United Arab Emirates: UAE Wage Protection System overhauled

Last Updated: 2 November 2016
Article by Simon Isgar and Anand Singh

Introduction

The Federal Ministry of Human Resource & Emiratisation has issued Ministerial Decree No (739) of 2016 concerning the protection of wages (the New Decree).  Effective from 3 October 2016, it adds further protection for employees in the UAE.

It is timely as recently we have seen a significant increase in the number of individuals approaching us with employment matters, because of employers failing to adhere to financial provisions of their employee's employment contracts.  This article analyses the New Decree and its impact on employers and employees in the UAE.

Background

The Wage Protection System (or WPS, as it is commonly referred to) was introduced by Ministerial Decree No 788 of 2009 in July 2009.  It started the process of workers being paid through an electronic system, via the UAE Central Bank.

The WPS was introduced gradually across all categories of companies.  It now requires all employers registered with the Ministry of Human Resource & Emiratisation (the Ministry) to pay their employees through this system.

The New Decree

The New Decree is specifically designed to protect employees caught in a situation where the employer is not paying wages on time.  Its key points are as follows:

  • All employers registered with the Ministry must pay wages through the WPS and be able to submit evidence of timely payments.
  • Wages must be paid when or as specified in the employment contract (the Maturity Date).  If no specific date or period is specified, wages must be paid at least once every two weeks.
  • Failure to pay an employee's wage within 10 days of the Maturity Date will amount to "late payment".  Failure to pay within one month of the Maturity Date will amount to a "refusal to pay".
  • Special attention is paid to employers with over 100 employees who fail to pay wages within 10 days of the Maturity Date.  In those circumstances:

    • The Ministry will issue the employer a notice that no further "work permits" will be issued to the employer if the delay exceeds 16 days;
    • If payment is still not made, the Ministry will, on the 16th day, "suspend" the violating employer's establishment and give notice that:

      • Failure to make payment within 30 days of the Maturity Date will trigger a variety of consequences for the employer, such as informing the judicial and any other relevant authorities to exercise precautionary and punitive procedures against the employer.  The "suspension" will be extended to all other remaining establishments of the employer, no register for new establishment of the employer will be opened by the Ministry, the procedure for liquidation of letter of credit of the employer shall be started and the establishment's classification shall be decreased to "third class".
      • Failure to make payment within 60 days will trigger administrative fines, in addition to the above sanctions.
  • The foregoing provisions will also apply to employers with fewer than 100 employees in the event of a second violation in the same calendar year.
  • Any sanctions imposed for breach of the New Decree will be lifted immediately if the breach is corrected, within 60 days of the Maturity Date, but will extend for  an additional two months if not.  

The New Decree was issued in line with UAE's commitment to human rights, which includes the right of an employee to be paid on time for his/her work.  It is a laudable measure and a positive step for all employees in the UAE who are not being paid on time, and who would not have the financial resources or capacity to contest their employer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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