For companies in the Middle East, specifically the UAE, payroll is one of the most important operations a business needs to carry out and stay on top of. Legislations and laws that determine the meaning of payroll for Small and Medium Businesses are updated and amended rapidly, often with very short notice. Failure to comply with these regulations can cost a business in the long term.
What is payroll?
Payroll is the name of several activities that ensure that employees are paid the correct amount, on the correct date. It also helps businesses keep track of attendance, paid leave and other main calendar events such as national public holidays.
Typically, payroll also ensures that employers pay their taxes; however, in the case of the UAE, employers are regulated by the UAE Labour Law, and therefore are not obliged to pay a corporate income tax.
It is the duty of the business to keep its payroll systems up to date and well managed so that employees have full visibility and clarity over their earnings.
What is payroll accounting?
Payroll accounting is the process of transactions of salaries, expenses, bonuses and any over-time paid. Good payroll accounting will mean you have a clear record of all information required by government auditors, should they request it.
Payroll accounting also involves noting all payments in your general accounts ledger to ensure you balance your books.
Payroll accounting is typically done monthly, but it can also happen more (or less) frequently, and involves tasks such as:
- Recording all gross wages, salaries and bonuses;
- Deducting any taxes to be paid to authorities; and
- Calculating any exemptions for employees.
What is a Wage Protection System (WPS) in the UAE?
A Wage Protection System (WPS) is an electronic system and form of payroll management that allows employers to pay their employees via various methods, such as banks and bureau de change.
The system was implemented by the central bank of the UAE and is a form of regulation that protects employees and safeguards their monthly wages. It allows the Ministry of Labour to create a database that can monitor correct and timely wage payments.
The WPS has benefits for both employees and employers: the former gets guaranteed protection of their wages and, therefore, there is a greater trust gained; the latter can ensure the smooth running of their payroll and avoid any disputes or employee dissatisfaction that may arise from late payments.
What is a payslip?
Payslips are important documents for both employers and employees. Whether sent online as an e-payslip or delivered as a hard copy, all employees, regardless of their contract or hours have the right to a payslip. Payslips allow staff to see their monthly salary and gross pay, along with other personal details.
When handling payslips and during the payslip process, it is important that employers take time and care to ensure that their employees’ payslips are confidential to them.
A typical payslip format
Although payslips can be laid out in different ways using different payslip templates, there are some fundamentals that must be included:
- Gross pay: This is your initial pay before any tax has been deducted (this may be the final total in the case of the UAE).
- Net pay: If you have to pay a tax, you will see your net pay figure, which is the amount that you receive after tax is deducted.
- Payroll number: Every individual is allocated a unique payroll number, often generated by the company’s payroll software.
- Tax code: If you are entitled to pay any taxes for any reason, you will be assigned a unique tax code, which will determine how much is deducted each payday.
- Sick pay and other types of leave: Sick pay and maternity/paternity leave may be itemised separately on your payslip.
- Pension contribution: In the UAE, employers are obliged to withhold 5% of local employees’ salary as a pension contribution (this does not apply to foreign workers).
- Other benefits: Any bonuses, overtime or company perks (such as life and health insurance) may be identifiable on your payslip.
How can payroll software help?
Each business’s payroll process will be different, depending on determining factors such as size and the roles they offer – whether that be temporary, casual staff or full-time employees.
Although smaller businesses and start-ups may be able to get by with running payroll through spreadsheets and manually producing their employees’ payslips, this is hugely time consuming. As a business grows, it is normally a lot more effective to use an automated system that takes away arduous manual work.
Benefits of payroll software
- Synchronisation: Most payroll software can be linked to employees’ calendars so that annual leave and sick leave can be accounted for easily.
- Updates: If new laws are introduced that change tax regulations, your payroll system will often keep you alerted, so that you don’t get caught out and you fully comply with the law.
- Automation: Payslips will automatically be generated by your software, saving you a lot of time, and reducing the risk of error.
- Security: Payroll software is enabled to help you protect and safely record your employees’ confidential data without risk of misuse or loss.
- Calculations: Instead of trying to manually add up employees’ overtime or annual bonuses, payroll software will do this for you, without error.
If your company is growing, a modern payroll system can make the process a lot quicker and easier, for both yourself and your staff. Transparency on wages, bonuses and sick pay are all crucial for maintaining a smooth business and ensuring employees are satisfied.