Dubai is the capital of the Emirate of Dubai, one of the seven emirates that make up the United Arab Emirates (UAE), a country located in West Asia. With over 3.6 million people, it is the most populous city in the UAE. 85% of the population being expatriates, Dubai has a highly internationalized economy. In 2020, the UAE enacted the policy to allow 100% foreign ownership of companies in the country. This has paved the way for more foreign businesses in Dubai.

Being unfamiliar with the multiple labor laws in the city, many foreign businesses run the risk of breaking some of these laws. That is why, especially in managing their employees’ wages and taxes, companies in Dubai prefer to hire payroll providers to stay compliant with the laws of the city.

What is Payroll Outsourcing in Dubai?

Processing employees’ payments is a task every business must do. Though it might seem simple enough, it is, in fact, a complex process that requires expertise and knowledge of the country’s labor laws, especially its payroll and tax laws.

In Dubai, where many companies are foreign-owned, many of these companies might not be knowledgeable about local labor laws. The city has numerous laws guiding the operation of business and the employment of labor, and these laws are constantly evolving to reflect the realities of the labor market. That is why many companies in Dubai prefer to explore the option of payroll outsourcing. Payroll outsourcing has become increasingly popular, such that the market is expected to reach $19.5 billion in 2031.

By outsourcing their payroll duties, companies in Dubai hire third-party payroll providers to manage their employees’ wages and taxes. Since these payroll providers specialize in the management of payments, they are highly knowledgeable about the city’s payroll and tax laws and can keep up with its evolution. Their primary duty is to calculate and disburse employee’s wages as determined by the city’s labor standards. They sum up the wages of employees’ regular hours as well as overtime and holiday allowances, deduct tax and social insurance contributions, and process payments.

Other functions these payroll providers perform include managing employees’ insurance, including employment, health, and industrial accident compensation insurance. Depending on their agreements with their client companies, they can also track employees’ leaves according to Dubai’s labor laws. Generally, they ensure that their client companies’ financial activities are compliant with the city’s labor laws.

How Does Payroll Outsourcing Work in Dubai?

When a company in Dubai brings on a third-party payroll provider to handle its payroll functions, the first thing the payroll provider does is run a thorough check on the client company. The payroll provider ensures that the company is properly registered and meets all the legal requirements of running a business in Dubai. A thorough check also ensures that the company is properly registered with tax authorities; after this, the client company has to make all relevant employee data available to the payroll provider. These data, including employment contracts, payroll policies, tax information, and social security information, are important for the payroll provider to be able to carry out its duties. With these data, the payroll provider can then draw up a payroll system that satisfies both the client company and Dubai’s regulatory standards—but not before verifying the data. 

Next, the payroll provider analyses the company’s payroll data, which includes hours worked, leave taken, and promotions (where applicable). Usually, the client company gives access to these data via an online portal. It is with the information retrieved from these that the payroll company will be able to calculate each employee’s wage. They calculate the gross pay plus overtime, allowances, and compensations and subtract all lawful deductions such as tax deductions and insurance contributions. After this, a preliminary report is sent to the client company for review, after which payments will be disbursed to employees.

Dubai Labor Law and Payroll Compliance

When setting up a business in Dubai, companies have to understand the city’s labor laws, as this will help them avoid erring on the wrong side of the law. There are several laws to consider. For example, though Dubai has no minimum wage laws, the UAE’s labor laws mandate that employees’ salaries must cover their basic needs. It also stipulates that employees are required to work a four-and-a-half-day working week, with 12.00 pm being the close of business on Fridays.

However, according to a 2022 survey, Dubai ranks highest on the list of cities with overworked populations, with 23.4% of its population overworked. When an employee is required to work overtime, they are entitled to 125% of their regular hours wage (150% if the overtime is done between 10 pm and 4 am).

According to Duabi’s labor laws, employers are required to provide health insurance coverage for all their employees, as well as insurance to cover work-related injuries and diseases. Though neither Dubai nor the UAE in general taxes personal income, there is a corporate tax rate of 9% on income that exceeds 375,000 AED. 

What are the Benefits of Payroll Outsourcing in Dubai?

For companies in Dubai, the primary benefit of enlisting a third-party payroll provider is that it ensures that they are compliant with local payroll and tax laws. As many of these companies are foreign-owned, there might be a limit to their familiarity with the numerous and constantly changing local labor laws. Breaking even one of these laws can lead to unpleasant consequences, and since ignorance of the law is no excuse, these companies prefer to err on the side of caution.

Also, outsourcing their payroll functions helps companies save a lot of money. Studies show that when companies outsource some of their duties to effective third-party experts, they tend to cut operational costs. More specifically, however, a company that breaks the law while performing its payroll functions in-house will likely spend more money on fines and penalties than companies that hire payroll providers.

Finally, payroll outsourcing also helps companies become more efficient. This is because, without the additional task of managing employees’ wages and taxes, a company will have more time and energy to focus on its core activities.

What are the Downsides of Payroll Outsourcing in Dubai?

Although payroll outsourcing has several important benefits, there are also downsides to it which companies in Dubai have to take note of before hiring a payroll provider. For example, it gives rise to the risk of data breaches. Because access to employees’ data (such as bank account details and social security details) is necessary for the payroll provider to perform its functions, the company has to make these available. Though many payroll providers have measures in place to ensure data security, the risk of data breaches and mishandling of information cannot be totally discounted.

Also, by outsourcing its payroll functions to a third party, a company relinquishes control over the payroll process. Of course, in most cases, total control is not lost, since companies still have to review the activities of the payroll providers. However, such companies are no longer directly involved in the process.

How to Choose a Payroll Outsourcing Provider in Dubai

The decision to hire a payroll outsourcing provider must immediately be followed by intensive research. Before deciding on a particular payroll provider, a company must ensure that certain criteria have been met. This is to ensure that you select highly qualified payroll providers whose ideals match those of your company.

For example, thorough research must be conducted into the payroll provider’s history to see their track record of compliance with the labor laws of Dubai. Beyond that, the payroll provider must also demonstrate its knowledge of said labor laws and how they adapt to their evolution. 

It is also important to confirm that the payroll provider is technologically equipped to perform its functions. A payroll provider might be up-to-date with Dubai’s labor laws but lacking in modern technology. Of course, this will have a negative effect on its performance. Such a payroll provider might have to manually perform tasks that can be automated or might use software that is incompatible with your company’s software.

How Much Does Payroll Outsourcing Cost in Dubai?

Many payroll outsourcing providers in Dubai do not like to charge a flat price for their services. This is because certain factors must first be considered before a fee can be quoted to the client company. For example, they would want to first understand the nature of the contract. A company might choose to outsource all or some of its payroll functions, which determines the complexity of the work required of the payroll provider. Also, the size of the company matters. A big company will likely have more employees than a smaller one, meaning bigger companies require more work. Naturally, this comes with a higher fee. 

For these reasons, it is difficult to estimate how much payroll outsourcing costs in Dubai. However, many payroll providers in Dubai can help you generate a quote on their website.

Payroll Outsourcing Alternative: Employer of Record

Payroll outsourcing is an effective way for foreign companies in Dubai to ensure compliance with payroll and tax laws. However, for a company seeking a more comprehensive solution, it might be best to consider hiring an Employer of Record (EOR) in Dubai.

Like a payroll provider, an EOR is tasked with managing a company’s employees’ wages and taxes, but its duties are more extensive than that. An EOR in Dubai oversees employees generally, taking on general Human Resources responsibilities, such as hiring employees for a company, ensuring that the employment system is compliant with the city’s laws, managing payroll, and much more. They are legally responsible for all a company’s employees, making it possible for the company to focus squarely on business.

Conclusion

Payroll outsourcing can help companies in Dubai avoid costly penalties by ensuring compliance with the payroll and tax laws of the city. It brings the payroll provider’s expertise and efficiency into managing employees’ wages and salaries. If, however, a foreign company prefers a more comprehensive employment solution, it can hire an Employer of Record to manage all employee-related responsibilities.

Ready to streamline payroll in Dubai? Remote People’s payroll outsourcing solution ensures compliance and operational efficiency. Contact us today to discuss your payroll needs in Dubai.