Payroll Calculations in the UAE Private Sector

Getting payroll wrong isn’t just risky—it’s a legal liability.

Late payments, WPS violations, or salary miscalculations can result in fines, suspended work permits, or even enforced wage payouts under UAE law. Whether you’re running a small business or managing a large workforce, accurate payroll processing is a must.

This guide breaks down how payroll works in the UAE’s private sector—step by step, and in full alignment with the UAE Federal Decree-Law No. 33 of 2021 (Regulation of Labour Relations) and its 2024 amendments.

What Is Payroll in the UAE?

Payroll is more than just paying your employees. It includes:

• Basic salary

• Allowances (e.g. housing, transport)

• Overtime

• Deductions

• End-of-service benefits (gratuity)

If your company is licensed under the Ministry of Human Resources and Emiratisation (MOHRE), you’re legally required to pay salaries through the Wages Protection System (WPS).

How to Calculate Payroll in the UAE (Step-by-Step)

Here’s a simplified example of monthly payroll for a full-time employee:

1. Basic Salary
The fixed amount defined in the employment contract. This is the base used for leave and gratuity calculations.

Example: AED 3,000

2. Allowances
Additional benefits offered by the employer. Common examples:

• Housing

• Transport

• Food or mobile

Example: AED 2,000 (combined)

3. Gross Salary
= Basic salary + Allowances

AED 3,000 + AED 2,000 = AED 5,000

4. Overtime Pay
Overtime is governed by UAE Labour Law:

• 125% of hourly basic rate (normal hours)

• 150% for night shifts or holidays

5. Deductions (if any)
Permissible deductions include:

• Unpaid leave

• Absenteeism penalties (contractually agreed)

• Loan repayments (with signed employee consent)

Payroll Entitlements in the UAE (Updated for 2025)

Payroll in the UAE must reflect not only wages, but also paid and unpaid leave, social contributions, and regulatory deductions. Below is a breakdown of legally mandated entitlements that employers must factor into payroll.

Public Holidays
Employees are entitled to full pay on official UAE public holidays. If required to work, they must receive either another day off or 150% basic pay.
Payroll Note: Public holiday overtime = 150% of basic pay.

Paid Annual Leave
Employees are entitled to 30 calendar days of paid annual leave after one year of service.
Employees with 6–11 months of service receive 2 days leave per month.
Part-time employees receive leave proportional to hours worked.

Maternity Leave
Female private sector employees are entitled to 60 days total maternity leave:

• 45 days full pay (100%)

• 15 days half pay (50%)

Additional leave is allowed in the case of:

• Stillbirth or infant death after 6 months of pregnancy

• Disability of child: extra 30 paid + 30 unpaid days

• Post-maternity sick leave: up to 45 unpaid days

Parental Leave
Both parents are entitled to 5 paid days within the 6 months following the birth of a child.
This is separate from maternity leave.

Paternity Leave
There is no formal paternity leave in the private sector beyond parental leave.

Sick Leave
Eligible after probation period:

• First 15 days: full pay

• Next 30 days: half pay

• Final 45 days: unpaid

Payroll Note: Sick leave is paid based on basic pay.

Bereavement Leave
Employees may take:

• 5 days (death of spouse)

• 3 days (death of parent, child, sibling, grandchild, or grandparent)

Study Leave
After 2 years of service, employees enrolled in UAE educational institutions are entitled to 10 paid days per year for exams.

End-of-Service Gratuity (Private Sector)
For expats in the private sector:

• First 5 years: 21 days’ basic wage per year

• 6+ years: 30 days’ basic wage per year

• Max entitlement: 2 years’ gross salary
  Bonuses/commissions are included only if part of the basic salary.

Payroll Note: Unpaid leave days are not counted in the calculation.

DIFC Employees (DEWS Scheme)
DIFC employees are not eligible for end-of-service gratuity. Instead, employers contribute to the DEWS scheme monthly:

• Under 5 years’ service: 5.83% of basic salary

• Over 5 years: 8.33% of basic salary

Employees may make voluntary contributions.

Unemployment Insurance Scheme
Applies to UAE nationals and expats in most sectors (except investors, domestic workers, temp workers, minors, pensioners).

Payroll Note:

• AED 5/month (basic salary ≤ AED 16,000)

• AED 10/month (basic salary > AED 16,000)
  This amount is deducted from the employee, not the employer.

Minimum Wage
No national minimum wage in the UAE. However, wages should reasonably cover cost of living (typically AED 3,000–5,000/month for a single person in Dubai).

Tax Deductions
There is no personal income tax in the UAE. Employers do not deduct income tax.

Social Security Contributions
Applies to UAE and GCC nationals only:

• 20% of gross salary (outside Abu Dhabi):

  • 12.5% employer

  • 5% employee

  • 2.5% government

• In Abu Dhabi: 26% total

  • 15% employer

  • 5% employee

  • 6% government

Minimum salary = AED 1,000
Maximum salary = AED 50,000

Legal Payroll Compliance: WPS and UAE Labour Law

In the UAE, payroll must be processed through WPS—a government system designed to ensure employees are paid fairly, on time, and transparently.

To stay compliant, employers must:

• Upload a Salary Information File (SIF) via an approved WPS agent

• Pay salaries by the 15th of the following month

• Issue salaries through an authorised bank or platform (e.g. NOW Money)

⚠️ Penalties for WPS Non-Compliance:

• Suspension of new work permits

• MOHRE fines

• Legal liability for unpaid or late salaries

New 2024 Legal Updates: What Employers Need to Know

Recent amendments to Federal Decree-Law No. 33 of 2021 (via Decree-Law No. 9 of 2024) introduced key changes:

1. MOHRE Can Now Settle Disputes Up to AED 50,000
   The Ministry can issue binding rulings for disputes under AED 50,000—without going to court.
2. Interim Salary Payments During Disputes
   Employers may be required to pay an employee’s salary for up to 2 months during active disputes—even before final resolution.
3. Extended Claim Period
   Employees now have 2 years to file salary-related claims (previously 1 year).

These changes increase the legal and financial risk of getting payroll wrong—making accurate and timely salary payments a business necessity.

Common Payroll Mistakes to Avoid

❌ Paying salaries late or inconsistently
❌ Using cash or informal payment methods
❌ Misclassifying allowances vs. basic pay
❌ Not issuing payslips
❌ Failing to resolve salary disputes early—especially now that MOHRE can intervene directly

Why Proper Payroll Matters More Than Ever

Getting payroll right means:

• Fewer compliance risks

• Happier, more loyal employees

• Avoiding legal disputes and enforcement actions

• Peace of mind for HR and finance teams

How NOW Money Helps UAE Employers Stay Compliant

NOW Money offers a WPS-compliant digital payroll solution tailored for companies with low-income workers in the UAE. We make salary disbursement fast, legal, and stress-free—with mobile app access, salary cards, and bilingual support.

Want to simplify your payroll process and avoid compliance risks? Talk to our team.

FAQs (Updated for 2025)

• When do salaries need to be paid in the UAE?
  By the 15th of the following month through WPS.
• Can I pay employees in cash?
  No. All payments must go through WPS using an authorised provider.
• Do I need to offer allowances?
  No, but it’s common. Only basic salary is legally required.
• What happens if an employee files a salary dispute?
  If the claim is under AED 50,000, MOHRE can issue a binding decision. Employers may also be required to pay interim wages during the dispute.

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Legal Disclaimer

This article reflects updates as of April 2025, in accordance with UAE Federal Decree-Law No. 33 of 2021 (and its 2024 amendments via Decree-Law No. 9).

For legal advice specific to your company, consult a licensed labour law expert or visit mohre.gov.ae.