A compliance guide to payroll in the Middle East

The Middle East has become a popular region for business expansion over recent decades.

But if employers decide to set up shop there, it is important to understand which regulations are most likely to affect their payroll strategy. Such laws include income tax, working hours, holiday allowances, salary and severance pay.

So to help get you started, we have pulled together relevant examples of such legislation from some of the largest countries in the region by gross domestic product and workforce size:

Income tax

Many of the largest countries in the Middle East do not impose income tax on workers as their governments generate revenues from oil and other natural resources instead. Notable states to follow this rule include the United Arab Emirates (UAE), Saudi Arabia, Kuwait, Oman and Qatar.

One slight exception to the rule here is Bahrain, which levies indirect taxes, such as stamp duty, on property transfers of up to 3% of that property’s value. The laws also differ for citizens and foreign workers.

While citizens contribute 7% of their salaries to social security funds, expatriates pay only 1%. Employer contributions towards social insurance amount to 12% of a citizen’s income and 3% of a foreigner’s. Expats are also required to pay a 10% municipal tax to rent somewhere to live.

But across the wider region, initiatives are starting to be introduced to curb the number of expat employees. For example, companies that are looking to set up in Saudi Arabia should be aware of the "Saudisation" campaign in four retail and wholesale sectors.

The aim of the scheme is to replace 60,000 foreign workers with Saudi nationals in an attempt to reduce the domestic unemployment rate, which currently stands at 12.8%. Spearheaded by Crown Prince Mohammed bin Salman, the objective is to cut unemployment to 7% by 2030. A similar process, known as ‘Omanisation’, is also taking place in Oman.

Working hours

The average number of hours worked in the Middle East is similar to countries in the West - eight hours per day for adult workers, or 48 hours per week.

But the region is more flexible legally in terms of permitting longer working hours, if desired: eight of its 10 countries permit weekly working hours that are in excess of 60 hours per week.

In countries such as the UAE, it is also possible to reduce the usual number of working hours per day if strenuous or harmful work is being undertaken by virtue of a decision from the Minister of Labour and Social Affairs.Holiday and sick pay

Holiday allowance in the Middle East is usually more generous than in Western countries. For instance:

• In Oman, employees are entitled to 30 days annual leave and nine paid public holidays;
• In Qatar, there are 25 days of annual leave and 10 paid public holidays;
• In Saudi Arabia, workers receive 30 days of annual leave and 10 paid public holidays;
• In the UAE, employees are entitled to 32 days of annual leave and 10 paid public holidays. They are also eligible for extra vacation, sick and maternity leave. Employees who have worked for their employer for between six months and one year receive two days of paid vacation leave per month, while those who have done so for at least a year are entitled to 30 days of paid leave. Labour law currently mandates that staff are eligible for seven paid holidays.

Minimum wages

Minimum wages vary from one country to another, but here is an overview:

• Kuwait: US$1,028 per month, but the average monthly salary for a Kuwaiti employee is US$3,650. The average figure is lower for foreign workers;
• Saudi Arabia: US$632 per month;
• Oman: US$592 per month, plus allowances of US$263 per month, which only apply to citizens;
• Lebanon: US$450 per month, but according to World Bank data, a huge 70% of the country's population earn an annual income of less than US$10,000.
• Morocco: US$225 per month;
• The UAE does not have a legal minimum wage.

Severance pay

Severance pay rules differ in each country across the region:

UAE

All companies in the UAE are legally required to pay staff an end-of-service award. Termination pay is mandatory unless employees are terminated for good cause, quit without giving proper notice, or resign before completing a definite-term contract.

Personnel who have completed one or more years of continuous service are entitled to 21 days of severance pay for each of their first five years of service and 30 days pay for each additional year.

Saudi Arabia

Saudi Arabia’s Labour Law states that an end-of-service award must be paid at the end of a work relationship, no matter what the reason was behind an individual’s employment being terminated - such as retirement, the end of a fixed-term contract and 'force majeure' – with the exception being if they resigned. The award should equate to a half-month’s wages for each of their first five years of service and a full month’s wage for subsequent years.

Qatar

In Qatar, employers are obliged to pay an end-of-service benefit (EOSB) to any employee who has completed one or more years of continuous service. An EOSB must also be paid on a pro-rata basis for fractions of service, or parts of years in employment.

The EOSB may be negotiated by both parties, provided it does not amount to less than three weeks of an employee's final basic salary for each completed year of service. Any periods of valid leave, for example, due to illness, holidays or maternity, should be included in the calculation. Periods of unpaid leave are usually excluded, but this situation may be modified as a result of specific company policies.

Maternity pay

Maternity pay is another benefit that varies across the region:

UAE

In the UAE, the mandatory minimum for fully-paid maternity leave in the private sector is 45 days, if an employee has served a complete year. If she has not completed her probationary period, she is still entitled to 45 days of maternity leave but on half-pay. The mother may also be eligible to claim up to 100 days of unpaid leave after this period if she has a pregnancy-related illness that can be verified by a doctor's certificate.

Saudi Arabia
Since 2016, working mothers in Saudi Arabia have been granted paid maternity leave of up to 10 weeks. Fathers are also entitled to three days of paid paternity leave. The Saudi Ministry of Labor made the change in an ongoing effort to create a dynamic marketplace for foreign businesses.

Iran
In Iran, female employees are entitled to 90 days of maternity leave. This leave must be considered part of an employee's service record, and employers are required to keep open a returning employee’s post.

Sick pay

Sick pay is another benefit that varies from one country to another:

UAE

After completing three months of continuous service, employees are entitled to 15 sick days at full pay. Subsequent sick days, up to a maximum of 90, can be taken with partial pay or no pay.

It should also be noted that staff in the UAE must obtain a sick note from their doctor on the first day of their absence from work.

Saudi Arabia

Personnel in Saudi Arabia must prove they are sick by means of a doctor’s note, which entitles them to four months’ sick leave. Over the course of these four months, a portion of their salary must be paid in full, while some will be paid only partially and some unpaid. If employees are off for the entire period, they must produce a doctor’s certificate stating that they need to rest for X amount of days.

Oman

In Oman, employees are entitled to a total of 10 weeks’ continuous or non-continuous sick leave per year. They also require a medical certificate and are paid in full for the first two weeks. After that time, staff are eligible for three quarters of their salary for the third and fourth weeks, half for the fifth and sixth, and a quarter for the seventh to tenth weeks.

Rick Hammell is chief executive of employer of record organisation, Elements Global Services. He developed and grew the organisation following its split from its parent company, where he served initially as director of HR for a short period before becoming vice president and chief operating officer. Rick holds a Bachelors degree in Business Administration with a focus on HR and journalism and also an SPHR certification.

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The Middle East has become a popular region for business expansion over recent decades.

But if employers decide to set up shop there, it is important to understand which regulations are most likely to affect their payroll strategy. Such laws include income tax, working hours, holiday allowances, salary and severance pay.

So to help get you started, we have pulled together relevant examples of such legislation from some of the largest countries in the region by gross domestic product and workforce size:

Income tax

Many of the largest countries in the Middle East do not impose income tax on workers as their governments generate revenues from oil and other natural resources instead. Notable states to follow this rule include the United Arab Emirates (UAE), Saudi Arabia, Kuwait, Oman and Qatar.

One slight exception to the rule here is Bahrain, which levies indirect taxes, such as stamp duty, on property transfers of up to 3% of that property’s value. The laws also differ for citizens and foreign workers.

While citizens contribute 7% of their salaries to social security funds, expatriates pay only 1%. Employer contributions towards social insurance amount to 12% of a citizen’s income and 3% of a foreigner’s. Expats are also required to pay a 10% municipal tax to rent somewhere to live.

But across the wider region, initiatives are starting to be introduced to curb the number of expat employees. For example, companies that are looking to set up in Saudi Arabia should be aware of the "Saudisation" campaign in four retail and wholesale sectors.

The aim of the scheme is to replace 60,000 foreign workers with Saudi nationals in an attempt to reduce the domestic unemployment rate, which currently stands at 12.8%. Spearheaded by Crown Prince Mohammed bin Salman, the objective is to cut unemployment to 7% by 2030. A similar process, known as ‘Omanisation’, is also taking place in Oman.

Working hours

The average number of hours worked in the Middle East is similar to countries in the West - eight hours per day for adult workers, or 48 hours per week.

But the region is more flexible legally in terms of permitting longer working hours, if desired: eight of its 10 countries permit weekly working hours that are in excess of 60 hours per week.

In countries such as the UAE, it is also possible to reduce the usual number of working hours per day if strenuous or harmful work is being undertaken by virtue of a decision from the Minister of Labour and Social Affairs.Holiday and sick pay

Holiday allowance in the Middle East is usually more generous than in Western countries. For instance:

• In Oman, employees are entitled to 30 days annual leave and nine paid public holidays;
• In Qatar, there are 25 days of annual leave and 10 paid public holidays;
• In Saudi Arabia, workers receive 30 days of annual leave and 10 paid public holidays;
• In the UAE, employees are entitled to 32 days of annual leave and 10 paid public holidays. They are also eligible for extra vacation, sick and maternity leave. Employees who have worked for their employer for between six months and one year receive two days of paid vacation leave per month, while those who have done so for at least a year are entitled to 30 days of paid leave. Labour law currently mandates that staff are eligible for seven paid holidays.

Minimum wages

Minimum wages vary from one country to another, but here is an overview:

• Kuwait: US$1,028 per month, but the average monthly salary for a Kuwaiti employee is US$3,650. The average figure is lower for foreign workers;
• Saudi Arabia: US$632 per month;
• Oman: US$592 per month, plus allowances of US$263 per month, which only apply to citizens;
• Lebanon: US$450 per month, but according to World Bank data, a huge 70% of the country's population earn an annual income of less than US$10,000.
• Morocco: US$225 per month;
• The UAE does not have a legal minimum wage.

Severance pay

Severance pay rules differ in each country across the region:

UAE

All companies in the UAE are legally required to pay staff an end-of-service award. Termination pay is mandatory unless employees are terminated for good cause, quit without giving proper notice, or resign before completing a definite-term contract.

Personnel who have completed one or more years of continuous service are entitled to 21 days of severance pay for each of their first five years of service and 30 days pay for each additional year.

Saudi Arabia

Saudi Arabia’s Labour Law states that an end-of-service award must be paid at the end of a work relationship, no matter what the reason was behind an individual’s employment being terminated - such as retirement, the end of a fixed-term contract and 'force majeure' – with the exception being if they resigned. The award should equate to a half-month’s wages for each of their first five years of service and a full month’s wage for subsequent years.

Qatar

In Qatar, employers are obliged to pay an end-of-service benefit (EOSB) to any employee who has completed one or more years of continuous service. An EOSB must also be paid on a pro-rata basis for fractions of service, or parts of years in employment.

The EOSB may be negotiated by both parties, provided it does not amount to less than three weeks of an employee's final basic salary for each completed year of service. Any periods of valid leave, for example, due to illness, holidays or maternity, should be included in the calculation. Periods of unpaid leave are usually excluded, but this situation may be modified as a result of specific company policies.

Maternity pay

Maternity pay is another benefit that varies across the region:

UAE

In the UAE, the mandatory minimum for fully-paid maternity leave in the private sector is 45 days, if an employee has served a complete year. If she has not completed her probationary period, she is still entitled to 45 days of maternity leave but on half-pay. The mother may also be eligible to claim up to 100 days of unpaid leave after this period if she has a pregnancy-related illness that can be verified by a doctor's certificate.

Saudi Arabia
Since 2016, working mothers in Saudi Arabia have been granted paid maternity leave of up to 10 weeks. Fathers are also entitled to three days of paid paternity leave. The Saudi Ministry of Labor made the change in an ongoing effort to create a dynamic marketplace for foreign businesses.

Iran
In Iran, female employees are entitled to 90 days of maternity leave. This leave must be considered part of an employee's service record, and employers are required to keep open a returning employee’s post.

Sick pay

Sick pay is another benefit that varies from one country to another:

UAE

After completing three months of continuous service, employees are entitled to 15 sick days at full pay. Subsequent sick days, up to a maximum of 90, can be taken with partial pay or no pay.

It should also be noted that staff in the UAE must obtain a sick note from their doctor on the first day of their absence from work.

Saudi Arabia

Personnel in Saudi Arabia must prove they are sick by means of a doctor’s note, which entitles them to four months’ sick leave. Over the course of these four months, a portion of their salary must be paid in full, while some will be paid only partially and some unpaid. If employees are off for the entire period, they must produce a doctor’s certificate stating that they need to rest for X amount of days.

Oman

In Oman, employees are entitled to a total of 10 weeks’ continuous or non-continuous sick leave per year. They also require a medical certificate and are paid in full for the first two weeks. After that time, staff are eligible for three quarters of their salary for the third and fourth weeks, half for the fifth and sixth, and a quarter for the seventh to tenth weeks.

Rick Hammell is chief executive of employer of record organisation, Elements Global Services. He developed and grew the organisation following its split from its parent company, where he served initially as director of HR for a short period before becoming vice president and chief operating officer. Rick holds a Bachelors degree in Business Administration with a focus on HR and journalism and also an SPHR certification.

OTHER ARTICLES THAT MAY INTEREST YOU

Payroll practices in Gulf Cooperation Council countries

Palestinians protest over controversial new social security law

Minding your manners in Africa