To create accurate remuneration for employees, it is essential to comprehend how to compute basic salary in UAE labor law. The calculation of yearly leave and end-of-service gratuity both depend on the basic salary, which also serves as the cornerstone of the net compensation that employees will earn. You can’t afford to make mistakes here because basic income is so crucial in figuring out the latter.
This is particularly essential because, as of February 2, 2022, Federal Law No. 33 of 2021 superseded Federal Law No. 8 of 1980 in the UAE Labour Law, which means that some rules you may have previously known have been replaced by new ones. Moreover, further guidance and support on new labor legislation can be obtained through HR services in UAE to avoid any hassle.
Defining Basic Salary
The basic wage is the agreed-upon sum that you must pay an employee under the terms of the contract, excluding any benefits, costs, or allowances. Every employment agreement must state the pay an employee is entitled to in exchange for fulfilling his or her commitments.
Precisely, a basic wage is described as “the salary prescribed in the employment agreement, which is compensated to the employee in reverence of his work under the employment agreement, on a monthly, weekly, daily, hourly, or piecework basis, and which does not comprise any other allowances or benefits-in-kind” as per Article 1 of the new Labour Law.
Basic salary in this sense refers to the base pay specified in an employment contract, with allowances omitted. HR services in UAE are really helpful in calculating gross wages for every employee.
Basic Pay, Benefits, and Gross Pay
The revised labor legislation defines wage as “the basic wage, in addition to the financial allowances and benefits in kind assigned to the worker under the employment contract,” after first defining basic wage as previously stated.
Residence allowance, phone allowance, transportation allowance, communication allowance, and kid school expense allowance are a few of the most popular allowances.
The gross salary is the sum of the basic salary and basic salary allowances. To minimize disputes and extra-legal complexities, any allowances must also be expressly stated in the employment contract, together with the basic wage.
How Do Commissions and Bonuses Contribute Their Part?
The definition of commissions and bonuses as part of base pay was left undefined in both the previous and the current laws (wage). As a result, whether something is included or excluded will rely on the agreement the employer has with the employee.
The Dubai Court of Cassation, however, “has delivered judgments that eliminated any ambiguities in regard of the commission and bonus being part of the basic pay in the case you did not specify the treatment of commissions and bonuses,”
What Are Certain Deductions that Differ Net Salary From Gross Salary?
Net salary is different from the gross salary in the sense of the involvement of deductions
These are things that are frequently taken out of an employee’s compensation or wage. The following deductions are permitted in the UAE and are listed in Article 25 of the new Labour Law:
- The repayment of loans given to the worker, with the worker’s written authorization and without charging interest, up to the maximum monthly deduction percentage allowed by this Article from the worker’s pay;
- Recovering the amount overpaid to the employee’s entitlements, provided that the amount deducted does not exceed 20% of the wage.
- The amount is subtracted to determine contributions to plans, pensions, and insurance provided that they are covered by UAE law.
- Amounts retrieved from the employee as a result of infractions they make, as per the establishment’s and the Ministry’s established regulations for penalties, provided that they do not exceed (5%) five percent of the wage.
- Payments in installments for any social projects, perks, or services offered by the employer and approved by the Ministry, so long as the employee formally consents to take part in the project.
Importance of Basic Wage
As said above, the basic salary is crucial to UAE Labour law because it forms the basis of the employee’s take-home pay (net salary). But it is also crucial since it serves as the basis for calculating an employee’s annual leave and gratuity at the end of their employment. Pay is the basic thing that the employees want in return for their services. It directly affects the reputation and integrity of the institute by the way they pay their employees. For accurate payment of wages, companies can hire relevant HR services in UAE to ensure UAE labour law salary calculation by following all legal requirements.
Choose Payroll Middle East
Most enterprises prefer to outsource their payroll for better management of the payment of wages. Outsourced payroll managers ensure the payment of wages in accordance with the legislation in force in the UAE and with the wages protection system. To enjoy the best HR outsourcing experience, choose Payroll Middle East.
With a vast experience of 10 years, Jean Rodas is a specialist in managing all aspects of Payroll and HR. Within Payroll, she has comprehensive knowledge in areas such as computation of final settlement, payslips, WPS registration, salary transfers, leave trackers, and end of service benefits among others, which she has successfully carried out for clients from diverse industries.