The UAE’s Wage Protection System (WPS) Explained
With a rapidly growing economy and favourable tax environment, it is of little wonder that the UAE is a particularly attractive market to businesses from around the world. A throng of multi-national organisations have found expanding operations into the UAE very lucrative. The one thing they all have in common is their successful adaptation to local rules and regulations. Whether you elect to undertake payroll functions internally or prefer to use a professional payroll service provider, getting to grips with local mechanisms is essential to ensuring compliance and achieving organisational prosperity.
WHAT IS THE WAGE PROTECTION SYSTEM?
Introduced in 2009 (and updated in 2016), the purpose of the Wage Protection System—WPS for short—was to ensure all onshore companies paid their employees on time and in full. The UAE was the very first Middle Eastern country to set up such as system which is supported by the Central Bank of the UAE. Owing to its success in the UAE, the WPS system has since been rolled out across all Gulf Cooperation Council (GCC) countries.
All companies with staff physically in the UAE (UAE Establishment, LLC or branch) are legally mandated to register and pay staff through WPS. Registration to the program allows the Ministry of Human Resources and Emiratisation (MOHRE) to record private sector salaries and payments which, in turn, supports identification of employers who fail to correctly pay their staff. In this way, the system provides protection to private sector employees against late, or non-payment, of wages.
An exception applies to any company registered in the free zone. Such companies are not required to use the WPS since they are not required to be registered with MOHRE. Instead, those employees are eligible to work within the free zone and not within the UAE itself.
HOW TO ENROLL IN THE WAGE PROTECTION SYSTEM
Enrolment in the WPS is achieved through a few simple steps. If the company does not yet have an account with a UAE bank, it is required to open one. The company then enters a contract with any bank, bureau de change or financial institution approved and authorised by the Central Bank of the UAE to provide the service, wherein any service charges are agreed. The requirements for registration are as follows:
– Hold an account with a UAE bank
– Enter into a direct contract with a UAE bank, bureau de change, or financial institution authorised by the Central Bank to deliver the salary and wage payments
– Agree to meet payment deadlines as set out in Ministerial Resolution no. 788 of 2009 (amended by Ministerial Decree 739 of 2016)
– Transfer wages at least once a month, within 10 days of due date (or more frequently and on specified dates if stipulated in the worker’s contract)
– Meet any and all expenses associated with WPS, including bank charges or other institutional fees
THE STEPS TO CONDUCTING WAGE TRANSFERS
Once registered, the financial institution is then required to transfer employee wages via the Wage Protection System within two weeks of their due date (or by the date specified in the worker’s contract if paid more frequently than monthly). The employer is responsible for all expenses incurred in registering with the WPS and is prohibited from sharing costs with employees by any means. The wage transfer process is as follows:
– Wage transfer instructions are provided by the company to employees
– Wages are then transferred via WPS by the Ministerial Resolution deadline specifications
– The WPS sends employee details and wage information, along with salary transfer instructions to the Central Bank of the UAE electronically
– The Central Bank then forwards those details to the Ministry of Labour (MOHRE) database so as to ensure the details received correspond with those registered with the Ministry
– Once verified, the WPS will send the approved information to the company’s financial institution agent to have wages paid
WHAT ARE THE CONSEQUENCES OF NON-COMPLIANCE WITH THE WAGE PROTECTION SYSTEM?
According to the WPS’ terms of non-compliance, employers are considered late with payment if wages are not paid to the employee within 10 days from the due date (which is the next day of the end of the salary period). They are considered to have refused to make payment if wages are not paid to the employee within one month of the due date.
The consequences for companies who fail to comply is dependent on the number of employees. Companies with more than 100 employees failing to pay wages for a period exceeding 10 days will be subject to:
– Non-issuance of new work permits beginning on the 16th day from the date of delay
– Referral to judicial authorities for punitive measures if wages are delayed a month from due date
– Action applicable against all companies owned by the same proprietor
– Restriction of registering any new company
– Liquidation of employees’ bank guarantees
– Downgrading to third-category company
– Permission for workers to transfer to other companies
For companies of less than 100 employees failing to pay salary within 60 days of the due date, the potential consequences are as follows:
– A work permit ban
– A fine
– A court referral
However, even if a company of less than 100 employees commits a violation more than once in a single year, the consequences become the same as those for companies of over 100 employees.
There may also be fines for companies failing to submit the correct data in the WPS with the intention of evasion or circumvention, for failure to pay on the due date through the WPS, or for forcing employees to sign salary receipts when no salary was actually received.
THE ADVANTAGES OFFERED BY THE WAGE PROTECTION SYSTEM
Navigating the WPS process is neither particularly confusing or laborious. It simply exists to ensure every employee is paid in full and on time, as per the salary details registered in the MOHRE database. The WPS simply acts as an interface between the company’s bank account and its employees. Further, the WPS provides the following advantages:
– Streamlines the payroll and salary function
– Provides evidence of complete and on-time payment
– Promotes accountability, transparency and trust between employee and employer
– Safeguards employer interests, reducing the time and effort of paying wages
– Avoids the existence of handling large amounts of cash on premises
Essentially, the UAE’s Wage Protection System requires companies to pay employee wages via financial institutions approved and authorised to provide the service. Under the system, companies are required to submit wage information to the MOHRE so that it can monitor the accurate and timely payment of wages. The WPS safeguards both employer and employee interests by streamlining payroll systems and protecting staff against the late payment (or non-payment) of their salaries, respectively. While it may be a novel arrangement to any company unfamiliar with the processes, it is a fundamental requirement for conducting business in the UAE.
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