When is an Employer Allowed to Deduct an Employee’s Salary in the UAE?

Unbeknown to many, but under a predefined set of circumstances a private company employer in the UAE can make salary deductions to its employees. At the same time, there is a system in place serving as a safeguard for employees, ensuring that their salaries are paid on time.

In this Pacific Prime Dubai post, we outline the legal framework for salary deductions and permissible reasons for salary deductions, and examine the role of the Wage Protection System in safeguarding employee rights.

Legal Framework for Salary Deductions

The Ministry of Human Resources and Emiratisation (MoHRE) provides a clear framework to ensure that employees’ rights are protected while allowing employers in the private sector to make necessary salary deductions.

Central to this framework is the UAE labor law, which emphasizes the necessity for timely salary payments and the protection of employees’ rights. Under the law, employees are entitled to receive their agreed-upon wages as long as they fulfill their job duties and meet their legal obligations.

MoHRE has clarified that while salary deductions may occur, they are restricted to specific scenarios that balance the employer’s needs with the employee’s rights.

Permissible Reasons for Salary Deductions

The labor law allows for salary deductions if an employee has borrowed money or violated company policies, among other circumstances. Below is a list of the primary permissible reasons for salary deductions:

Loan Repayments and Excess Payments

• Employee loan repayments via salary deductions are permitted, provided they remain within the legal maximum monthly deduction limit, are made with the employee’s written consent, and incur no interest.

• Moreover, if an employer mistakenly overpays an employee, they are permitted to recover the excess payment. However, such recoveries cannot exceed 20% of the employee’s monthly salary.

Contributions to Retirement Plans and Savings Funds

• Deductions for contributions to retirement, pension plans, or social insurance are also permitted, as mandated by national legislation.

• Furthermore, employees may have amounts deducted for contributions to organizational savings funds or loans owed to such funds, provided that these deductions receive prior approval from MoHRE.

Fines and Damages Caused by the Employee

• Employers have the authority to impose fines on employees for violations of company policies under disciplinary regulations approved by MoHRE. However, such deductions must not exceed 5% of the employee’s wage.

• If an employee causes damages due to negligence or failure to follow directions, the employer may recover costs, though this deduction must not exceed five days’ wages per month unless authorized by a court of law.

Other Grounds

• Salaries can be deducted as payments for any social initiatives, benefits, or services offered by the employer, provided the employee had given written consent to participate in these initiatives.

• Court-ordered debts can be enforced with a maximum deduction of 25% of the employee’s wage, excluding alimony payments, which may exceed 25%. If there are multiple debts, the amounts will be allocated according to their priority.

In cases where multiple reasons for deductions exist, the total deductions cannot exceed 50% of the employee’s wage, ensuring that the employee retains a significant portion of their earnings.

Wage Protection System and Employee Rights

The Wage Protection System (WPS) plays a vital role in the timely payment of salaries and the safeguarding of employee rights, ensuring that salaries are paid in accordance with the amounts agreed upon in employment contracts.

Established by the UAE Central Bank, the WPS is designed to facilitate salary transfers through banks, exchange companies, and financial service providers.

Under the WPS, employers are obliged to pay their employees on the due date, which is defined as the first day of the month following the end of the payment period specified in the employment contract. Where no such period is defined, wages must be paid at least monthly.

Employers are considered late if salaries are not disbursed within 15 days of the due date, unless otherwise stated in the contract.

Employees can report any instances of unpaid wages. Complaints can be directed to MoHRE, and employees can also file a ‘My Salary’ complaint for unresolved issues. This reporting mechanism empowers employees to seek redress if they believe their rights have been violated.

Certain categories of workers are exempt from the WPS requirements. These include:

• Employees who have submitted a wage-related labor complaint to the judiciary
• Employees on unpaid leave, as long as proof of the leave is provided
• Newly hired employees during their first 30 days of wage entitlement
• Employees for whom an absconding report has been filed
• Public taxis of individual citizens
• Fishing boats of individual citizens
• Places of worship
• Banks and other financial institutions

This exemption framework allows flexibility in specific situations while maintaining overall compliance with the labor laws.

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Martin Lee

Content Creator at Pacific Prime Dubai

Martin is a writer and translator with over 10 years of experience. He writes articles and blog posts, creates infographics and videos, translates between Chinese and English, and more. Skilled at explaining complicated concepts in layman’s terms, Martin believes the gold standard of translation is attained when the translated text is not only accurate, but also reads like an original text. Martin holds a degree in Economics from the University of London, UK.

Since joining Pacific Prime, Martin has become even more aware of the gap between the true value of insurance products and most people’s appreciation of it, and developed a passion for demystifying and simplifying matters, so that more people get the protection they need at a cost they can easily afford.

In his free time, Martin attends concerts of various genres, and plays the violin with piano accompaniment he pre-recorded himself or played live by his niece.

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