Salary Structure: Basic vs Allowances
UAE employment contracts typically split total salary into a basic salary and a set of allowances, most commonly housing, transport and other allowances. This split matters because gratuity, overtime and several other calculations are based on the basic salary, not the total package.
As a market practice, basic salary is often structured at 40-60% of the total monthly salary, though there is no fixed statutory percentage under the law itself — it is whatever is agreed and stated in the employment contract registered with the Ministry of Human Resources and Emiratisation (MOHRE).
| Component | Typical Share of Total | Used For |
|---|---|---|
| Basic salary | 40% – 60% | Gratuity, overtime rate calculations |
| Housing allowance | 20% – 30% | Part of total remuneration |
| Transport & other allowances | 10% – 20% | Part of total remuneration |
Keeping payroll structured correctly from day one avoids disputes at the end of employment. Our payroll management service sets up compliant salary structures and WPS files for businesses of every size.
WPS and the Salary Information File (SIF)
The Wages Protection System (WPS) is a mandatory electronic salary transfer system that requires most private-sector employers in the UAE to pay employee wages through approved banks or exchange houses, and to report each payment to the Ministry via a Salary Information File (SIF).
Employers generate a SIF each pay cycle, listing each employee's basic salary, allowances, deductions and net pay, and transmit it through their bank. Salaries must generally be paid within 15 days of the due date defined in the employment contract (usually monthly).
- WPS applies to nearly all mainland and many free zone establishments registered with MOHRE.
- Delays or non-payment through WPS trigger automated non-compliance flags and can block new work permit issuance.
- Accurate SIF data also feeds into gratuity and leave salary calculations at the end of employment.
Gratuity Calculation Under Federal Decree-Law No. 33 of 2021
End-of-service gratuity is a statutory benefit for employees who complete at least one year of continuous service. It is calculated on the basic salary only (excluding allowances), based on the employee's length of service.
- First 5 years of service: 21 days of basic salary for each year.
- Beyond 5 years of service: 30 days of basic salary for each additional year.
- Total gratuity is capped at 2 years' total salary (basic salary equivalent).
- Employees who resign before completing one year of service are not entitled to gratuity.
The daily wage used in the calculation is the basic salary divided by 30 (a standard 30-day month), regardless of the actual number of calendar days in that month.
| Years of Service | Gratuity Formula |
|---|---|
| Less than 1 year | No gratuity entitlement |
| 1 – 5 years | (Basic salary / 30) x 21 x years of service |
| More than 5 years | 21 days/year for first 5 years + 30 days/year for each year after |
Run your own numbers on the gratuity calculator, which applies the 21/30-day formula and the 2-year salary cap automatically.
Limited (Fixed-Term) Contracts and Gratuity
Since the 2022 labour reforms, all UAE employment contracts must be limited (fixed-term), with a maximum duration of 3 years, renewable by mutual agreement. The old 'unlimited contract' category no longer applies to new contracts, though gratuity entitlement rules remain based purely on length of service and reason for termination, not contract type.
Gratuity is generally payable in full regardless of whether the employer or employee ends the contract, as long as the one-year minimum service is met, except in cases of termination for gross misconduct under Article 44 of the labour law, where gratuity may be forfeited.
Employees who resign are entitled to full gratuity for completed years of service under the current law, unlike the previous regime which reduced gratuity for early resignation under unlimited contracts.
Worked Gratuity Example in AED
Example: An employee in Dubai has a basic salary of AED 9,000/month and completes 7 years of continuous service before resigning.
- First 5 years: (9,000 / 30) x 21 x 5 = AED 300 x 21 x 5 = AED 31,500.
- Remaining 2 years: (9,000 / 30) x 30 x 2 = AED 300 x 30 x 2 = AED 18,000.
- Total gratuity = AED 31,500 + AED 18,000 = AED 49,500.
This total is well within the 2-year salary cap (2 x AED 9,000 x 12 = AED 216,000), so the full AED 49,500 is payable. Confirm your figure using the gratuity calculator, and check total payroll cost impact using the payroll calculator.
Leave Salary and Overtime
Employees who complete at least one year of service are entitled to 30 calendar days of paid annual leave. Leave salary is calculated on the basic salary plus any allowances specified in the contract as leave-inclusive, and unused leave on termination is paid out on the same daily wage basis used for gratuity.
Overtime applies to employees required to work beyond normal daily hours (typically 8 hours/day or 48 hours/week). Standard overtime is paid at 125% of the normal hourly wage, rising to 150% for hours worked between 10pm and 4am, unless the employee already works a night shift by default.
| Overtime Type | Rate |
|---|---|
| Standard overtime (daytime) | 125% of hourly wage |
| Night overtime (10pm–4am) | 150% of hourly wage |
| Work on a rest day (with a day off in lieu) | 150% of hourly wage |
Full End-of-Service Settlement Checklist
When an employee leaves a UAE company, the final settlement must be paid within 14 days of the last working day and typically includes several components beyond gratuity.
- 1Outstanding basic salary and allowances up to the last working day.
- 2Payment in lieu of any unused annual leave days.
- 3End-of-service gratuity calculated on basic salary and length of service.
- 4Repatriation costs, if specified in the employment contract.
- 5Reimbursement of any approved outstanding business expenses.
Getting each component right avoids MOHRE labour disputes. Our payroll management service prepares full and final settlement calculations and WPS-compliant final payments for employers across Dubai, Abu Dhabi and Sharjah.
Employer Obligations and WPS Penalties
Employers must register with WPS, pay salaries on time through approved channels, and maintain accurate records of basic salary, allowances and deductions for each employee, in addition to standard corporate and VAT record-keeping obligations.
| Violation | Consequence |
|---|---|
| Failure to pay wages via WPS | Suspension of new work permits; fines per delayed employee |
| Salaries delayed beyond 15 days | Company flagged as non-compliant; escalating fines |
| Non-payment of gratuity/final settlement | MOHRE labour complaint; potential court enforcement |
| Repeated non-compliance | Downgrading of company classification, restricting future work permits |
Outsourcing payroll ensures WPS files are submitted correctly and on time every cycle. See our payroll management service for monthly WPS processing, and financial reporting to keep payroll costs reflected accurately in your books.
How to Use the Payroll & Gratuity Calculator
Our payroll calculator and gratuity calculator let you model both monthly payroll costs and end-of-service liabilities in one place.
- 1Enter the employee's basic salary and total monthly allowances.
- 2Enter years and months of continuous service for gratuity estimation.
- 3Select the reason for leaving (resignation or termination) if relevant to your policy.
- 4Review the estimated monthly net pay, overtime rates, and total gratuity payable.
- 5Cross-check total workforce cost impact against your corporate tax profit using the corporate tax calculator.
For payroll covering multiple employees or complex allowance structures, our payroll management team can run full WPS-compliant payroll on your behalf.