No matter where in the Middle East your business is located, if you have any employees, payroll is a must.
What Is Payroll?
Payroll is a process that employers must carry out in order to pay their employees. Achieving that objective isn’t as simple as it sounds, because payroll is governed by numerous rules and regulations — which vary by country and region.
In the Middle East, these rules and regulations include:
- Working hours
- Minimum wage
- Meal and rest breaks
- Overtime pay
- Holiday pay
- Maternity pay
- Sick pay
- Termination/gratuity pay
- Social Security
- Wage Protection System (WPS)
Payroll also involves administering voluntary policies created at the company level — such as incentive pay schemes — and implementing best practices like leave tracking, payroll accounting, and payroll auditing.
In summary, payroll is about paying your employees correctly and on time plus managing your other payroll responsibilities as dictated by law and company policy. This is true whether you’re a small employer or a multinational corporation.
Are Income Taxes Required in the Middle East?
In certain Western countries (e.g., the United States), both employers and employees are required to pay employment taxes, including income taxes, which are used to fund government programs. However, many countries in the Middle East — such as United Arab Emirates (UAE), Oman, Qatar, Saudi Arabia, and Kuwait — do not impose income taxes on employees.
Although these employers do not need to withhold taxes from their employees’ wages, their business may be subject to corporate income tax.
It’s important to note that some countries in the Middle East (e.g., Jordan) require employers to withhold income tax from their employees’ wages.
What Is Social Security?
Gulf Cooperation Council (GCC) member states have developed social security programs for the benefit of employed citizens in their region. Each state’s social security program provides pension and other retirement benefits to eligible GCC nationals.
Both the employer and employee must make social security contributions toward the employee’s retirement fund. The employer withholds the employee’s portion of social security from the employee’s wages and remits the withholding plus their own share of social security to the government.
Social security contributions should be included on the employee’s payslip.
What Is a payslip?
A payslip is a wage statement that employers give to employees each time they are paid. Payslips help employees understand how they were paid, and are a crucial part of payroll recordkeeping. The required payslip format and delivery method may differ by region. Typically, though, payslips can be delivered to employees by hand or electronically.
Common features of a payslip:
- Gross pay, including salary and any applicable overtime wages
- Deductions, such as social security contributions and any applicable taxes
- Benefits, such as sick leave, bonuses, health insurance, and company perks
- Net/take-home pay
What Is the Wage Protection System?
The Wage Protection System, or WPS, is an electronic wage transfer system that enables employers in GCC states to pay their employees through authorized financial institutions.
First developed by the UAE government back in 2009, the WPS helps ensure timely and accurate payment of wages, while monitoring employers for noncompliance. In all GCC states, employers must utilize the WPS to pay their workers.
How Is Payroll Processed?
Payroll can be processed:
- in-house, via the employer’s internal payroll team;
- by fully outsourcing to a managed payroll provider, such as OPS; or
- by combining the above two methods (in-house and outsourced).
This is only an introduction to payroll. In the end, your payroll responsibilities will depend on the requirements that are specific to your business.