Author: Mansoor Sarwar, Regional Technical Director at Sage Middle East
For companies in the Middle East, specifically the UAE, payroll is one of the essential operations a business needs to carry out and prioritise every month. Legislations and laws that define the scope of payroll are updated and amended regularly, often with short notice. Failure to comply with these regulations can prove costly for businesses in the long term.
Typically, payroll also ensures that employers pay taxes on staff’s slaries. However, in the case of the UAE, employers are regulated by the UAE Labour Law and therefore are not obligated to pay a corporate tax.
What is payroll accounting?
Payroll accounting is the process of transaction of salaries, expenses, loans, bonuses and any over-time paid. Proper payroll accounting means you have a clear record of all information required by regulatory authorities, should they request it.
Payroll accounting also involves recording 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, if applicable
- Calculating any exemptions for employees as well as expense reimbursements
- Deducting any loan or advance salary repayments
What is 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, money exchanges and financial institutions.
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 the correct and timely wage payments.
WPS has benefits for both employees and employers: the former gets guaranteed protection of their wages, which builds greater trust and confidence. At the same time, 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 typical payslip format?
Although payslips can be laid out in different formats using different payslip templates, some fundamentals 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 employee is allocated a unique payroll number, often generated by the company’s payroll software.
- Loan and other deductions: If employees have taken loass or advance salary, which is due for repayment, usually payslips mention these as deductions
- Tax code: If you are entitled to pay taxes for any reason, you are assigned a unique tax code, which determines how much is deducted on each payday.
- Sick pay and other types of leave: Sick pay, annual leave and maternity/paternity leave may be itemised separately on your payslip.
- Pension contribution: In the UAE, employers are obliged to withhold 5 per cent 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 education allowances, housing, life and health insurance) may be identifiable on your payslip.
How can payroll software help?
Each business’s payroll process is different, depending on determining factors such as size and the roles they offer – whether those are provided by temporary, casual staff or full-time employees.
Although smaller businesses and startups may be able to get away with running payroll through spreadsheets and manually producing their employees’ payslips, this is hugely time-consuming. As a business grows, it is usually a lot more effective to use an automated system that eliminates arduous manual work.
By automating payroll processes, companies can save many hours of manual work, freeing up time to focus on growing their businesses and serving their customers. Payroll should not be a chore – it should be a seamless, error-free process that makes it simple to breeze through your pay run each month.
The key benefits of payroll software are:
- Compliance: The most cost-effective way for companies to ensure full compliance with payroll tax laws is to automate the payroll with modern software. Using spreadsheets and other manual systems is time-consuming and less accurate than automated software.
- Save time and money: Managing employee records, performing payroll calculations and issuing payslips can be a massive drain on your time if you’re using manual processes such as spreadsheets. An automated solution can calculate the complex formulas for the various statutory deductions and generate compliance reports with the click of a mouse. Automating can free up several hours of extra time a month you can use for more strategic initiatives.
- Scale for growth: As your business grows, along with the demands on your time, payroll processing will become more and more of a drag on your resources. Payroll software allows you to scale for growth. With some cloud solutions, you can pay per payslip per month and easily add more employees as you need to.
- 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 often keeps you alerted so that you don’t get caught out and can fully comply with the law.
- Automation: Payslips are automatically generated by payroll software, saving you a lot of time, and reducing the risk of manual error.
- Security: Payroll software is enabled to help you protect and safely record your employees’ confidential data without the risk of misuse or loss.
- Calculations: Instead of trying to add up employees’ overtime or annual bonuses manually, payroll software does this for you, without any likelihood of error.