Labour Laws and Protection of Wages in ADGM

ADGM labour laws are very stringent about employee welfare and protection of wages. Not paying wages can lead to court intervention and hefty penalties. Each stage of non-compliance would amount to different stages of penalty. 

Every employer is obliged to make payments to their employees in accordance with the employment contract executed between the employer and the employee . If such an amount is not specified in the employment contract, then the employer is responsible for the consequences that they might face in the future.  

Disambiguation: This article discusses ADGM employment laws. For DIFC labour laws, please refer to DIFC Employment Laws. For UAE Federal labour laws, please refer to UAE Federal Employment Laws.

This blog is a part of our Employment Law Services.

Payment terms in ADGM 

In ADGM, wages encompass all remuneration payable to an employee in cash in consideration of their employment. This includes basic salary, allowances, and any other monetary compensation. Employers must stipulate the agreed wages in the employment contract, ensuring transparency and mutual agreement.

An employee shall be entitled to receive a sum amount for their work that shall include the basic wage amount and all the other allowances that the employee is entitled to receive such as transportation allowance, housing allowance, and any other payments that the employee might be entitled to in accordance with their type of employment. 

 In Abu Dhabi Global Market (ADGM), the protection of wages is dealt with under the provisions of ADGM Employment Regulations 2019 (“the Regulations”), and the penalties for failure to make such payment of wages are dealt with under the provisions of ADGM Employment Regulations 2019 (Compensation Awards and Limits) Rules 2019 (“the Rules”).  

 According to the ADGM Regulations, the employer must pay the employee a basic wage within the pay period not exceeding one (1) month and basic wages (vacation pay) shall be made within seven (7) days from the end of the relevant pay period. 

The usual practice in UAE and the law of the mainland, the daily wage is calculated by dividing the total salary by thirty (30) days. However, as per ADGM Regulations, the Daily Wage shall be calculated taking into consideration the total number of business days in a year. It is the discretion of the employer to stick with the 30-day calculation or consider the business days.

What if the salary is not paid in time? 

This time period is stipulated as per Section 12 of the Regulations. If the employer violates or does not comply with section 12 of the Regulations, then the employee shall make an application to the court, where the court shall order the employer to make an award as compensation to the employee of such amount that is outstanding or as the court considers just and equitable while considering that the (i) employer has defaulted in making payments and his obligations as per section 12 of the Regulations and (ii) the employee has suffered a loss due to the reason for which the complaint was made thereof. 

Overtime Wages

The ADGM Labor Law provides detailed provisions for overtime compensation, ensuring employees are fairly remunerated for work beyond regular hours. The standard workweek in ADGM is 48 hours, with any hours worked beyond this threshold considered overtime.

Calculating Overtime

Calculations concerning overtime compensation for a partially completed reference period shall be done on a pro-rata basis.

Overtime wages are calculated based on the employee’s regular hourly rate. Overtime compensation is either monetary or by time in lieu, or a combination of both, as decided by the Employer. Monetary overtime compensation is in addition to Daily Wage and shall be payable at the rate of 25% of the Hourly Rate (or time in lieu as appropriate). For overtime worked between 9:00 p.m. and 4:00 a.m., and during public holidays, the overtime compensation rate is 50% of the Hourly Rate (or time in lieu as appropriate). Monetary overtime payments shall be paid no later than 1 month after the expiration of the reference period in which they accrued.

Illustration

Overtime compensation is assessed in respect of a period of months rather than a strict day- by-day basis. An employees’ weekly working hours are averaged out over a maximum ‘reference period’ of 4 months. The ‘threshold’ is calculated with the restriction on the maximum weekly working hours in mind. Therefore, employees working in excess of the threshold over a reference period would be entitled to overtime compensation.

For example, if an employee works 60 hours one week, then only 45 hours per week for the following 3 weeks, over a certain period, the hours worked over the threshold, which are 3 hours in this case, will be averaged out throughout the reference period.

 Employee’s Monthly Salary: AED 12,000

Overtime Hours Worked in a Month: 10 hours during regular days and 5 hours during public holidays

Daily Wage = AED 12,000/30 = AED 400 per day

Therefore, hourly wage = AED 400 / 7 hours per day = AED 57.14 per hour

AED 57.14 * 25% = AED 14.28 will be the overtime for per hour

Therefore for 10 hours of overtime 14.28 * 10 hours = AED 142.85

Total overtime = AED 12,000 + AED 142.85 + 571.4 = 12,714.28

 

Similarly, for public holidays, the percentage is 50%:

Daily wage = AED 400/7 hours per day = AED 57.14

57.14 * 50% = AED 28.57 will be the overtime rate per hour

Therefore, for 5 additional hours 28.57 * 5 hours = AED 142.85

The total overtime = AED 12,000 + AED 142.85+571.4 = AED 12,714.28

The above calculations are based on the usual practice in the UAE. The employer may calculate according to the business days calculation.

Leave Salary: Ensuring Financial Security During Leave

The ADGM Labor Law entitles employees to various types of leave, including annual leave, sick leave, and maternity leave, with corresponding leave salaries.

Annual Leave and Leave Salary

Employees are entitled to twenty (20) business days of annual leave per year, with a leave salary calculated based on their daily wage, including basic salary and allowances. An employer shall allow an employee who is entitled to an annual leave to take it in periods of one (1) or more weeks. If an employee’s annual leave includes public holidays, these holidays are not counted against their annual leave entitlement.

An employee is entitled to carry forward his accrued but untaken annual leave up to a maximum of five (5) business days into the next year for a maximum period of twelve (12) months after which the unused leave shall expire.

Payment in Lieu: Compensating for Untaken Leave

The concept of payment in lieu arises in cases where employees have untaken leave at the end of their employment. The ADGM Labor Law mandates payment for any unused annual leave days, calculated based on the employee’s last drawn wage. This ensures that employees are compensated for their accrued leave, maintaining fairness and financial security.

Payment Methods: Ensuring Secure Transactions

ADGM Labor Law emphasizes secure and transparent payment methods. Wages and other entitlements must be paid through a bank account in the employee’s name, ensuring a verifiable and secure transaction process. This method aligns with the broader Wage Protection System (WPS) implemented across the UAE, promoting timely and transparent payment of wages.

Wage settlement after termination 

Upon termination of the employee, the employer is obligated to make any and all outstanding payments that are due to the employee within a period of fourteen (14) days of such amount becoming due (or from the date of termination).  If the employer fails to comply with this rule as per the section 13 of the Regulations, then the employee may make an application to the court for a declaration to that effect, for which the court may have its discretion to order the employer to make the payment to the employee along with the compensation for such failure, and / or with such compensation that the court may consider just and equitable in all respects.

However, the amount ordered by the court shall be up to a maximum sum equivalent to the last daily wage for each day during which the employer failed to comply with, i.e, for example, let’s consider the daily wage of the employee at AED 130 (on an average of 30 days per month) * the number of days the employer failed to make the payment. 

End of Service Benefits

In addition to payment in lieu of unused leave, employees are entitled to end-of-service benefits (EOSB), calculated based on their tenure and wage. This includes gratuity payments, which are determined by the length of service and the employee’s last drawn wage, ensuring a fair and transparent process.

The gratuity payment shall be calculated as follows:

  1. 21 days’ basic wage for each year of the first five (5) years of service; and
  2. 30 days’ basic wage for each additional year of service, provided that the total of the gratuity shall not exceed the wages of two (2) years of service.

The daily rate for the employee’s basic wage shall be calculated based on the number of days in the year and by reference to the basic wage payable to the employee as of the date of termination of the employee’s employment. The employer may deduct from the gratuity any amounts owed to the employer by the Employee.

Can an employer deduct the salary? 

Further, according to section 14 of the Regulations, the employer shall not deduct the salary of the employee. However, according to section 14 of the Regulations, there are some exceptions where the employer may deduct the wages of the employee in the following circumstances: 

  1. Where the deduction or payment is made in accordance with the employment contract of the employee, as per the applicable legislation of ADGM; 
  2. Where there is written consent from the employee consenting willfully to such deductions; 
  3. Where such deduction is a reimbursement for a payment that was made in excess previously; 
  4. Where such deduction is as per the order or judgment from the Abu Dhabi Global Market Court;  

 Other than the circumstances as stated above, the employer shall not deduct any sum of amount from the employee’s wages. Also, the employer shall not deduct the amount that has been incurred during the recruitment of the employee, including the cost of a visa and a work permit, for such a position for such a period as stipulated in the employment contract.  

 If the employer deducts the amount from the wages of the employee or accepts a payment that is not in accordance with the permissible exception as stated in section 14 of the Regulations, then the employee shall make an application to the court against the employer. The court may, considering the reasons for which the deduction is made, order the employer the following: 

  1. To pay the employee the amount that was deducted in contravention of section 14 of the Regulations; 
  2. To repay the employee the amount that the employer received and/ or deducted from the employee’s salary by contravening section 14 of the Regulations; 
  3. To pay the employee (other than the amount payable as given above) such amount in lieu of compensation as the court may order the employer to pay to the employee for any financial loss incurred by the employee during these deductions (or non-payment), as the court deems fit, under such circumstances.  

In case the court orders the employer to make such payments to the employee, then such amount shall not be recovered from the employee by any means whatsoever.  

Can anyone charge a fee for providing employment with ADGM? 

Further, a person (any employment agency or employment broker for that matter), shall not request, charge or receive any amount, directly or indirectly, from any person who is seeking employment from ADGM. The following payments shall not be sought from the person: 

  1. Payment for employing or obtaining employment for the person seeking the employment;  
  2. Providing any kind of information from the employers regarding the employment 

 Any payment that has been made to such person by the employee, in contravention of such provisions, shall be repaid to the employee by way of wages or salary or as a debt due to the person who is seeking employment.  

 An exception to the above is where a person requesting, charging or receiving payment for any form of advertisement from the person who placed the advertisement. 

 A person who fails to comply with the provisions as stated above shall be liable for a fine not exceeding level 3 on the standard fines scale, in addition to the sum which may be payable by the employer to the person seeking employment.  

 Key takeaways

  • Not paying the wages to the employees would lead to court intervention and the employer paying hefty sums by way of a penalty and fines. Each stage of non–compliance would amount to different stages of penalty.  
  • Employee working Overtime must be compensated adequately either monetarily or by time in lieu, or a combination of both, at the discretion of the employer.
  • The Wage Protection System (WPS) is a system implemented by the UAE government to ensure that private sector employees’ wages are paid accurately and on time through an electronic salary transfer process. It primarily applies to companies registered in mainland UAE and companies operating in free zones that fall under the UAE MOHRE jurisdiction.  
  • ADGM, being a financial free zone with its own legal framework, may have its own regulations in place to ensure the protection of wages for employees, but it may not necessarily require the use of the WPS. 
  • Employees are entitled to a leave salary corresponding to their leaves as prescribed by the ADGM Laws
  • The employee must be settled with adequate end-of-service benefits upon termination of their employment.

The protection of wages is an important part of the ADGM’s legal framework. These laws help to ensure that employees are paid on time and in full and that they are not subjected to unauthorized deductions. If an employee believes that their wages have been withheld or otherwise violated, the employee has the right to approach the Financial Services Regulatory Authority (FSRA) to file a complaint against the employer. 

Disclaimer

The opinions expressed in this blog are those of the respective authors. ATB Legal does not endorse these opinions. While we make every effort to ensure the factual accuracy of the information provided in our blogs, inaccuracies may occur due to changes in the legislative landscape or human errors. It is important to note that ATB Legal does not assume any responsibility for actions taken based on the information presented in these blogs. We strongly recommend verifying information from official sources and consulting with professional advisors to ensure its accuracy and relevance to your specific circumstances.

About ATB Legal

ATB Legal is a full-service legal consultancy in the UAE providing services in dispute resolution (DIFC Courts, ADGM Courts, mainland litigation management and Arbitrations), corporate and commercial matters, IP, business set up and UAE taxation. We also have a personal law department providing advice on marriage, divorce and wills & estate planning for expats.

Please feel free to reach out to us at office@atblegal.com for a non-obligatory initial consultation.

by Aparna T Nambissan

Aparna is a legal consultant at ATB legal. She holds a Bachelor’s degree in Law and Commerce from Karnataka State Law University. She is enrolled with the Bar Council of Karnataka.

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