08 Nov 2016 SAFEGUARDING THE PAYMENT OF EMPLOYEE WAGES ON TIME
Update for employers with regard to the proper payment of wages under the current UAE Employment Law regime
Further to the United Arab Emirates (“UAE”)’s commitment towards protecting and ensuring employee and worker rights in the country, the Minister of Human Resources & Emiratisation (formerly the Ministry of Labor)(the “Ministry”) issued Ministerial Decree No. 739/2016 on the Protection of Wages (the “Decree”). The Decree, while it does not amend the UAE Labor Law, was issued in order to ensure that employers pay the wages of their employees on time, within a period of ten (10) days from the due date as registered with the wage protection system (“WPS”).
OVERVIEW OF THE DECREE
The Decree became effective on 3 October 2016, and repeals Ministerial Decision No. 788/2009 on the Protection of Wages and any other inconsistent term provided for under other decrees or decisions.
The Decree states that all companies registered with the Ministry must pay employees’ wages no later than ten (10) days from the date on which such wages are due, as registered on WPS, and these payments must be paid through WPS itself. Employees’ wages are considered due starting from the date following that which is set out in the employment contract. Alternatively, if such date is not set out in the employment contract, then wages must be paid at least once every two (2) weeks.
BRIEF BACKGROUND OF WPS
To provide a brief background, WPS is an electronic salary transfer system, established in 2009 in the UAE, which allows companies to pay employee wages through banks, money exchanges, and financial institutions which have been approved and thereby authorized to provide these payment services.
Furthermore, the WPS system provides the Ministry with a database of all recorded wage payments in the private sector, in order to ensure the proper and timely payment of employee wages.
KEY PROVISIONS OF THE DECREE
Article 2 of the Decree states the key requirements with regard to the provision of protection of wages, depending upon the number of employees of a company:
Companies with one hundred (100) employees or more
If the Ministry is sure that an establishment with one hundred (100) employees or more has delayed the payment of employee wages for ten (10) days from the due date, the following actions will be taken:
- (i) Informing the establishment that no permits will be issued as of the 16th day of the delay in payment;
- As of the sixteenth 16th day, the establishment shall be suspended, and given notice that:
- In the event that the establishment continues with late payment until the end of the month, then from the subsequent month, the following actions will be taken:
- The judicial (and any other relevant) bodies will be informed to take precautionary and punitive procedures against the party causing the delay;
- Suspension of the establishment will be extended to all establishments of the employer as per Ministerial Decision No. 703/ 2013 on Suspension of Establishments of the Employer, and disregarding the terms and procedures regarding notice contained therein.
- Prohibition (i.e. ban) of registration of any new establishments of the employer, who owns the violating establishment, with the Ministry.
- Procedures required for the liquidation of the letter of credit shall be taken, and the establishment classification shall be decreased to the “third class.”
- If the establishment continues with late payment until the end of sixty (60) days as of the due date, then administrative fines will be imposed on the establishment, in addition to the sanctions set out above.
- The ban applied in the event of delay, as mentioned above, will be lifted immediately following the payment. However, if there is a ban applied for refusal of payment, such ban will be continued for two (2) months following the payment of wages. Every time the refusal of payment is repeated, the term of the ban will be multiplied following the payment of wages.
It should be noted that these penalties and sanctions mentioned under this Article of the Decree could have serious consequences for employers, especially those owning multiple companies in the country. Furthermore, if a company continues to refrain from paying wages as required, this would allow employees to leave the company and to seek employment with another employer.
Companies with less than one hundred (100) employees
In the event that an establishment with less than one hundred (100) employees refuses to make the payment of employee wages as required more than once within the same year (i.e. in the event of a second violation in the same calendar year), the provisions provided in the previous section (for companies with one hundred (100) employees or more) shall apply.
FAILURE TO SUBSCRIBE TO WPS
In addition to the aforementioned provisions, Article 3 of the Decree provides that the Ministry shall stop dealing with any establishment that has not subscribed to WPS as of the date of the Decree, and will continue to cease dealing with such establishment until they do subscribe. However, the Decree does also state that in all cases, such cessation must not result in the harming of rights of the employee.
Although companies have been obliged to register and conduct payments through WPS in essence since 2009, it is now becoming abundantly clear that the UAE is dedicated to ensuring the protection of the rights of all workers and employees in the country by penalizing companies which fail to adhere to relevant regulations and requirements. Companies should carefully consider the penalties and sanctions which will apply to their establishments should they fail to abide by the necessary obligations, and are thus encouraged to subscribe to WPS as soon as possible (if they have not already done so), and to comply with the requirements in relation to the proper and timely payment of wages, in order to avoid the imposition of the penalties, suspensions and/or prohibitions/bans mentioned under the Decree.
lecocqassociate arabia dmcc provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.
This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq on moc.e1550636363taico1550636363ssaqc1550636363ocel@1550636363lrd1550636363 for any questions.
 Wages Protection System Guidelines, provided by the Ministry of Labour, available at https://www.mol.gov.ae/newmolgateway/english/wpsGuidelineEng.aspx
 The full text of the Decree can be found on the Resolutions and Circulars page of the UAE Ministry of Human Resources and Emiratisation website, available at http://www.mohre.gov.ae/MOLWebsite/en/labour-law/announcements.aspx
 In 2010, the Ministry of Labor established a new classification system for companies, divided into three main categories operating on a rewards-type system, based on a company’s commitment to certain standards such as Emiratisation, wages, and housing. A company can be placed in the third group or class if it has accumulated a certain number of black points; if it is convicted by a court for recruiting infiltrators, committing human trafficking; and providing wrong information to the WPS with the aim of evading the system. More information is available regarding the classification system on the Ministry of Labor News update, available at http://www.mol.gov.ae/newMolGateway/english/showNews.aspx?refid=316.