Maintaining efficient payroll while complying with the law is essential for every organization. However, complex labor laws and frequently updated regulations can prove challenging, especially when it comes to meeting all legal requirements. From non-compliance and improper records management to timely payment and auditing requirements, there are many factors to consider when adhering to full payroll compliance.
In this article, we will explore some of the best ways to ensure your payroll remains in compliance with the most common legal requirements, as well as a few payroll requirements specific to the UAE.
Wage Protection System
In 2009, the UAE government introduced the Wage Protection System (WPS). This government initiative led by the Ministry of Human Resources and Emiratization (MOHRE) was established to guarantee employees are paid on schedule and in a timely manner. All businesses in the UAE and the Jebel Ali Free Zone (JAFZA) are required by law to adopt the WPS. However, other free zones and some royal or UAE government-owned companies are exempt. If your business hasn’t adopted the WPS and are required to do so, you are in violation of UAE payroll laws and should make arrangements to remedy this infraction immediately.
Maintain Updated Master Files
Employee master files include all the important information on your employees, including credentials, salaries, raises, etc. Regardless of where your business is located, maintaining master files is essential for tax, auditing, and many other payroll requirements. For companies operating in the UAE, these files supply the government with the information needed to simplify payroll processing, facilitate WPS compliance, and ensure timely payment of wages.
Income & Loss Documentation
Regardless of where your business is located, most areas require businesses to document their business income and losses. Profit and loss records are mandatory in some locations to determine business and personal taxes. While there are no personal taxes or social security allotments in the UAE, businesses are responsible for documenting their VAT charges.
Pension Withholdings
While tax withholding is normally not a consideration for UAE businesses, employers are required to withhold pension contributions for local employees in the UAE through the General Pension and Social Security Authority (GPSSA) within one month of hiring an employee. Employers are required to contribute 12.5% of an employee’s monthly salary, and employees can contribute up to 5% of their base salary.
Reporting Taxes
Depending on where your business is located, you may be required to pay taxes. Failure to pay business taxes can result in hefty penalties and fines. While the UAE does not require any accounting reports to be filed, free-zone entities are mandated to audit annual statements to free-zone authorities during their trade license renewal processes.
New Employees in The UAE
New employees must be registered with the Ministry of Labor at the time of their employment. Both employee and employer are required to sign a Federal Labor Contract (written in both Arabic and English). In the event an employer wishes to extend the terms of employment outside of this contract, a second contract must be signed and attached to the Federal Labor Contract.
The necessary documents needed to register an expat with the Ministry of Labor include:
- Passport copy
- Residence visa
- Signed contract
- Labor card
- Emirates ID card
When it comes to ensuring your payroll meets legal requirements it can be challenging and frustrating. However, the experts at SOURCEitHR can help. Our innovative payroll solutions are designed to streamline your payroll operations, minimize fraudulent activities, and meet all your local payroll requirements.
Contact our team to learn more.
Karim Mubarak
Co-Founder & Managing Partner
