Money Matters - UAE Wages, Basic Salary, Allowances & Deductions

Basic Salary & Allowances in the UAE

Wages - image showing a person counting cash

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The way the salary is set up in the UAE is that - a large component of it is basic salary, while the rest of it is broken up in the form of allowances, e.g. housing allowance, cost of living allowance, transport allowance. But they are actually all cash allowances of the total salary. What it means is – it does not matter how the employee spends it, whether the rent is higher or lower than the housing allowance, whether the transport spend they have is higher or lower than the allowance, they still get the same total salary. As an example, if the housing allowance in the salary mentions AED 5,000, the employee can choose to spend AED 4,000 or AED 6,000, and that has absolutely no impact to the salary they receive every month.

The above has some exceptions, e.g. some multinationals offer expat packages where they provide housing and transport on top of the salary (as per actuals, upto a certain limit). At the same time, such generous packages are being removed because they are very expensive for the employers, and the focus now is on lean and tight spending.

Some organizations in Abu Dhabi also have some rules to be able to claim the allowance, e.g. the housing has to be within the Emirate.

The reason why the salary is structured like this is because, gratuity/end of service is calculated on basic and not on the total salary. Also, some companies encash leave based on the basic salary, and overtime is based on basic.

Bearing in mind that free zones like DIFC, ADGM, etc. have their own labour laws, and they need to be checked if the employment is based there. This post focuses on mainland provisions.

There is a misunderstanding in the market that basic salary has to be at least 60% of the total, but I have not found any such rule, and from my various employments I have seen basic salaries forming as less as 25% and as high as 65% of the total, with medium options of 40-45% also.

Transfer of Salary and WPS in the UAE

Salary - image showing atm machine, cash and wallet

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There is a system called Wage Protection System (WPS) in the UAE, which requires salary transfer by bank transfer, and also these records go to the Ministry. If an organization is not compliant, that can cause a ban/suspension on them, which can prevent them from hiring employees and other penalties. Recently there is mention of real-time/upgraded technology digital WPS, which will make the tracking tighter.

Companies have been known to follow practices like give the full salary by WPS, and then recover a certain amount from the employee by other means like cash. This is illegal.     

Minimum Salary & Salary Range in the UAE

There is no minimum salary in the UAE, which is why for the same kind of role the salaries can range from very low to very high. However, the labour law does mention that there can be a resolution to provide for minimum wages for certain categories.

Salary surveys can be inaccurate, because they mostly check de crème de la crème and not the routine jobs. This can create dissatisfaction and misplaced salary asks amongst new entrants to the market, as well as anyone who hasn’t had enough exposure yet to the market. Hence these surveys should be taken with a pinch of salt.

Deduction of Wages in the UAE

Wages can be deducted only in the following scenarios, with the total to not exceed 50%:

 ·     Loan installment (without interest)

·       Redemption of amounts paid in excess, maximum of 20%

·       Contributions in retirement pensions, savings funds, welfare scheme, the like

·       Violations of the employee, which can’t exceed 5%

·       Pursuant to a judgement, not to exceed a quarter

·       To rectify the damage caused by the employee, as a result of his/her mistake or violation of the employer’s instructions, which led to the destruction, demolition or loss of tools, machines, products, etc. subject to a maximum of wage of (5) five days per month.

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