Process to Set up Payroll & Benefits for Employees

In the UAE, businesses place a lot of importance on the payroll process. They must be able to effectively complete each stage as a result. This is done to keep in compliance and to head off any possible concerns with the employees. Most companies in UAE consider partnering with an Employer of Record to simplify their employee payroll and other complex procedures related with it. Set up payroll and benefits which is quite a lengthy, intricate, time-consuming and complex payment and record-keeping procedure, is absolutely necessary for you to manage your business. To set up the payroll and benefits process system at your office, you need the necessary information, abilities, and business sense. If you are considering starting a business or are currently in operation but are finding it very challenging to manage to pay your staff, you need to continue reading to comprehend the full payroll system procedure.

What is Payroll Processing?

At the end of a payroll period, employees are paid through a process called payroll processing. There are several steps in this procedure to make sure that pay is accurately computed, monitored, and distributed and that the right amounts are withheld for tax, employer benefits, and other deductions. Payroll processing is an umbrella under which employee commission management and employee bonuses management is also done.

How Do Global Organizations Manage Global Payroll in UAE?

It is obvious that an increase in global recruiting coincides with the fact that remote work also gets increased. While attracting outstanding human resources from across the globe in UAE may be a huge advantage for organizations trying to expand, the difficulties of handling tax and compliance abroad can be overwhelming if you are unprepared. In such scenarios, global organizations tend to hire an Employer of Record to sustain their expenses and get quality outcomes out of it. The process to set up payroll and benefits for global organizations typically involves employee commission management, employee bonuses management, deductibles management, leave calculation, and end of service benefits in UAE.

Read More : Global Payroll Outsourcing : Time and Attendance Tracking and Approval.

How to Set Up a Payroll in UAE?

An employee payroll in UAE has to be UAE’s labor law compliant to avoid any kind of unpleasant event for an employer such as penalties and violations. The Wage Protection System (WPS), an initiative of the Ministry of Human Resources and Emiratization (MOHRE) to safeguard the rights and interests of employees by standardizing payroll in the UAE, was implemented by the UAE government in 2009. Also for end of service benefits in UAE has stern laws that employers must be careful about. Payroll is about accurately, promptly, and transparently paying employees, and HR has a significant responsibility to play in this area of the organization. If your company partners with an Employer of Record then the hassle of payroll processing is also handled by them.

Here are some steps of the process for how to set up a payroll and benefits for employees in UAE :

Step 1: Understand the Wage Protection System thoroughly

The WPS is a digital payroll system used in the UAE that credits salaries to employee payroll accounts. All business owners must sign up for WPS in order to pay their employees via the Central Bank of the United Arab Emirates. The UAE’s centralized system for paying salaries to employees safeguards their rights and interests while ensuring that wages are paid in full and on schedule in accordance with the terms of their contracts. The key highlights of a WPS are to ensure and regulate:

  • Frequency of wage payments
  • Late wage payments
  • Imposition of any possible penalties

Step 2: Verification and Collection of Employee Data

Collecting and verifying employee input is a crucial first step in developing an effective employee payroll system. This step typically involves gathering information about each employee of the organization, such as:

  • Details about the work, including a thorough job description, educational background, and experience
  • Personal information for their records, including full name, birthdate, joining date, and any supporting documentation, like a copy of the birth certificate or letter of membership, are required
  • Information on employee performance obtained through periodic evaluations for employee bonuses management
  • Benefits on top of the base pay for employee commission management
  • Base pay is determined by the contract
  • Details about a bank account in case they hold one

Step 3: Creation of Employee payroll Files

All of your employees’ information, including their credentials, base salary, other compensation, advance salary payments, salary increases, company-authorized allowances, etc., are contained in the employee payroll file. The centralization of employee information in this document facilitates payroll processing and payment.

Step 4: Calculation of Gross Salary

The gross compensation that is paid to an employee is made up of the base wage plus any applicable allowances and overtime. This serves as the foundation for your payroll policy.

Base Salary – Base Salary depends upon the type of contract – whether it is a limited or unlimited contract. The base salary is defined and agreed upon by both employer and the employee at the time of signing the employment contract.

Allowances – Sales commissions, relocation bonuses, travel expenses, meal expenses, entertainment expenses, etc. are all examples of allowances. These allowances are first outlined in the contract and are adjusted as employees advance in the organization or switch departments.

Overtime – In the UAE, overtime is a crucial part of labor law. According to the legislation, employees must not be mistreated and must receive just compensation for whatever overtime they put in. Workers are compensated for overtime hours that take place between 10 pm and 4 am with at least 50% more than their regular pay. Additional pay for overtime performed during other hours begins at a minimum of 25% of the wage. Weekends and federal holidays count as rest days, thus overtime on those days is also rewarded with at least 50% of pay or salary. However, the maximum daily amount of overtime is two hours.

Step 5: Calculation of Deductibles

In the UAE, the net wage is determined by deducting gross compensation from any leaves of absence, fines, infractions, etc. Some of these leaves include:

  • Annual Leave
  • Sick Leave
  • Hajj Leave
  • Maternity Leave
  • Paternity Leave

Step 6: Maintenance of Gratuity Calculation

A recurring financial addition to basic pay and bonuses is gratuity. It is a recognition of the employee’s contributions to the business. It is one of the mandatory end of service benefits, the UAE labor law imposes. It is calculated as:

  • For the first five years of employment, there is a pay period of twenty-one days per year.
  • Thirty days’ salary for the next consecutive years.

Step 7: Creation of WPS SIFs (Salary Information Files)

The UAE’s Ministry of Labor needs this document in order to pay wages through the Wage Protection System. It contains every element of the employee master file, including the employee’s credentials, assigned pay, and bonus.

Step 8: Generation of Pay Slips

An employee’s whole compensation package, including allowances and salary deductions, is detailed on a pay slip. The employer can track performance, determine compensation, and assess periodic increments with the use of this document. Creating the pay slip is typically the final step of the payroll process whether it is a local or global payroll.

Right Solution to Set up Payroll and Benefits in UAE

Payroll processing can be a challenging task in UAE if your organization’s HR does not have first-hand experience in UAE’s labor law. To set up payroll and benefits in UAE for your company, partnering with an Employer of Record can make this task much easier for you. If your business has global operations in UAE and other parts of the world, a reliable Employer of Record will be the right solution to manage your global payroll. Payroll Middle East is a renowned Employer of Record which has partnered with multiple global organizations in the past to provide hassle-free payroll services including employee commission management and employee bonuses management as well. If you wish to look for more details about the global payroll services we provide, contact us today or visit our website now.

Read More : Payroll Management for International Employees and Contractors.