United Arab Emirates payroll and benefits guide
What global businesses need to know about payroll in The United Arab Emirates
The United Arab Emirates stands out as a trailblazer in embracing global business and opening up to international investment and skilled workers. A major reason for this is strategy.
The UAE authorities are understandably keen to reduce their dependence on oil and gas revenues, and build a successful, diversified economy for generations to come. As a result, foreign workers have flocked to the UAE in search of their own economic prosperity: the population of around 11.4 million is 100 times larger than it was in the 1950s, and 88% of them are foreign expats.
All this has had a huge effect on payroll and employment in the UAE. Regulations and requirements have been transformed, with new revisions and legislation introduced regularly. This can make keeping up with everything tricky, but this guide to running payroll in the UAE is an excellent place to start.
Getting Started
Starting a business in the UAE is relatively easy and this is mainly due to the government’s offering of incentives for doing so. Most of the process can be completed through the UAE Government’s online Bashr service, on which establishing a business can take as little as 15 minutes.
Firstly, however, you should check that your organization qualifies for one of the six types of business licenses available: industrial, commercial, professional, tourism, agricultural, and occupational.
From here, the company structure needs to be decided. This could range from a sole proprietorship, civil company, or limited liability company, through to a foreign company branch or free zone company. A free zone offers many tax, financial, and operational incentives, and is therefore especially popular with foreign investors.
Next, you’ll need to gain approval for your chosen business venture, and its name; this is carried out by the Department of Economic Development. The name is especially important as UAE law states it cannot violate public morals and must be relevant to the business activity. Following approval, you’ll be able to draft your Memorandum Of Association, and then license and register your company for the chosen activities. The remaining steps involve opening a bank account and processing the necessary visas.
Every company is legally required to have a formal entity established in order to process a UAE payroll, but all applicable payroll registrations are completed during the process of establishing the entity. To compensate employees who are registered under the Wages Protection System (WPS), it is mandatory for UAE businesses to make payments from an in-country bank account.
Employment Considerations in The United Arab Emirates
Whether a UAE national or foreign worker, all employees are subject to the UAE’s Labor Law, with some exemptions for certain categories. One of the many unusual characteristics of UAE business is that there are no trade unions or collective bargaining agreements, but there are offices established that provide employees with legal support should they need it.
In free zones, employees are generally not governed by the labor law. As such, free zones have their own labor law and specific template contracts, which relevant parties are obliged to use. As would be expected, each free zone has its own requirements for information. Employees are considered under contract with the authority of each free zone.
The UAE has moved toward a Western-style working week of Monday to Friday. However, it’s expected that employers give employees the choice of remote working and/or extended breaks on Fridays to attend prayers. The normal working week is a maximum of 48 hours a week, and eight hours per day. Working time is reduced by two hours a day during Ramadan, which takes place slightly earlier each year (for 2026 it will start in mid-February, and in early February in 2027). Many businesses open at 8am, close between 1pm and 4pm to avoid the hottest parts of the day, then reopen until around 7pm.
Overtime pay is a 25% premium on top of normal salary, increasing to a 50% premium for any hours worked between 9pm and 4am. Under labor law, an employee must not work more than five consecutive hours without a break of no less than one hour. Women generally may not be required to work at night (10pm to 7am) unless they hold managerial positions or certain medical, technical, or service-industry jobs.
The standard notice period in the UAE is 30 days. Probation periods are capped at a maximum of six months, with a notice period of 14 days during this time.
Compensating Employees
Technically, there is no minimum wage in the UAE. However, the Ministry of Human Resources and Emiratisation (MOHRE) does set out annual benchmark minimum salaries. Although not legally binding, they are used as guidelines by many businesses in the UAE and are applied to UAE residents and foreign expats alike. For 2025, these are:
- University graduates: AED 12,000 per month (approx. £2,450; $3,250; €2,800)
- Skilled technicians: AED 7,000 per month (approx. £1,400; $1,900; €1,650)
- Skilled laborers (with high school-level education): AED 5,000 per month (approx. £1,000; $1,350; €1,150)
All employers must register with MOHRE and then subscribe to the UAE’s electronic salary transfer system, known as the Wages Protection System (WPS), through which all employee wages must be paid. Late or unpaid salaries can result in heavy fines.
Bonus schemes and employee benefits are common in the UAE, including 10% bonuses on top of salary. It’s also common to provide a range of vouchers and benefits, including meal vouchers, gym memberships, transport and commuting allowances, and study allowances. As of the start of 2025, it is now a legal requirement for employers to provide health insurance to everyone in their workforce.
Severance pay entitlement is 21 days’ salary for each of the first five years of service, and 30 days’ salary for every year above that; any incomplete years are paid according to these scales on a pro-rata basis.
Tax and Withholding Considerations in The United Arab Emirates
The UAE has no requirement for any employees to pay any income tax. Social security contributions are 12.5% employer (15% in Abu Dhabi) and 5% employee. There is also a requirement for employees to pay unemployment insurance contributions: these are AED 5 per month (approx. £1.00; $1.35; €1.20) for those earning less than AED 16,000 per month (approx. £3,250; $4,350; €3,750), and AED 10 per month (approx. £2.00; $2.70; €2.40) for those earning more.
Corporate tax in the UAE is levied at 9% on all taxable income above AED 375,000 per year (approximately £76,000; $102,000; €88,000). However, a new Domestic Minimum Top-up Tax (DMTT) took effect in January 2025, which is aimed to ensure that multi-national organizations that operate in the UAE — whether headquartered there or not — pay an effective minimum tax rate of 15%. This only applies to organizations with consolidated global revenues over €750 million.
VAT is relatively low at 5%, with a selection of goods and services zero-rated, including residential real estate, buying and selling land, and some financial services.
Paid Leave and Sick Leave
The UAE has around 14 days of public holidays each year. Most of these are aligned to the Islamic calendar and/or the sighting of the Moon, so the dates can vary from one year to another. Employees should be compensated for any work undertaken on public holidays. Whether holidays that fall on weekends can be taken as days off in lieu is decided by local authorities on a year-by-year basis.
Paid leave is two days per month for employees who have completed at least six months of service. Once an employee has completed a year of service, they are then entitled to 30 days per annum. Employees are only allowed to carry over unused leave into the following year at the discretion of their employer, who should have a carryover policy in place to facilitate this.
In terms of sick leave, employees are entitled to 90 sick days per year (continuous or intermittent), provided they have completed three months of continuous service following the probation period. They should also provide a medical certificate confirming the illness within the first 48 hours of absence. Sick pay entitlement is 100% of salary for the first 15 days, and 50% for the following 30. Any sick leave beyond 45 days in a single year is unpaid. Employees who are on probation can take unpaid sick leave at the employer’s discretion.
Maternity leave entitlement is 60 days, with the first 45 paid at full salary rate and the last 15 at half the normal rate; mothers can take the leave before and/or after the birth, as required. New legislation introduced in April 2025 means that pregnant women that experience miscarriage or stillbirth after 23 weeks of pregnancy should still receive the full maternity leave entitlement. There is no specific paternity leave, but there is an entitlement of five days’ paid parental leave that can be taken by either parent within the first six months of a birth.
Bereavement leave is five paid days for the death of a spouse, and three paid days for the death of a parent, grandparent, child, sibling or grandchild. Employees working toward a qualification can also take ten days paid leave to sit their exams, as long as they’re studying with a higher education organization in the UAE and have been with their employer for at least two years.
Payroll in the United Arab Emirates: A summary
From a payroll and employment perspective, the scale and pace of change in the UAE has been huge in recent years. Regular major changes can be difficult to keep track of, especially if your payroll team also needs to stay abreast of requirements in many other territories around the world. This is a perfect case of the value of in-country payroll expertise, that can keep you up-to-date with changes, and help keep your payroll on the right side of compliance.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional. See more country payroll guides from CloudPay.