What Are the Most Common Payroll Challenges In UAE?

Payroll management is a key aspect of any UAE business. It improves employee engagement. It meets requirements for regulatory compliance. When payroll is inefficient, you run the risk of unsatisfied employees and government penalties. 

Payroll in the Emirates comes with its own set of complexities, including managing a highly diverse workforce with different contracts and, in some cases, benefits. 

Businesses that implement convenient, custom payroll solutions in the UAE are able to streamline their processes and address challenges.

To help you determine appropriate solutions, recognize the payroll issues your company is facing.

What Are The Major Challenges In Payroll Management? Payroll Challenges In UAE

Businesses face multiple types of challenges in managing payroll in the UAE. However, companies should determine the reasons behind the difficulties in payroll management. 

Identification of the problems, moreover, allows people to understand the crisis and the shortcomings. Here are some of the most common challenges to observe.

1. Inadequate Or Disorganized Records: Payroll Challenges In UAE

Payroll management has three stages: pre-payroll, payroll calculation, and post-calculation. 

Pre-payroll is a crucial stage because it’s when the payroll department gathers relevant data for the pay period. 

This list includes the following questions: 

How many hours did employees work? Are there adjustments to implement, such as pay increases? 

How many leaves or sick days were taken? Did the company use independent contractors?

Mistakes during this stage trickle down to other stages, creating all sorts of difficulties.

The payroll department not only needs to collect accurate information, but it also needs to ensure everything is organized. 

Adequate and organized records further ensure that submissions to the Wage Protection System (WPS) are accurate and devoid of errors.

The WPS is a central payroll processing system, and employers must comply with this system. 

Non-compliance can mean penalties from the Ministry of Human Resources and Emiratization (MOHRE).

What Are The Penalties?

• Failure to register for legal disbursement of salaries – fine of up to AED 5,000 per employee.
• Delay in salary payment – warning notice; suspension of new work permits.
• Non-payment of salary for over 60 days – minimum fine of AED 5,000 and maximum of AED 50,000 per employee; referral to Public Prosecution and probable closure of business.
• Incorrect or incomplete salary data – warning notice for initial offence; penalties for continual non-compliance.

Foreign exchange and worldwide remittance company Al Ansari Exchange recognizes the importance of compliance, which is why its payroll solutions have been developed to align with MOHRE regulations.

2. Incorrect Calculation Of Payments

UAE labor laws allow for deductions, but they limit those deductions to 20 percent of the employee’s gross salary.

 Employees must receive 80 percent of their gross salary as their net pay.

Errors with calculation can occur when there’s either too much or too little deduction. The employee could receive an overestimation or underestimation of their pay.

Incorrect calculation can also happen when the payroll department records a different gross pay than what is on the employee’s contract.

Employees who receive salaries that they didn’t agree to will be frustrated. Failure to address this error can lead to discontent and, potentially, resignation from the employee.

3. Delayed Payments

Employees rely on timely salary disbursements. Many will create budgets for daily expenses around payday, and late payments will mean problems with bills, rent, or loan repayments. If this happens often enough, it can affect productivity, erode trust, and ultimately, retention.

Delays can happen due to WPS issues, technical glitches, or poor cash flow. 

Overdue salaries not only affect employee morale, but they can also lead to penalties. The government considers 15 days after the payroll due date as a delayed payment.

As such, a business may be subject to penalties. Repeated delays can mean suspension of work permits and higher penalties.

If your business anticipates a delay, for any reason at all, communicate the issue with employees.

A timely notice about payroll interruption will allow your employees to adjust their budgets and plans accordingly.

4. Failure to Keep Up With Labor Regulations 

Labor laws in the UAE change every so often; it’s the government’s way of implementing continual improvements for businesses and employees.

Some examples include:

• New leave entitlements, such as maternity leave from 45 days to 60 days; compassionate leave for five days, parental leave for five days, and study leave for 10 days.
• Fixed-term contracts of up to three years replace unlimited-term contracts.
• Employees have a right to appeal disciplinary actions within 30 days
• MOHRE mandates a midday work ban for outdoor workers from 12:30 pm to 3 pm, beginning June 15 to September 15.
• Non-compliance with new labor laws leads to fines of AED 100,000 to AED 1 million.

Miscalculating leave entitlements, incorrect or incomplete benefits coverage, and misclassifying employees are other payroll challenges.

Payroll difficulties call for practical and timely solutions. Start by shifting from manual processes to digital or automated processes to eliminate human error. Ensure everyone in the payroll department has up-to-date and accurate knowledge of current labor laws. 

By addressing whatever challenges come, you protect your business from costly setbacks and retain talented, loyal employees. 

When your business runs an efficient, reliable, and compliant payroll process, the system will motivate the workforce, supporting growth and stability.

Wrapping It Up 

Non-compliance with payroll management leads to heavy penalties. Moreover, companies and organizations face massive challenges when they do not comply with the rules in the UAE. Hence, the businesses should take precautionary actions before it is too late.

The payroll system in the UAE is basically managed by WPS, which is also known as the Wage Protection System. 

People or businesses should seek professional help when they find difficulties in managing things by themselves. 

Frequently Asked Questions: Payroll Challenges In UAE

Here are the answers to some of the commonly asked questions related to Payroll Challenges in UAE.

Read Also:

• Tools Every Small Business Owner Needs For Streamlining Payroll
• Payroll Systems and Their Influence on Workplace Harmony
• What Are Payroll Services, How Do They Work?