Wage Protection System (WPS) is not just recommended, it is mandatory for all private companies operating in the UAE. This requirement is clearly stated in the UAE Labour Law from 1980, and it applies not only to mainland companies but also to free zones. In this article, we want to emphasize the importance of the WPS and its increasing implementation across different jurisdictions in the UAE.
What is Wage Protection System (WPS)?
WPS is a system that compels employers in the private sector to transfer employee salaries through authorized agents, such as banks or exchange houses, designated by the Ministry of Human Resources and Emiratisation (MoHRE) and authorized by the Central Bank of the UAE (CBUAE). These agents report the monthly salary volumes to MoHRE and charge companies a fixed monthly rate for their services. Employers have the flexibility to choose whether they want to transfer salaries through banks or exchange houses.
What happens if an employee does not have a bank account?
For employees who have not yet opened a bank account, they can receive their monthly payroll in cash at the counter of any authorized exchange house. Once their bank accounts are set up, the process becomes easier and can be done online. In either case, the WPS ensures that each employee receives their salary through a Salary Information File (SIF), which contains details about the employee and employer. Banks and exchange houses identify each employee through this file during the monthly payroll process. It is worth emphasizing that implementing the WPS is a mandatory requirement for all private companies under the jurisdiction of MoHRE and several Free Zones in Dubai. Failure to comply with this requirement or providing false information in the WPS files can lead to significant fines, including AED 5,000 for each employee and AED 50,000 for multiple employees.
Does WPS apply to Free zones as well?
Previously, the WPS was mainly applied to mainland companies, while free zones were not obligated to adopt this system. However, there has been a notable shift in recent years. Free Zones like Jebel Ali Free Zone Authority (JAFZA) have recognized the importance of integrating the WPS to foster a transparent labor ecosystem and have willingly implemented it. Another example is DMCC, which has also been compelled to adopt the WPS. By February 15, 2023, DMCC had established the necessary infrastructure and standardized the codes in alignment with MoHRE’s requirements. Starting from January 2024, it will be mandatory for all entities in DMCC to register for the WPS. Failure to comply with this requirement will result in penalties.
Where should I start from?
If you require advice or assistance in registering for the WPS in your UAE entity, we are here to provide guidance and support. Please feel free to contact us for any additional information or queries you may have.