How to run payroll in the United Arab Emirates: a step-by-step guide
Reviewed by Mellow Editorial Team, HR & payroll content team
Running payroll in the UAE means calculating gross pay, deducting any applicable pension contributions, accounting for statutory entitlements like gratuity and leave, and submitting salary data through the Wage Protection System — all without any personal income tax to withhold.
Understand what the UAE payroll framework requires
Before you process a single salary, know the legal architecture you are working within.
Federal Decree-Law No. 33/2021 governs employment relationships in the private sector. It sets the rules for wages, leave, gratuity and termination. Payroll decisions — how you structure basic salary versus allowances, when you pay, how you calculate end-of-service — all flow from this law.
The Wage Protection System (WPS) is a Central Bank of UAE mechanism that requires employers to pay salaries electronically through approved financial institutions and agents. WPS captures a record of every salary transfer. Non-compliance can result in fines and restrictions on hiring new staff, so it is not optional.
No personal income tax. There is no income tax on employee salaries in the UAE. You do not withhold tax, file tax returns for employees, or issue income tax certificates. This simplifies payroll administration considerably compared with most other jurisdictions.
Identify your employee types and their statutory obligations
Your workforce likely falls into two categories, and each has different payroll obligations.
UAE and GCC nationals must be enrolled in the General Pension and Social Security Authority (GPSSA) scheme. Both the employer and employee make contributions to GPSSA. The contribution rates are set by GPSSA and apply to the employee's pensionable salary. You register the employee with GPSSA, deduct their share from payroll each month, add the employer share, and remit the total.
Expatriate employees are not enrolled in GPSSA. Instead, they accrue an end-of-service gratuity (ESG) entitlement over the course of their employment. Gratuity is not deducted from monthly pay — it is a liability you build up and settle when the employee leaves.
Calculate gross pay and structure salaries correctly
UAE employment contracts typically split remuneration into basic salary plus allowances (housing, transport, and so on). This structure matters because several statutory calculations — especially gratuity — are based on basic salary only, not total package.
When calculating gross monthly pay:
- Sum the basic salary and all contractual allowances.
- Add any overtime, commissions or bonuses due for that period.
- Check whether any salary advances need to be recovered.
There is nothing to withhold for income tax. For UAE/GCC national employees, calculate and deduct the employee GPSSA contribution from gross pay.
Calculate gratuity liability for expatriate employees
Gratuity is not paid monthly, but you should track the accruing liability on every payroll run so there are no surprises at termination.
The calculation under Federal Decree-Law No. 33/2021:
- First five years of service: 21 days of basic wage per completed year.
- Beyond five years: 30 days of basic wage per completed year thereafter.
- Cap: total gratuity cannot exceed two years' basic pay.
For part-years, gratuity is prorated. An employee who leaves before completing one year is not entitled to gratuity (unless terminated by the employer in certain circumstances — check the decree-law for the specifics).
To calculate the daily rate: divide the monthly basic salary by 30. Multiply that daily rate by the applicable number of days per year, then by years of service.
Record this accrued liability in your accounts each month. When the employee's contract ends, the settlement amount is based on their final basic salary at the point of departure.
Handle leave accrual and pay
Employees are entitled to 30 calendar days of annual leave after completing one year of service. During their first year, they accrue leave at a rate of two and a half days per month.
For payroll purposes, when an employee takes paid annual leave, they receive their normal salary. If an employee's contract ends with unused leave outstanding, that leave is paid out as part of the final settlement, calculated on the basis of their full salary package.
Track leave balances alongside payroll each month. Accumulated untaken leave is a real financial liability and should appear as such in your accounts.
Run payroll and submit through WPS
Once you have calculated net pay for each employee, the process is:
1. Transfer salaries via a WPS-approved bank or exchange house by the agreed pay date (the UAE Labour Law requires wages be paid at least once a month).
2. The WPS system records each transfer against the employee's Emirates ID or labour card number.
3. Retain payroll records — pay slips, WPS confirmations, GPSSA remittance receipts — for audit purposes.
If you employ staff across multiple entities or nationalities, keeping a clean payroll register that separates basic salary, allowances, GPSSA deductions, and gratuity accruals by employee will make compliance reporting and audits straightforward. A structured payroll register also makes it easier to run accurate final settlement calculations when employees leave — which is where errors tend to be most costly.
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