gratuity (unless required by contract)
• Not defining the basic/gross split clearly in employment contracts
• Treating variable pay or allowances as basic salary by mistake
• Not updating the contract when salary structure changes

These errors can lead to:

• Disputes at termination

• Compliance violations

• Underpayment or overpayment risks

Why Basic Salary Clarity Matters

For Employers:

• Ensures compliance with labour law

• Reduces legal risk

• Makes payroll smoother

For Employees:

• Helps you understand what your entitlements are—especially when resigning, taking leave, or calculating your gratuity

Basic salary is not just a payroll number—it’s a legal foundation.

If you’re unsure how your current salary is structured, review your employment contract.

If you’re an employer, make sure your payroll and contracts are aligned with UAE labour law.

Takeaways

• Basic salary is the fixed amount stated in an employee’s contract

• It excludes allowances—unless explicitly written otherwise

• It’s used to calculate gratuity, leave pay, and other legal entitlements

• UAE law doesn’t mandate a minimum basic salary, but contracts must be clear

• Always align your payroll process with MOHRE and WPS requirements

 

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Legal Disclaimer

This article reflects UAE Labour Law as of April 2025, including Federal Decree-Law No. 33 of 2021 and current ministerial resolutions. It is provided for informational purposes only and does not constitute legal advice. For detailed guidance, consult MOHRE or a labour law expert.