Dubai is a thriving business hub known for its investor-friendly policies, tax advantages, and growing workforce. As businesses scale in the UAE, setting up an efficient and legally compliant payroll system becomes essential. Whether you’re a startup or an established company hiring new employees, understanding how to structure payroll correctly is vital to avoid penalties and ensure smooth operations. Take help from payroll middle East experts.
In this article, we will provide a step-by-step guide to setting up payroll in Dubai, along with legal obligations, best practices, and compliance tips for employers.
Understand the Legal Framework
Before setting up payroll, businesses in Dubai must understand the legal requirements governed by:
- UAE Labour Law (Federal Decree Law No. 33 of 2021)
- Wage Protection System (WPS)
- Ministry of Human Resources and Emiratisation (MOHRE)
- Dubai Development Authority (for free zones)
Key considerations include:
- Minimum wage (although not officially defined, fair compensation must be provided)
- Working hours and overtime pay
- End-of-service gratuity
- Leave entitlements (annual, maternity, sick, etc.)
- Wage payment through WPS for mainland companies
These regulations shape how salaries are calculated and disbursed.
Register with Relevant Authorities
To process payroll legally in Dubai, employers must register with:
- MOHRE – for companies operating on the UAE mainland
- General Pension and Social Security Authority (GPSSA) – for Emirati employees
- Free Zone Authority – if operating in a specific free zone (e.g., DMCC, DIFC)
You’ll also need to:
- Open a corporate bank account in the UAE
- Register for the Wage Protection System (WPS) to facilitate salary payments through the central banking system
Failure to comply with registration can result in wage blocks, fines, or license suspension.
Collect Employee Information
Accurate payroll depends on gathering correct and complete employee data. The required documents include:
- Emirates ID and passport copies
- Labour contract
- Work permit or visa
- Bank account details
- Salary details and allowances
- Joining date and contract duration
- Details of dependents (if offering family allowances)
This information must be kept up to date in your HR or payroll system.
Choose a Payroll System or Provider
You have two main options:
- In-house payroll system: Suitable for larger companies with internal HR and accounting teams. Requires investment in software, training, and compliance updates.
- Outsourced payroll services: Ideal for SMEs and startups that want to ensure compliance without hiring dedicated staff. These providers handle salary calculations, WPS uploads, payslips, and compliance reporting.
Make sure your chosen payroll system or provider is compatible with WPS and follows MOHRE regulations.
Define Payroll Structure and Components
In Dubai, payroll typically includes:
- Basic salary
- Allowances (housing, transport, meals, mobile, etc.)
- Overtime pay
- Bonuses and commissions
- Deductions (absences, penalties, visa charges if agreed)
- End-of-service gratuity (for employees who complete one year or more of service)
The basic salary must constitute at least 60% of the total salary for accurate gratuity calculation. Employers must specify the breakdown in the employee contract and payroll system.
Set a Payroll Schedule
Dubai companies can choose to pay salaries:
- Monthly (most common)
- Bi-weekly
- Weekly (less common)
However, under WPS regulations, salaries must be paid within 10 days of the due date. Delays may result in penalties or blocked work permits.
Tip: Align your payroll cycle with your accounting and VAT filing schedule for consistency.
Process Payroll and Submit WPS File
Each payroll cycle includes:
- Calculating gross and net pay
- Applying leave and overtime adjustments
- Accounting for benefits and deductions
- Generating payslips
- Preparing the WPS salary file (.SIF format)
This file must be uploaded to your corporate bank or WPS agent for processing. The Central Bank of UAE then transfers the salaries to employees’ bank accounts.
Ensure you submit the correct SIF file, as errors may cause delays or non-payment.
Provide Payslips and Maintain Records
Employers are required to issue monthly payslips showing:
- Basic salary
- Allowances
- Deductions
- Net salary
- Payment date
It’s also essential to:
- Maintain payroll records for at least 5 years
- Keep time and attendance logs
- Store salary records securely for audits or legal requirements
Modern payroll software can automate these functions for better compliance and data management.
Calculate and Settle End-of-Service Benefits
When an employee resigns or is terminated, employers must:
- Calculate gratuity based on the number of service years and final basic salary
- Account for unused leave balances
- Issue final settlement within 14 days of contract termination
In Dubai, end-of-service gratuity is a legal obligation and must be handled accurately to avoid disputes.
Stay Updated on Payroll Laws
UAE payroll and labor laws can change periodically, including:
- VAT implications
- Corporate tax (introduced in 2023)
- Changes in pension rules or working hours
- New holiday declarations (e.g., UAE National Day)
Employers must keep up with these updates to remain compliant. Outsourcing to a payroll provider or using legal consultants can help businesses stay ahead.
Conclusion
Setting up payroll in Dubai involves more than just calculating salaries. It requires a clear understanding of UAE labor laws, precise salary structures, and compliance with WPS and MOHRE guidelines. Whether managed internally or through a professional payroll service, a well-structured payroll system protects your business from legal issues and improves employee satisfaction.
By following the steps above, businesses in Dubai can ensure payroll accuracy, streamline HR operations, and focus more on strategic growth. For companies new to the UAE market, outsourcing payroll services is often the smartest and most efficient way to ensure full compliance and peace of mind.
