Operating a business in the UAE entails a range of legal obligations, including licensing, taxation, and employer responsibilities, with payroll management being one of the most critical. To avoid regulatory penalties, UAE companies must comply with Labour laws by processing salaries accurately in line with the Wage Protection System (WPS) and calculating end-of-service gratuity correctly.
With the introduction of UAE Corporate Tax, businesses must ensure that their payroll & end of service gratuity processes are not only compliant with UAE Labour Law, but also properly documented and reported as part of their deductible business expenses in taxable financial records.
This article outlines the current regulatory requirements, critical payroll considerations, and practical steps businesses should take to calculate the payroll and end of service gratuity process with accuracy and control.
Payroll in the UAE: More Than Just Salary Disbursement
Payroll preparation in the UAE involves the calculation and payment of employee salaries in accordance with labour regulations, Wage Protection System (WPS) requirements, and alignment with corporate tax documentation standards. Businesses must ensure the following are incorporated into their payroll operations:
- Accurate calculation of salary, allowances, and deductions
- Integration of leave and overtime
- Timely submissions through WPS
- Recordkeeping for MOHRE audit and tax compliance
Key Payroll Elements
Under UAE legislation, salary structures for most employees typically include various components that significantly impact payroll processing and end of service benefit obligations. These include:
- Basic Salary
- Allowances (housing, transport, mobile, etc.)
- Overtime & Bonuses
- Unpaid Leave & Deductions
- Gratuity Accruals
- End-of-Service Entitlements
Legal Foundations for Payroll and End of Service Gratuity Compliance in the UAE
Payroll management in the UAE is governed primarily by Cabinet Resolution No. 1 of 2022 and Federal Decree-Law No. 33 of 2021, which regulate employee compensation and payment systems. Central to this framework is the Wage Protection System; a government-mandated electronic salary transfer platform developed by the Ministry of Human Resources and Emiratisation (MOHRE) in collaboration with the UAE Central Bank.
To comply with WPS regulations, employers must adhere to the following requirements:
- Register with MOHRE and the WPS platform.
- Maintain a compliant payroll system capable of generating Salary Information Files (SIF).
- Pay monthly salaries on or before the due date through WPS-approved banks.
Non-compliance with these mandates may result in significant consequences, including:
- Suspension of new work permit approvals.
- Financial penalties.
- Inclusion on MOHRE’s enforcement list.
- Damage to company reputation and employee relations.
By proactively managing payroll in line with WPS regulations, businesses reduce the risk of enforcement action and ensure consistent payroll compliance.
How Is Gratuity Calculated, and What Key Factors Should Employers Consider?
Under UAE Labour regulations, end of service gratuity is payable to employees who have completed at least one year of continuous service.
The gratuity amount depends on the employee’s basic salary and duration of service, with specific rules applied as follows:
| Years of Service | Entitlement Per Year | Notes |
| 1–5 Years | 21 days of basic wage per year | Pro-rata for partial years |
| 5+ Years | 30 days of basic wage per year | Applies only for years beyond 5 |
| Cap | Maximum of 2 years’ wages | Limits employer’s liability |
Proper calculation and accrual of gratuity reduces financial uncertainty and ensures compliance with legal obligations.
Payroll and End of Service Gratuity Under UAE Corporate Tax Framework
With the rollout of Federal Corporate Tax at 9%, UAE companies must maintain proper accounting records and include employee compensation and gratuity expenses in their tax filings.
How Payroll Affects Corporate Tax:
- Tax Deductibility:
Salaries, bonuses, and end of service gratuity payments are generally tax-deductible expenses, provided they are:
- Wholly and exclusively incurred for the business purposes
- Properly documented and approved
- Paid to employees actively working in the business
- Provisioning and Accruals:
Gratuity obligations should be reflected annually as liabilities in the balance sheet. Year-end accruals should be supported by clear calculations and employment contracts.
- Audit Trail:
Authorities may require proof of:
- Employment contracts
- Salary breakdowns
- WPS payments
- Leave records
- End of service calculations
Failing to document payroll properly could lead to disallowed deductions, tax reassessments, or even penalties during a tax audit.
Common Payroll & End of Service Gratuity Mistakes That Affect Tax Filing
Many businesses still rely on spreadsheets or disconnected HR systems, leading to errors such as:
- Incorrect or missing WPS submissions
- Unrecorded gratuity liabilities
- Non-compliant leave or overtime calculations
- Failure to segregate allowances vs. basic salary, affecting gratuity and tax
- Misclassification of bonuses or freelance payments
These gaps can trigger payroll disputes and lead to non-compliant tax filings.
What Documentation Must Be Retained to Meet Compliance Requirements?
Retaining employee records is essential for audit preparation and legal compliance. Minimum recommended retention periods include:
- Pay slips: 4 years
- Time and attendance records: 3 years
- Employment contracts: 3 years
- Termination records: 3 years
- Leave records: 3 years
- WPS files and bank payment confirmations: According to internal payroll policies
Adopting digital record-keeping solutions can improve data retrieval, audit preparation, and security, particularly for organisations managing large or remote workforces.
How SimplySolved Simplifies Payroll, Gratuity & Corporate Tax Compliance
SimplySolved offers UAE MOHRE compliant HRM & Payroll services tailored to UAE business requirements, bridging the gap between payroll, legal compliance, and corporate tax reporting.
Compliant Payroll Processing
Our payroll service is underpinned by best-in-class platform that automates salary calculations, WPS submissions, payslip generation, and leave/overtime integration. This ensures you remain compliant with both Labour Law and WPS mandates.
Gratuity Automation & Liability Tracking
SimplySolved calculates and accrues end of service gratuity for each employee based on start dates, basic salary, and contract type helping you manage long-term liabilities in line with corporate tax provisioning.
Real-Time Financial Integration
Our service integrates directly with accounting and tax reporting workflows, allowing payroll and gratuity data to be reflected in your financials, thereby making tax deduction claims more accurate and prepared for external audit.
HR Policy Documentation & Recordkeeping
From onboarding to exit, we ensure proper documentation for:
- Employment contracts
- Leave approvals
- Salary structure
- Gratuity statements
- WPS files
This approach minimizes audit risk and provides a complete compliance trail.
If you’re looking to structure tax-deductible employee benefits or align your payroll with free zone or mainland compliance rules, our team provides advisory support to help you implement compliant and tax-efficient strategies.
About SimplySolved
Our business wants to reduce costs in HR Management to review constantly changing regulations and manage required HR documents and payroll processes; implementing a streamlined process, and automation delivers substantial benefits.
Designed to the UAE Regulation and WPS support, our best-in-class UAE-designed service will streamline and automate HR and Payroll business processes and assure accurate payment of wages and compliance with the regulations.
SimplySolved’s comprehensive HR and Payroll Service will transform your HRM to reduce costs, improve compliance and ensure you remain with the legislation with minimal impact.
Contact us today for more information!
