UAE payroll management involves specific calculations for WPS salary transfers, end-of-service gratuity, annual leave encashment, and deductions. Here is a complete UAE payroll guide for 2025.
UAE Salary Components
A standard UAE employment contract may include: Basic Salary: The base amount. This is the figure used for gratuity calculation. Typically 50–70% of total package. Housing Allowance: Typically 20–30% of package. Transport Allowance: AED 500–2,000/month. Other Allowances: Education, utilities, telecommunications. Gratuity is calculated ONLY on basic salary — this is why some employers keep basic salary low and increase allowances. This practice is legally permissible but ethically questionable and increasingly scrutinised by courts when disputes arise.
UAE End-of-Service Gratuity Calculation
UAE Labour Law (Federal Decree Law No. 33 of 2021): employees completing 1 year of service are entitled to end-of-service gratuity. Calculation: 21 days’ basic salary for each year of service for years 1–5, 30 days’ basic salary for each year above 5 years. Daily salary = Monthly basic salary × 12 / 365. Example: Basic AED 5,000/month. 3 years service. Daily salary = AED 5,000 × 12 / 365 = AED 164.38. Gratuity = 21 days × AED 164.38 × 3 years = AED 10,355.90. Cap: total gratuity cannot exceed 2 years’ total salary. DIFC and ADGM: different (DIFC has the DEWS — DIFC Employee Workplace Savings scheme — instead of gratuity).
UAE Annual Leave
UAE Labour Law: minimum 30 calendar days of paid annual leave per year. Accrues from day 1 but not typically taken until the probation period ends. Leave not taken: must be paid out or carried forward (max 30 days can be carried). Annual leave pay calculation: daily rate = monthly salary / 30.