This article delves into the nuances of basic salary in UAE labour law, exploring its definition, its relationship with allowances and deductions, its role in calculating annual leave and end-of-service gratuity, and the existence of a minimum wage.
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Table of Contents
Exploring the concept of basic salary in UAE labour law.
Basic salary refers to the remuneration agreed upon in the employment contract, exclusive of allowances, benefits, or expenses. It is the payment an employee receives in recognition of fulfilling their contractual obligations.
In the new UAE Labour Law (Article 1), the basic wage is defined as the remuneration specified in the employment contract, paid to the worker for his efforts under the employment agreement.
This payment can be on a monthly, weekly, daily, hourly, or piecework basis, excluding any other allowances or benefits in kind.
Commissions and Bonuses: Are They Part of Basic Salary?
The treatment of commissions and bonuses in basic salary is not explicitly defined in the old or new labour law. Therefore, their inclusion or exclusion primarily depends on the contract terms between the employer and employee.
However, according to legal experts at Younis Mohammed Al Blooshi, Labour Lawyer & Legal Consultant, the Dubai Court of Cassation clarifies this matter, stating that the salary includes everything given to the employee for the work performed, in cash or kind.
Therefore, any remuneration not classified as an allowance is considered a basic salary as long as it relates to the work performed.
Considering this, it is advisable for employers to clearly define the treatment of commissions and bonuses in their employment contracts.
Understanding the Interplay Between Basic Salary, Allowances, and Gross Salary.
As per the new labour law, the wage is defined as the sum of the basic wage and the cash allowances and benefits in kind allocated to the worker under the employment contract. Simply put, the wage (or salary) equals the basic salary plus benefits and allowances.
Allowances can encompass various aspects, including housing, transport, communication, and children’s school fees. The combined total of basic salary and allowances constitutes the gross salary per UAE labour law.
Specifying the applicable allowances in the employment contract is essential to avoid legal complications and disagreements.
The Role of Deductions in Determining Net Salary.
The net salary is derived from the gross salary by deducting certain items. As per Article 25 of the new Labour Law, the following deductions are permissible in the UAE:
- Recovery of loans granted to the worker, with the worker’s written consent and without interest.
- Recovery of the amount paid to the worker more than his/her entitlements provided that the deducted amount does not exceed twenty per cent of the wage.
- Contributions to schemes, pension plans, and insurance.
- Worker’s contributions to a savings fund, approved by the Ministry.
- Instalments for any social project or other benefits or services provided by the employer and approved by the Ministry, with the worker’s written agreement.
- Amounts deducted from the worker due to violations he/she commits, according to the regulation of penalties in force at the establishment and approved by the Ministry, provided that they shall not exceed five per cent of the wage.
- Debts due to a legal judgment.
- Amounts necessary to rectify damage(s) caused by the worker as a result of their mistake or violation of their employer’s instructions that led to the destruction, demolition or loss of tools, machines, products or materials owned by the employer, provided that the deducted amounts do not exceed the wage of five days per month.
The law also restricts all deductions to 50% of the gross salary.
Implications of Basic Salary for Annual Leave and End-of-Service Gratuity.
The basic salary in uae labour law not only forms the foundation for the net salary of a worker but also plays a pivotal role in calculating an employee’s annual leave and end-of-service gratuity.
Annual Leave.
As per UAE Labour Law (Article 26), full-time employees who have served for a year in your company are entitled to 30 days of paid annual leave.
Those who have worked for six months but less than a year are entitled to 2 days’ leave per month. The calculation of annual leave is based on the last full wage (gross salary) received by the employee, comprising both basic salary and allowances.
End-of-Service Gratuity.
The end-of-service gratuity, defined in Article 31 of the new labour law, is calculated based on the basic salary, excluding additional allowances.
Employees who have served for five years or more are entitled to 21 working days of basic salary for each year of service (up to the fifth year). They are entitled to 30 days of basic salary for years of service beyond the fifth year.
The treatment of commissions and bonuses becomes critical in this context. Suppose they form part of the basic salary. In that case, they must be included in the end-of-service gratuity calculation, provided they are part of the last salary received by the employee.
The new labour law also includes specific provisions regarding end-of-service gratuity:
- Partial years of service will be prorated.
- The end-of-service gratuity cannot be lost or reduced if an employee resigns or is laid off without notice.
- The total gratuity payable is capped at the employee’s two-year salary.
- The gratuity is payable to his family within ten days if a worker dies.
Is There a Minimum Wage in the UAE Labour Law?
No specific minimum wage is stipulated in the UAE labour law. Furthermore, there is no mentioned percentage for the basic or gross salary. However, it is a common practice for the basic salary to constitute 60% of the gross salary, with allowances making up the remaining 40%.
While there is no established minimum wage, the UAE labour law mandates that the wages must be adequate to meet the basic needs of employees.
Article 27 of the new law also provides a provision for the Cabinet to issue a resolution determining the minimum wage for workers or any category thereof, indicating the possibility of minimum wage legislation.
FAQs about basic salary in uae labour law.
Key Learnings.
- Basic salary is the compensation an employee receives based on his or her employment contract, excluding allowances and other benefits.
- Understanding the concept of basic salary in the UAE labour law is crucial as it forms the basis for the net salary of your employees.
- Basic salary also plays a significant role in determining an employee’s annual leave and end-of-service gratuity.
- The inclusion or exclusion of commissions and bonuses in the basic salary primarily depends on the employer.
- While there is no specific minimum wage in the UAE labour law, employers must pay their employees sufficient to meet their basic needs.
In legal matters, particularly those related to labour issues, it is always recommended to seek expert advice.
Younis Mohammed Al Blooshi, Labour Lawyer & Legal Consultant, is a trusted resource for labour cases in the UAE. With their expert knowledge and guidance, you can confidently navigate the complex world of labour law.
Contact the office of Younis Mohammed Al Blooshi via Whatsapp. Click here. Or visit us at our address: Sobha Ivory 1 – Al Amal St – Business Bay – Dubai. You can also call us on phone: 00971589984123.
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A legal consultant specializing in UAE labor law. He regularly publishes articles on the website and writes on various areas of UAE law, with a specific focus on labor law.