Payroll in the UAE: WPS, gratuity, pensions and leave explained

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Payroll in the UAE is simpler than in most countries in one way and more detailed in others. There is no personal income tax on salaries, so there is no PAYE to withhold. But employers must pay wages through the Wage Protection System, calculate end-of-service gratuity, make pension contributions for UAE and GCC nationals, and follow rules on leave, overtime and unemployment insurance. This guide explains how payroll in the UAE works for mainland and free zone employers, with a gratuity example and a monthly checklist.

No income tax, but plenty of payroll rules

The UAE does not levy personal income tax on employment income, so employers do not deduct tax from salaries. This makes gross and net pay very close for most expatriate employees. However, businesses are subject to corporate tax, introduced from 2023 at 9% on taxable profits above AED 375,000, and VAT at 5% on most goods and services. Neither affects the payroll calculation directly, but salaries are deductible business expenses for corporate tax.

Payroll duties come mainly from labour law: Federal Decree-Law No. 33 of 2021 on the regulation of labour relations for the mainland private sector, and separate employment laws in financial free zones such as DIFC and ADGM.

Salary structure: basic and allowances

UAE salaries are usually split into basic salary and allowances, such as housing, transport and other allowances. The split matters because end-of-service gratuity is calculated on basic salary, and pension contributions for nationals are calculated on a defined contribution salary. Offer letters and contracts must state the basic salary and allowances clearly, and the MOHRE contract should match what you actually pay.

A very low basic salary reduces gratuity but can create disputes and may be scrutinised. Keep a sensible, consistent split.

The Wage Protection System (WPS)

Mainland private sector employers registered with the Ministry of Human Resources and Emiratisation (MOHRE) must pay salaries through the Wage Protection System, an electronic system that routes payments through approved banks, exchange houses and financial institutions and lets MOHRE monitor that wages are paid in full and on time.

Each month, the employer submits a salary information file through its agent, listing each employee and their pay. Wages are generally due on the date set in the contract, and payment after the due date is considered late. Persistent late or missing payment can lead to penalties and restrictions on issuing new work permits. Free zone employers follow their own authorities' rules, and some use WPS voluntarily.

End-of-service gratuity

Expatriate employees who complete at least one year of continuous service are entitled to end-of-service gratuity when employment ends. Under Article 51 of the labour law, it is calculated on the last basic salary:

• 21 days' basic salary for each year of the first five years of service.
• 30 days' basic salary for each additional year after five years.
• Total gratuity is capped at two years' wages.
• Partial years are counted proportionally.

The daily wage is the monthly basic salary divided by 30. Gratuity is due within 14 days of the end of employment along with other dues. Our UAE gratuity calculator does the arithmetic.

Gratuity worked example

An employee with a basic salary of AED 10,000 a month leaves after seven years:

• Daily wage: 10,000 ÷ 30 = AED 333.33.
• First five years: 5 × 21 days = 105 days.
• Next two years: 2 × 30 days = 60 days.
• Total: 165 days × 333.33 = about AED 55,000.

Because gratuity grows with service and salary, many employers accrue it monthly in their accounts so it does not come as a surprise. Some employers and free zones offer savings schemes as an alternative to traditional gratuity, which are governed by specific rules.

Pensions for UAE and GCC nationals

Employers must register UAE national employees with the General Pension and Social Security Authority (GPSSA), or with the Abu Dhabi Pension Fund for Abu Dhabi entities, and make monthly contributions shared between the employee, the employer and, in some cases, the government. Rates depend on the scheme and when the employee was first registered, so check the current rate with the pension authority.

GCC nationals working in the UAE are covered by their home country's pension scheme under the GCC extension system, with contributions paid through the UAE authority. Expatriate employees from outside the GCC are not covered by these schemes; gratuity serves as their end-of-service benefit.

Unemployment insurance

Since 2023, most employees in the UAE, in both the private sector and federal government, must subscribe to the Involuntary Loss of Employment (ILOE) unemployment insurance scheme. The premium is low and paid by the employee, with two categories based on basic salary. Employers should remind employees to subscribe, since non-subscription leads to fines for the employee and can affect processes such as visa renewals.

Working hours and overtime

Normal working hours for the private sector are up to eight hours a day or 48 hours a week, reduced during Ramadan. Overtime is paid at a premium, generally the basic wage plus at least 25%, rising to at least 50% for work between 10pm and 4am, with further rules for work on rest days. Some roles, such as senior management, are treated differently. Track overtime accurately and include it in WPS payments.

Leave entitlements

• Annual leave: 30 calendar days a year after one year of service, and two days per month for service between six months and one year.
• Sick leave: up to 90 days a year after probation: 15 days full pay, 30 days half pay, then unpaid.
• Maternity leave: 60 days, 45 at full pay and 15 at half pay, with additional unpaid leave possible.
• Parental leave: 5 working days within six months of a child's birth, for either parent.
• Bereavement, study and other leave under the law.
• Public holidays announced each year.

Unused annual leave is paid out at the end of employment, calculated on basic salary.

Probation and notice

Probation can last up to six months. During probation, the employer may end employment with 14 days' written notice. Employees who resign during probation must give notice depending on whether they are moving to another UAE employer or leaving the country. After probation, notice periods are set in the contract between 30 and 90 days. Final settlement, including salary, leave pay and gratuity, is due within 14 days of the employment ending.

Free zones

Many companies operate from free zones, which have their own registration and employment rules. Most free zones follow the federal labour law with some differences in administration. The financial free zones, DIFC and ADGM, have their own employment laws. DIFC, for example, replaced end-of-service gratuity for expatriates with a mandatory workplace savings scheme. If you operate in a free zone, check its specific rules for payroll, visas and end-of-service benefits.

Emiratisation

Private sector companies with 50 or more employees must increase the share of UAE nationals in skilled roles each year under Emiratisation targets, and certain companies with 20 to 49 employees in specific sectors must hire set numbers of nationals. Non-compliance leads to financial contributions. Employers must also register Emirati employees for pension. These rules affect larger employers more than small startups, but plan for them as you grow.

A monthly payroll checklist

1. Collect attendance, overtime, leave and changes.
2. Calculate gross pay by component, plus overtime.
3. Deduct only permitted deductions, such as loans or advances agreed in writing.
4. Calculate pension contributions for UAE and GCC nationals.
5. Prepare the WPS salary information file and pay through your agent by the due date.
6. Pay pension contributions to the authority.
7. Issue payslips.
8. Update gratuity and leave accruals.

Payroll software in the UAE

Local payroll software generates WPS files, calculates gratuity and leave, handles pension for nationals, and keeps employee records for visas and contracts. Compare options in our UAE payroll software ranking and UAE payroll software guide, including Zoho Payroll pricing in the UAE. For accounting and VAT, see UAE accounting software, Wafeq pricing and our UAE VAT calculator.

Hiring in the UAE from abroad

Employing someone in the UAE requires a licensed entity to sponsor their work visa and permit. Foreign companies without a UAE entity often use an employer of record, which sponsors the visa and runs payroll. See what an employer of record is and compare providers in the EOR ranking. If you are deciding on payment tools for the business, see the UAE payment fee calculator.

Common mistakes

• Paying salaries outside WPS when it applies.
• Paying after the contractual due date.
• Calculating gratuity on total salary instead of basic salary, or the reverse in the contract.
• Forgetting pension registration for UAE nationals.
• Not paying out unused leave at the end of employment.
• Missing the 14-day deadline for final settlement.

Payslips and record keeping

Employers must keep records of each employee's wages, leave, overtime and contract details for the periods set by labour regulations, and provide employees with details of their pay. A clear payslip shows basic salary, each allowance, overtime and other earnings, any permitted deductions, net pay, and the payment date and method. Even though there is no tax deduction, employees use payslips for bank loans, tenancy applications and visa processes, so accuracy matters.

Keep copies of WPS salary files and bank confirmations. In a dispute over unpaid wages, WPS records are key evidence for both sides. Payroll software stores this history automatically.

Permitted deductions from wages

The labour law limits what employers can deduct from wages. Permitted deductions include recovery of loans and advances agreed in writing, contributions to pension schemes for nationals, housing or other amounts the employee agreed to, and penalties imposed under the employer's approved disciplinary rules within limits. Total deductions are capped at a share of the employee's wage, and deductions for debts are subject to further limits. Never deduct the cost of recruitment, visas or work permits from employees; these must be paid by the employer.

Budgeting the true cost of an employee

Because there is no payroll tax for most expatriate staff, employers sometimes underestimate the full cost of an employee. Beyond gross salary, budget for visa and Emirates ID costs, mandatory health insurance in emirates that require employer-provided cover (including Dubai and Abu Dhabi), end-of-service gratuity accrual, annual leave, any annual air ticket allowance offered in the contract, and pension contributions for nationals. For a realistic monthly figure, add roughly one twelfth of the annual gratuity accrual and the annualised cost of visas and insurance to the salary.

Paying salaries in practice

Through WPS, salaries are paid by bank transfer or, for employees without bank accounts, onto payroll cards issued through exchange houses. Employers fund their WPS agent before the salary date, the agent processes the salary information file, and money reaches employees' accounts. Build a few days of buffer into your process, especially around public holidays and month end. If you hold funds in another currency, convert to dirhams in good time; for international transfers, see how to cut international payment fees. Employees often send money home, so paying on time every month matters a great deal to them.

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