Navigating important acronyms in Saudi Arabia and the UAE

There are a number of acronyms in the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) that cause a lot of confusion. These are principally WPS, GOSI, GPSSA and SIF. So what are they and when should they be employed?

Wage protection systems

Wage protection systems (WPS) were introduced into four of the six Gulf Cooperation Council states to counter the widespread regional practice among employers of withholding wages from employees. In its simplest form, the WPS ensures that governments can monitor any payments made to staff. The UAE was the first to implement a WPS in 2009 and Saudi Arabia followed suit in 2013.

The WPS in KSA

In August 2013, the Saudi Ministry of Labour together with the Saudi Arabian Monetary Authority (SAMA) began a phased introduction of their WPS, starting with private sector companies with more than 3,000 employees. The scheme makes it possible to monitor the salaries and wages paid to all workers in the private sector, including Saudi nationals and expatriates. It applies to all International Local Hire Employees (ILHE) and international assignees with a work permit (Iqama). 

From February 2016 to August 2017, the WPS was extended to include organisations employing between 10 and 99 staff and the scheme now covers all companies registered in KSA. Under the provisions of the legislation, all local employers registered in KSA are required to transfer an employee’s monthly salary, which must be registered with the Saudi Ministry of Labour (GOSI), to that individual’s personal bank account. The money must be transferred from a Saudi Arabian commercial bank account.

When a new employee is hired, they must be registered with GOSI under the WPS. Employers have a 90-day window between registering their new employee and reporting their wages, the aim being to give the employee enough time to open a local bank account. A number of local banks produce a WPS file when payments are made to employees, which can be uploaded to the WPS system.

Failure to comply with WPS legislation would have a serious impact on an employer’s ability to sponsor visas, which could in turn affect its ability to deliver on contractual commitments to KSA customers. Companies failing to register with the WPS within two months are fined SAR10, 000 (US$2,666).

In the last quarter of 2015, the Ministry of Labour announced it had “shut down” 1,441 firms due to WPS violations, with 48% of all companies in the country listed as non-compliant. Some 89 firms that did not respond to workers’ wage complaints had their computer services closed. A huge 675 disputes were resolved, but 121,000 remained pending in the courts, an increase of 91% over 2014. So what is clear is that the WPS has improved the complaints procedure for employees.

The WPS in the UAE

As in KSA, the WPS AE is a means by which the UAE government can ensure that employees are paid in full and on time. According to the law, employers must have a bank account with a UAE bank. Once a contract has been entered into, services may be provided by any bank, bureau de change or financial institution that is approved and authorised by the Central Bank of the UAE.

Upon formation, all onshore companies need to create an account with the Ministry of Labour. This account is used to record and regulate the issuing of contracts and visas to employees.

The WPS process acts as an interface between the company’s and its employees’ bank and verifies that each employee is paid in full according to the salary details registered on their official Ministry of Labour contracts. If staff do not have a bank account, a special ATM/debit card can be used to which earnings are credited.

All salaries must be paid in dirhams and payments to foreign bank accounts are forbidden. The WPS does not apply in ‘Free Zones’, where some employers pay salaries in currencies other than dirhams. Each payment requires an employee’s account number, salary, allowances and the number of days leave taken during the month (UAE Ministry of Labour 2010).

In 2016, the Ministry of Human Resource and Emiratisation replaced its 2009 decree with a new Ministerial Decree (No. 739), which increased penalties for non-compliance. For example, a company’s account with the Ministry of Labour can now be suspended, which means that it would no longer be permitted to hire staff or issue visas.

These moves to protect worker’s rights are one of the reasons why the UAE has experienced high levels of international expansion over recent years.

Salary information files in KSA and UAE

In both the UAE and KSA, it is necessary to adhere strictly to the information and format required by banks to accept and register wage payments under the WPS. Employers must lodge a Salary Information File (SIF) detailing their employees’ income. The file needs to include their:

• Residency ID;
• Visa ID;
• Name;
• Bank name and account number;
• Frequency of payment (for example, monthly or fortnightly);
• Number of working days for the wage period;
• Net salary paid;
• Basic salary (according to their contract);
• Extra hours worked;
• Extra income (allowances such as transport, housing, food, bonuses, back-pay, advanced payments for vacation etc).

Deductions must also be listed and could include loan payments, charges for damages caused by the employee, salary cuts (for example, due to sick leave) and payments for fines stemming from legal violations such as traffic offences.

General Pension and Social Security Authority in the UAE

In the past, only UAE nationals were required to pay pension and social security contributions. Employers hiring them had to register with the General Pension and Social Security Authority (GPSSA) no later than one month after they joined the company.

But as of 1 January 2007, the Pensions Law was supplemented by the introduction of the Gulf Co-operation Council (GCC) Pensions Resolution [Federal Cabinet Resolution 18 of 2007]. This legislation made it compulsory for employers to register all non-UAE, GCC nationals employed in the country for pensions that were in line with schemes employed in their home countries.

The Pensions Law and Resolution apply equally throughout the UAE to all employers, including those operating in the country’s various Free Zones. They mean that employers must register every qualifying UAE and GCC national working in the country with the GPSSA.

In circular number one from 2017, which was addressed to private sector employers subject to Federal Law No. (7) from 1999 that dealt with pensions and social security, it was made clear that employers needed to ensure all UAE nationals working in the country are covered by social security. If employers break the law, they are required to pay an additional penalty of 10% of the outstanding amount and/or shortfall in their GPSSA payment.

An additional amount of 0.1% of the total contribution is also imposed for each day that payments remain outstanding. The circular likewise stated that these penalties would be imposed without issuing a formal notice or notification.

GPSSA social contributions in the UAE

Social Security contributions are calculated on a fixed percentage rate based on an individual’s basic salary and allowances. The contribution is fixed for the whole year as of 1 January and is revised in the January of each following year once the GPSSA has been informed of any salary increase.

If a salary rise takes place during the current year, it is only necessary to update the Authority in January of the following year. If a new employee commences their duties during the course of a year, their contribution will be based on the monthly equivalent of the first month and remain fixed at that level until 1 January of the following year.

Contributions must be made within the first 15 days of the next month following the month in which the contribution accrues. They are calculated by working out the prevailing percentage of the monthly contribution salary (monthly salary plus any allowances) subject to a maximum. The current GPSSA monthly salary level is AED 50,000 (US$13,613). Employer contribution rates are 12.5% and employee contribution rates are 5%.

General Organisation for Social Insurance in KSA

Premiums paid towards the General Organisation for Social Insurance (GOSI) are used to cover the cost of social security and health services in KSA. GOSI is regulated by the Social Insurance Regulation, Royal Decree Number M/22 or 3^rd Ramadan 1421 Heja (29 November 2000). It implements social insurance rules, collects contributions from employers and pays benefits to entitled insured persons and their family members.

GOSI contributions in KSA

In KSA, employers are legally obliged to register new hires during the first 15 days of the month after the start of their employment. Contributions must be paid within the first 15 days of the month following the month to which contributions relate. This means that contributions for June must be paid before 15 July.

GOSI contributions are calculated based on an employee’s earnings. These earnings are the combined total of their basic salary plus any cash housing allowance. If housing is provided in kind, the value of the housing allowance for GOSI purposes is set at two months base salary.

There is a maximum earnings cap of 45,000 SAR (US$12,000) on which GOSI is calculated. As in the UAE, salaries are set in January each year. Along with a contribution to cover pensions, employers also need to contribute towards their workers’ compensation and disability plans or work hazard insurance. This rate is currently set at 2% and is payable for both KSA nationals and expatriates. GOSI also recently introduced a new contribution towards an unemployment fund.

Current contribution levels are below:

An online portal has now been set up to make it easier to register new employees for GOSI. Employees leaving their jobs in KSA may also be de-registered from the scheme using the online portal.

Conclusion

If international companies expand their operations into the UAE and KSA, it is important that global payroll professionals are able to understand and explain the necessary acronyms to employees taking up jobs in the region.

Sharon Tayfield is a senior manager, with extensive experience in global outsourcing and a special interest in payroll. She has undertaken senior management roles at a range of multinational companies, including a wholly-owned subsidiary of Anglo America where she was financial director. Prior to her current role, Sharon was chief operating officer for a payroll service company specialising in outsourced services to Africa and the UK.

There are a number of acronyms in the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) that cause a lot of confusion. These are principally WPS, GOSI, GPSSA and SIF. So what are they and when should they be employed?

Wage protection systems

Wage protection systems (WPS) were introduced into four of the six Gulf Cooperation Council states to counter the widespread regional practice among employers of withholding wages from employees. In its simplest form, the WPS ensures that governments can monitor any payments made to staff. The UAE was the first to implement a WPS in 2009 and Saudi Arabia followed suit in 2013.

The WPS in KSA

In August 2013, the Saudi Ministry of Labour together with the Saudi Arabian Monetary Authority (SAMA) began a phased introduction of their WPS, starting with private sector companies with more than 3,000 employees. The scheme makes it possible to monitor the salaries and wages paid to all workers in the private sector, including Saudi nationals and expatriates. It applies to all International Local Hire Employees (ILHE) and international assignees with a work permit (Iqama). 

From February 2016 to August 2017, the WPS was extended to include organisations employing between 10 and 99 staff and the scheme now covers all companies registered in KSA. Under the provisions of the legislation, all local employers registered in KSA are required to transfer an employee’s monthly salary, which must be registered with the Saudi Ministry of Labour (GOSI), to that individual’s personal bank account. The money must be transferred from a Saudi Arabian commercial bank account.

When a new employee is hired, they must be registered with GOSI under the WPS. Employers have a 90-day window between registering their new employee and reporting their wages, the aim being to give the employee enough time to open a local bank account. A number of local banks produce a WPS file when payments are made to employees, which can be uploaded to the WPS system.

Failure to comply with WPS legislation would have a serious impact on an employer’s ability to sponsor visas, which could in turn affect its ability to deliver on contractual commitments to KSA customers. Companies failing to register with the WPS within two months are fined SAR10, 000 (US$2,666).

In the last quarter of 2015, the Ministry of Labour announced it had “shut down” 1,441 firms due to WPS violations, with 48% of all companies in the country listed as non-compliant. Some 89 firms that did not respond to workers’ wage complaints had their computer services closed. A huge 675 disputes were resolved, but 121,000 remained pending in the courts, an increase of 91% over 2014. So what is clear is that the WPS has improved the complaints procedure for employees.

The WPS in the UAE

As in KSA, the WPS AE is a means by which the UAE government can ensure that employees are paid in full and on time. According to the law, employers must have a bank account with a UAE bank. Once a contract has been entered into, services may be provided by any bank, bureau de change or financial institution that is approved and authorised by the Central Bank of the UAE.

Upon formation, all onshore companies need to create an account with the Ministry of Labour. This account is used to record and regulate the issuing of contracts and visas to employees.

The WPS process acts as an interface between the company’s and its employees’ bank and verifies that each employee is paid in full according to the salary details registered on their official Ministry of Labour contracts. If staff do not have a bank account, a special ATM/debit card can be used to which earnings are credited.

All salaries must be paid in dirhams and payments to foreign bank accounts are forbidden. The WPS does not apply in ‘Free Zones’, where some employers pay salaries in currencies other than dirhams. Each payment requires an employee’s account number, salary, allowances and the number of days leave taken during the month (UAE Ministry of Labour 2010).

In 2016, the Ministry of Human Resource and Emiratisation replaced its 2009 decree with a new Ministerial Decree (No. 739), which increased penalties for non-compliance. For example, a company’s account with the Ministry of Labour can now be suspended, which means that it would no longer be permitted to hire staff or issue visas.

These moves to protect worker’s rights are one of the reasons why the UAE has experienced high levels of international expansion over recent years.

Salary information files in KSA and UAE

In both the UAE and KSA, it is necessary to adhere strictly to the information and format required by banks to accept and register wage payments under the WPS. Employers must lodge a Salary Information File (SIF) detailing their employees’ income. The file needs to include their:

• Residency ID;
• Visa ID;
• Name;
• Bank name and account number;
• Frequency of payment (for example, monthly or fortnightly);
• Number of working days for the wage period;
• Net salary paid;
• Basic salary (according to their contract);
• Extra hours worked;
• Extra income (allowances such as transport, housing, food, bonuses, back-pay, advanced payments for vacation etc).

Deductions must also be listed and could include loan payments, charges for damages caused by the employee, salary cuts (for example, due to sick leave) and payments for fines stemming from legal violations such as traffic offences.

General Pension and Social Security Authority in the UAE

In the past, only UAE nationals were required to pay pension and social security contributions. Employers hiring them had to register with the General Pension and Social Security Authority (GPSSA) no later than one month after they joined the company.

But as of 1 January 2007, the Pensions Law was supplemented by the introduction of the Gulf Co-operation Council (GCC) Pensions Resolution [Federal Cabinet Resolution 18 of 2007]. This legislation made it compulsory for employers to register all non-UAE, GCC nationals employed in the country for pensions that were in line with schemes employed in their home countries.

The Pensions Law and Resolution apply equally throughout the UAE to all employers, including those operating in the country’s various Free Zones. They mean that employers must register every qualifying UAE and GCC national working in the country with the GPSSA.

In circular number one from 2017, which was addressed to private sector employers subject to Federal Law No. (7) from 1999 that dealt with pensions and social security, it was made clear that employers needed to ensure all UAE nationals working in the country are covered by social security. If employers break the law, they are required to pay an additional penalty of 10% of the outstanding amount and/or shortfall in their GPSSA payment.

An additional amount of 0.1% of the total contribution is also imposed for each day that payments remain outstanding. The circular likewise stated that these penalties would be imposed without issuing a formal notice or notification.

GPSSA social contributions in the UAE

Social Security contributions are calculated on a fixed percentage rate based on an individual’s basic salary and allowances. The contribution is fixed for the whole year as of 1 January and is revised in the January of each following year once the GPSSA has been informed of any salary increase.

If a salary rise takes place during the current year, it is only necessary to update the Authority in January of the following year. If a new employee commences their duties during the course of a year, their contribution will be based on the monthly equivalent of the first month and remain fixed at that level until 1 January of the following year.

Contributions must be made within the first 15 days of the next month following the month in which the contribution accrues. They are calculated by working out the prevailing percentage of the monthly contribution salary (monthly salary plus any allowances) subject to a maximum. The current GPSSA monthly salary level is AED 50,000 (US$13,613). Employer contribution rates are 12.5% and employee contribution rates are 5%.

General Organisation for Social Insurance in KSA

Premiums paid towards the General Organisation for Social Insurance (GOSI) are used to cover the cost of social security and health services in KSA. GOSI is regulated by the Social Insurance Regulation, Royal Decree Number M/22 or 3^rd Ramadan 1421 Heja (29 November 2000). It implements social insurance rules, collects contributions from employers and pays benefits to entitled insured persons and their family members.

GOSI contributions in KSA

In KSA, employers are legally obliged to register new hires during the first 15 days of the month after the start of their employment. Contributions must be paid within the first 15 days of the month following the month to which contributions relate. This means that contributions for June must be paid before 15 July.

GOSI contributions are calculated based on an employee’s earnings. These earnings are the combined total of their basic salary plus any cash housing allowance. If housing is provided in kind, the value of the housing allowance for GOSI purposes is set at two months base salary.

There is a maximum earnings cap of 45,000 SAR (US$12,000) on which GOSI is calculated. As in the UAE, salaries are set in January each year. Along with a contribution to cover pensions, employers also need to contribute towards their workers’ compensation and disability plans or work hazard insurance. This rate is currently set at 2% and is payable for both KSA nationals and expatriates. GOSI also recently introduced a new contribution towards an unemployment fund.

Current contribution levels are below:

An online portal has now been set up to make it easier to register new employees for GOSI. Employees leaving their jobs in KSA may also be de-registered from the scheme using the online portal.

Conclusion

If international companies expand their operations into the UAE and KSA, it is important that global payroll professionals are able to understand and explain the necessary acronyms to employees taking up jobs in the region.

Sharon Tayfield is a senior manager, with extensive experience in global outsourcing and a special interest in payroll. She has undertaken senior management roles at a range of multinational companies, including a wholly-owned subsidiary of Anglo America where she was financial director. Prior to her current role, Sharon was chief operating officer for a payroll service company specialising in outsourced services to Africa and the UK.