Salary or compensation is a key factor in employee recruitment and retention. A timely and accurate payroll process also significantly influences employee satisfaction and engagement.
Especially in a country like the UAE, regulated by the WPS (Wage Protection System) to uplift the rights of employees and prevent unfair practices against labour law, effective salary management is not just important but essential.
The foundation for establishing a productive payroll management system is a comprehensive understanding of the salary slip format in the UAE, its structure, and the laws regulating it.
What components are added to an employee’s salary, which types of deductions are made, and how allowances are calculated are crucial in determining the net salary an employee takes home every pay cycle.
Salary slips or payslips give the payroll department of a company a clear insight into the firm’s financial standing and how much it is spending on human capital management.
This article will give a simple breakdown of the salary slip format in the UAE and what a payslip should include so payroll managers know what each section represents.
By thoroughly understanding each component, they can ensure compliance with local labour laws, maintain transparency with employees, and confidently manage payroll operations with precision and accuracy.
What Is a Salary Slip
A salary slip, also known as a payslip, is a document provided by the employer to employees, giving a clear breakdown of their salary for a given period of time, depending on the type of employment in the company.
Generally, a payslip format in the UAE and worldwide includes components such as basic pay, allowances, deductions, and net pay. It serves as a record of payment for employees and helps employers maintain an accurate and efficient payroll management system.
Employees can consider it a monthly report showing their earnings and take-home salary. It helps them understand the company’s benefits and reduce payroll disputes.
On the other hand, for employers, salary slips enhance transparency in their payroll process and build trust with the employees, reducing turnover rates influenced by poor salary management practices.
Salary slips also demonstrate the company’s commitment to a fair and ethical culture, fostering a positive work environment where employees feel valued and well-informed about their compensation.
Legal Requirements in the UAE For Salary Slip
In many parts of the world, it is a legal mandate for employers to provide their employees with an approved salary slip format within their pay cycle. This format specifies all the necessary information on what a payslip should include.
In the event an employer fails to comply with these laws, it can result in heavy fines, court appearances, and even lead to receiving an infringement notice for the company.
In contrast, it is not legally mandatory for employers to issue a physical or digital salary slip format in the UAE for each payroll cycle, unless specified in the employment contract.
However, providing a salary slip is considered a best practice for transparency and compliance, as it aligns with some of the requirements set by the Ministry of Human Resources and Emiratisation (MOHRE) and the standards of the Wage Protection System (WPS).
Employees Can Request Payslips From Employers
While it is not mandatory by law to issue payslips, employees can ask for them as proof of their income and deductions. Companies must provide salary slips, including printed versions if employees request them.
However, if the request remains unresolved, and an employee has not received their entitled payslip for over two months, they can submit a claim or file a labour complaint with the Ministry of Human Resources and Emiratisation (MOHRE).
WPS & Salary Transfer File (SIF) In The UAE
The UAE has a WPS (Wage Protection System), which requires all private-sector companies to release payments through approved financial institutions to monitor timely and accurate payroll.
It also requires companies to transfer salaries on a specified deadline, no later than 10 days after the end of the payment cycle. Unless otherwise specified in the contract, companies typically pay their employees once every 14 days. Failing to comply with this deadline can lead to fines, penalties, and potential restrictions on business operations until the issue is resolved.
Although the WPS does not mandate a salary slip format in the UAE, it encourages a structured payroll process that includes detailed records of payments, which a simple payslip includes.
This is because the Ministry of Labour instructs companies to maintain a Salary Transfer File (SIF) to comply with WPS when running a payroll system in the country.
The SIF is a comprehensive and updated employee file that includes details like the basic salary of different employee categories, contact details, allowance types, gross salary, net pay, and, more importantly, the type of deductions made from the employee’s salary.
This includes both mandatory deductions like court orders, violations, fines, and child support and voluntary deductions such as health insurance contributions, donations, and certification deductions. As per the legislation relating to WPS, mandatory payroll deductions must be indicated in payslips format in the UAE.
Issuing payslips allows both the employer and employee to have a documented history of payroll records, earnings, and deductions, which helps solve misunderstandings and, most importantly, protect against potential legal issues.
Components of the Payslip in the UAE
Employee ID
The accepted payslip format in the UAE should have a unique employee ID. The company’s payroll system usually creates this number to keep records of its employees.
Employee identification numbers are always unique and are one of the key components of what a payslip should include.
As a standard format, companies in the UAE employ the initial two characters for the company’s initials, the next two for the year, and the final two for the employee number.
Payroll Processing Details
According to the regulations covering the WPS system in the UAE, private sector organisations should pay employees’ salaries via banks, authorized financial firms, and the Bureau de Change. The IBAN (International Bank Account Number) is typically issued to banks and companies registered under the Wage Protection System (WPS) in the UAE.
The IBAN is used to identify and facilitate salary transfers through the WPS to employees’ bank accounts, ensuring accurate processing and compliance with UAE labour regulations.
Payroll processing details should include bank name, account information, and the IBAN (International Bank Account Number). This number is composed of 23 characters, which form a two-letter country code, a two-digit check number, a three-character bank code, and a sixteen-digit bank account number.
Knowing this information is crucial for following a proper payslip format in the UAE.
Company Details
This is another important component of what a payslip should include. The company name, address, and the fortnight or month the salary slips are prepared are details that need to be filled in here.
Company Tax Code
Companies that are required to pay any form of tax are assigned a unique tax code. This code usually refers to the amount deducted from each paycheck. In the UAE, businesses will also have to withhold 5% of local employee wages as a pension contribution. This doesn’t apply to foreign workers.
Employee Attendance
A payslip format in the UAE should include the payable days of employees. If an employee has not taken any holidays, the total number of days worked should be listed. If holidays are taken, they should be subtracted from working days and offset with allowed leaves. Sick pay, pregnancy, or paternity leave should be separately mentioned on the payslip.
Basic Salary
This component in a salary slip format in the UAE refers to a fixed portion of an employee’s compensation before any other elements, such as allowances or bonuses, are added and deductions in the form of tax and unpaid leave are made. It is the basic salary to which other salary components like house rent allowance (HRA), medical allowances, and benefits are calculated.
Basic salary is calculated as a certain percentage of the total gross salary, and it also forms the primary basis for calculating end-of-service benefits in countries like the UAE.
In many companies, it ranges from 40% to 60% of the gross salary, depending on the organisation’s pay structure and regional guidelines.
Basic Salary=Gross Salary×Basic Salary Percentage
Allowances
Allowances are additional financial benefits provided by employers to employees on top of their basic salary. Common types of allowances included in a payslip format in the UAE range from housing, medical, travel, conveyance, and other special allowances. These allowances are included in the gross salary and help cover specific expenses incurred by employees.
Deductions
These are components in a salary slip format that are deducted from an employee’s gross salary. It affects their net pay or take-home salary. Some of the common deductions are taxes, social security contributions, health insurance, unpaid leave, and loan repayments.
Overtime and Bonuses
In the UAE, overtime refers to hours worked beyond the standard 48-hour workweek. Employees are entitled to 1.25 times their regular hourly wage for the first two hours of overtime and 1.5 times for additional hours. Overtime must be approved by management, and labour laws regulate its application.
In a payslip, overtime is typically reflected as a separate line item, indicating the number of overtime hours worked and the corresponding payment calculated at the applicable overtime rate.
On the other hand, bonuses in the UAE are often performance-based rewards provided to employees, typically paid annually or at the end of a project. While these are not mandatory and depend on company policy, they enhance employee engagement, motivation, and retention.
Bonuses are also listed as a distinct entry detailing the amount paid for that period, whether it’s performance-based or annual.
Both overtime and bonuses are added to the gross salary calculation, affecting the net pay.
Net Salary
The net salary represents the amount an employee takes home after adding overtime and bonuses into the gross salary and deducting necessary expenses, such as taxes, unpaid leave, and contributions. This final figure reflects the actual earnings available for personal use and should be detailed in the payslip.
Good To Know
Depending on the company, some companies may include cost to company (CTS) as an important component of what a payslip should include. This is the total amount an employer spends on an employee, which includes basic salary, allowances, bonuses, benefits, and other contributions.
In other words, it represents the full employment cost, but this is not always listed or detailed in a salary slip. However, some organisations may list it at the bottom of the payslip format in UAE to show the complete package, encouraging transparency among employees.
How to Calculate Employee Salary
Here is a simple example of how to calculate employee salaries by incorporating key components of a salary slip format in the UAE.
Formula for Calculating Salary
Salary = Basic Salary + Allowances + Bonuses – Deductions
Why It Is Important to Know How to Read Your Salary Slip
As we acknowledge the importance of understanding the payslip format in the UAE for employers, it is equally essential for employees to understand it.
Familarising oneself with the components on what a payslip should include, helps employees to verify their earnings, deductions, and other details that reflect their actual employment terms.
Here are two key reasons why knowing how to read your salary slip as an employee is important.
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Accuracy Check
Understanding your salary slip allows employees to confidently verify that their earnings and deductions are accurate. For instance, if an employee’s gross salary is stated as AED 10,000 but the total earnings are incorrectly calculated as AED 9,500, recognizing this discrepancy helps them get paid accurately as per employment contracts.
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Common Errors
Familiarising oneself with the salary slip format in the UAE can also help spot common errors, such as miscalculated overtime pay or incorrect deductions. For example, if an employee notices that the overtime hours are listed as 5 instead of 10, they can promptly address the issue with the employer to receive the correct compensation.
When employees understand how to read their salary slips, employers can significantly reduce misunderstandings and payroll-related inquiries. This transparency promotes trust and accountability within the organisation.
In the long-run this improves employee satisfaction and retention, as staff feel valued when they have less concerns with the company’s payroll compliance.
What to Do if You Find an Error in Your Payslip
When employees find an error in their payslips, they should take the following steps:
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Review the Payslip
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Gather Documentation
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Notify HR or the Payroll Department
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Explain the Issue
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Follow Up
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Request a Correction Until Resolved
FAQs on Payslips for Employers and Employees
What is the difference between a salary statement and a salary slip?
A salary slip is a detailed breakdown of the payment made to an employee every payment cycle. It includes employee earnings, allowances added, and deductions made to calculate an employee’s wage for a given period. On the other hand, a salary certificate is a document of proof that shows an employee’s employment status and salary details. Both are issued by the employer.
What is YTD in a payslip?
Year-to-date (YTD) in a payslip refers to the amount a company has spent or incurred on payroll since the start of the financial year ((whether calendar year or fiscal year) up until the current payroll period. It is calculated based on the employees’ gross incomes.
What is the salary structure in UAE?
The salary structure in the UAE can vary significantly based on industry, company size, and the employee’s role and experience. However, it generally consists of several key components:
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Basic Salary: This is the fixed portion of an employee’s pay, typically ranging from 40% to 60%
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Allowances: Housing, transportation, medical, and other special allowances.
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Bonuses: Performance-based bonus during year-end or at the completion of special projects.
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Overtime Pay: For hours worked beyond the standard 48-hour workweek
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Deductions: Taxes, health insurance premiums, and loan repayments.
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End-of-Service Benefits: According to UAE labour law, employees are entitled to a gratuity payment upon leaving the company based on their length of service and final basic salary.
How to calculate basic salary in UAE?
To calculate the basic salary in the UAE there should be a clear understanding of the pay structure, and the percentage of the gross salary that is allocated to the basic salary. Here is how it is done.
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Determine Total Gross Salary: This includes the basic salary, allowances, bonuses, and any other compensations.
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Identify Basic Salary Percentage: Typically, the basic salary accounts for 40% to 60% of the total gross salary.
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Calculate Basic Salary:
Basic Salary=Total Gross Salary×Basic Salary Percentage
Example:
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Total Gross Salary: AED 12,000
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Basic Salary Percentage: 50%
Basic Salary=12,000×0.50=6,000
What is proof of salary in UAE?
While proof of salary and salary certificates are often used interchangeably in casual conversations, they are not the same. Proof of salary is a much broader term that verifies an employee’s source of income. This can include salary slips (payslips), bank statements showing salary deposits, or tax returns. Unlike a salary certificate, it may not have the formal endorsement of the employer, especially in the context of bank statements.
