The UAE is among the world’s most desirable workplaces. The region has a lot going on right now. There are lots of interesting and highly innovative startups. Many professionals look at the region as an interesting opportunity to boost their careers. More so than ever, the region is also attracting talent in the long-term, rather than just as a short pitstop. If your company is thinking about operating in UAE, then you need to know about the payroll in the area.
The UAE is divided into seven Emirates that each has certain unique rules and regulations. For many companies, the region offers a favorable tax regime, lucrative free trade zones, as well as a strategic location, bringing together some of the most exciting economies.
When it comes to the workforce, there is some difference between the public and the private sector. The public sector is still largely driven by the native workforce. The private sector, on the other hand, is made up of a large number of foreigners. The workforce is also largely younger professionals. Due to the differences, companies in both sectors tend to offer very different environments and work benefits. For companies, it is important to strike a balance to ensure they attract just the right type of talent.
Running a company in the UAE
When a global company wants to start doing business in the UAE, the initial process is rather straightforward. It all starts with registering the business and deciding on the type of business you want to run. In terms of the legal framework, companies in the region will fall for either of these three types:
- A mainland company
- A free zone company
- An offshore company
Under which your business falls, will depend largely on the kind of business activity you’re conducting. For many organizations, the free zone business is the most desirable. This is because it offers zero corporation and individual tax. There are also further exemptions on import and export tax, making it very beneficial for most organizations.
To fully start operating, your business has to receive approval from the Department of Economic Development. It’s important to keep in mind that business names are important in the UAE. Your name needs to be relevant to your organization and be clear of any public moral violations. From there onwards, it’s all about opening a bank account and dealing with any visa issues.
In terms of HR and payroll, every organization in the region has to have a formal entity establish. This guarantees you are allowed to process UAE payroll. For UAE businesses wishing to compensate employees under the Wages Protection System (WSP), you will need to make the payments from an in-country bank account.
Important employment rules and regulations
When it comes to hiring personnel for your global company in the UAE, you need to ensure that most of them are subject to UAE labor law. If you hire a new person, you need to sign a Federal Labour Contract.
If your business operates in the free zone, then your employees tend to not be governed by the labor law. These zones have their specific laws and requirements which can be very different from one zone to another. It is, therefore, important to check with the specific authority to ensure you are complying with the specific laws. The good thing is that you can find HR software complying with these region-specific rules. For example, a good HR solution in Dubai will ensure your payroll and HR information is compliant.
What is worth noting is that UAE doesn’t have trade unions. There are established legal offices that help employees. These ensure employees are protected but there is no similar collective bargaining power of the unions as in many other countries.
The amount of hours your employees are able to work depends on the industry. The typical, maximum workweek in the private sector tends to be the typical eight hours a day or 48 hours per week. This can depend a bit so please check the industry specifics. It’s also a good idea to note that the typical workweek in the UAE begins on Sunday and ends on Thursday! However, private businesses can freely set their schedules so you could follow a different style.
Paying employees in the UAE
The main thing to know about UAE payroll is that there is no minimum wage in the region. However, it is important to cover the basic needs of any employee so you can’t not pay your employees!
When you register your business, you then need to subscribe to the WPS system mentioned above. All wages need to be made through this system and non-compliance can result in a hefty fine. Since there is a maximum workweek, you should note that hours work beyond that is subject to overtime pay. Furthermore, as Friday is considered a day of rest in the region, and pay on that day is covered as overtime pay of time and a half or a substitute day of rest. It’s also worth noting that an employee shouldn’t work for more than five consecutive hours without a break of at least one hour.
Termination and gratuity pay is also mandatory in the region. There is an exemption in the case that an employee quits without proper notice or before finishing a termed contract. It’s also important to note that employees who’ve worked for more than a year should receive 21 days of severance pay for each of the first five years and 30 days for additional years. On top of the usual pay considerations, employers have to make pension contributions. These are different for the private and public sectors. Bonuses are quite common but they aren’t governed by any specific laws or regulations.
For holidays, employees should get seven paid public holidays. There are also further calculations to holiday, sick and maternity leave. The good thing is that most major HR solutions in UAE will calculate the times and payments for you. This makes it rather straightforward and easy to deal with your payroll. You should definitely look to use such software when operating in the country.