If there is one thing that binds businesses to ensure they operate in a fair manner, upholding ethical practices, it is the statutory framework of a country. It is the anchor that guides an organisation to carry out its functions in a way that protects the rights of all its stakeholders, most importantly the human resources, partners, and suppliers.
It also has a crucial role in maintaining a market with healthy competition and limits the creation of a monopoly.
One distinctive factor about laws that affect businesses is they have a significant influence from the cultural, religious, and ethical values of a given community in a country.
As a result, while laws are centred on a common goal, they may differ from one country to another or, in some cases, within different states in the same country.
All organisational functions from its launch to market exit are governed and exposed to statutory compliance. WPS (Wage Protection System) is an initiative introduced by the UAE that affects an organisation’s payroll function.
The primary goal behind WPS is to ensure a fair and transparent payroll accounting process that preserves the rights of employees with timely, accurate payments and gives them the confidence of a transparent employer relationship.
This article will provide a simple breakdown of what is WPS in UAE and how it impacts payroll.
The Evolution of WPS (Wage Protection System)
The Wages Protection System UAE was introduced in July 2009 with Ministerial Decree No 788 with the primary motive of addressing the common challenges the human resources of organisations were facing due to incorrect wage payments, delaying payments, and using offshore accounts to avoid payments.
These unfair practices had a major impact on the employer-employee relationship and led to a negative perception of the country’s labour market altogether.
WPS was initiated by the Ministry of Human Resources Emiratization (MoHRE), together with the Central Bank of UAE, to focus on solving the recurrence of these issues.
Over the years, this system has been refined with new regulations to enhance its effectiveness, such as the Ministerial Decree No. 739 of 2016 and further updates in 2019 and 2022.
All the improvements enacted till now have played a crucial role in ensuring the system stays strong and embraces the demands and dynamics of the labour market.
What is WPS (Wage Protection System) in UAE
In a nutshell, WPS is an advanced electronic salary transfer system that protects the pay rights of employees working in the UAE.
It ensures that employers are disciplined and paid in a timely manner for their human resources and are not subject to any unjust, unfair, or unethical payroll practices that are controversial to an employment contract.
WPS has a dedicated database where employers in UAE are required to upload the salary details of their employees for MoHRE and Central Bank to validate this information.
How Does WPS Impact Payroll?
Any organisation registered to operate in the UAE must comply with the WPS system and its obligations. In the words of the legislation, “all establishments registered with the Ministry,”. This means that all private sector employers in the UAE (aside from those in the free zones) must implement WPS and comply with its framework.
Along with other financial institutions, it is required to enrol new hires into the system within the first few months of employment, assuring immediate protection to their human resources under the WPS system.
Registration for the WPS is done through MOHRE website, requiring a corporate bank account and an agreement with a WPS agent who is responsible for the transfer of funds.
Organisations or employers should compile and submit a SIF (Salary Information File) with all the required information and payroll data for review by the MOHRE.
Once the SIF is approved, the employer instructs the WPS agent to proceed with disbursing salaries. Employers are also highly recommended to use customised payroll management software to facilitate and simplify compliance with the WPS regulations and avoid sensitive errors that can result in penalties.
Any organisation that is not registered with the WPS system will be subject to penalties and fines. Only certain groups are exempt from the WPS.
This includes employees embroiled in wage disputes, those absent without holidays, new joiners within their first month, and employees on unpaid leave. Besides this, certain employers, including UAE nationals with specific business operations, are not covered under the WPS obligation.
Some other recognised exceptions are:
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Fishing boats owned by nationals
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Public taxis owned by nationals
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Banks
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Houses of worship
Integrating WPS with Payroll Accounting
According to the WPS system, salaries should be disbursed by the day following the date stipulated in the employment agreement. This highlights the primary motive behind the system, which is punctuality in wage distribution.
Additionally, a minimum of 90% of the workforce must receive their pay within the specified pay period each month.
A threshold is also set for salary payments, with employers obligated to pay at least 80% of an employee’s wage in any given month. This feature allows for certain permissible deductions that must be documented to ensure fairness.
What to Expect with Non-Compliance
Grace Period
Employers have a 30-day grace period from the start of an employee’s contract to register them with the WPS. This grace period gives employers enough time to ensure they are compliant with the WPS system’s expectations and requirements.
Payment Delays
Anyone trying to understand what WPS is in UAE should acknowledge that failing to pay employees on time results in expensive penalties and fines. The exact amount depends on the size of the organisation.
Organisations that manage 100 or more human resources will have to face the following if they fail to pay their employees their wages within ten days of their due payroll date specified in the contract.
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If the organisation reaches the 16th date of delay in releasing the wages of employees, they will no longer be eligible to get any work permits.
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The employer cannot issue any other new company.
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The organisation will be downgraded to the third category.
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Workers will be allowed to leave and move.
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MoHRE has the right to take action against all the other sister companies owned by the defaulting employer.
Other Forms of Non-Compliance
Any organisation that intentionally provides inaccurate information to evade salaries will face a fine of up to AED 5,000 for every affected worker, and this fine can go up to AED 50,000 for multiple employees affected.
Non-compliance with WPS can also result in severe repercussions, including prohibitions on work permits, legal action, monetary fines, and the potential forfeiture of bank guarantees.
Investing in the Right Payroll System
Understanding everything about what is WPS in UAE is crucial for organisations to ensure their payroll process is compliant with the legal frameworks of the country.
As WPS compliance comes with an inevitable time restriction to ensure the timely payment of wages, automation of the payroll processes or going digital is highly recommended.
Similarly, investing in a customised payroll solution by BSH, or outsourcing this function altogether can simplify compliance and many other areas of payroll management for the organisation.
It saves time, is cost-effective, and can help in rerouting time and human resources to other areas of business growth that require human skills.
Most importantly, this investment can help an organisation’s payroll avoid committing sensitive errors that can add up to the burden of non-compliance, alongside keeping up with the WPS mandate.
