What is the basic salary in the UAE?

In the UAE, basic salary refers to the fixed amount agreed upon in the employment contract, paid to an employee for performing their job responsibilities. It does not include variable components such as housing allowance, transportation, overtime pay, or other benefits. Basic salary forms the foundation for calculating statutory entitlements like end-of-service gratuity.

How is basic salary different from gross salary? What components are excluded from basic salary?

Basic salary is only the fixed portion of an employee’s pay, while gross salary includes the basic salary plus all additional allowances and benefits such as housing, transport, bonuses, and overtime. Gross salary reflects the total compensation before any deductions, while basic salary is the core pay used for legal and contractual calculations.

The following components are excluded from basic salary:

• Housing allowance.
• Transport allowance.
• Overtime pay.
• Sales commissions.
• Bonuses.
• Any other in-kind benefits.

These are considered additional benefits and are not used in the calculation of end-of-service or statutory benefits based on UAE Labour Law.

How is basic salary determined in an employment contract?

Basic salary is crucial because it forms the legal basis for calculating mandatory employee benefits such as:

• End-of-service gratuity.
• Leave encashment.
• Severance pay.

Employers and employees must clearly define the basic salary in the contract to ensure compliance with UAE labour regulations and to avoid disputes related to benefit calculations.

How does basic salary affect statutory contributions and benefits?

In the UAE, basic salary directly influences the calculation of:

Here’s a brief guide:

• End-of-service gratuity (based on last drawn basic salary).
• Leave pay and termination benefits.
• Pension contributions for UAE/GCC nationals.

While it doesn't usually affect expatriate statutory deductions (as there are no income taxes), it remains central to legal calculations mandated by UAE Labour Law.

Frequently Asked Questions

How is basic salary defined in UAE labour law?

Basic salary is the fixed amount stipulated in the employment contract, paid to the employee for their work, and does not include any allowances or in-kind benefits such as housing, transport, or overtime. It is paid on a monthly, weekly, daily, hourly, or piecework basis and forms the foundation for calculating statutory benefit.

What percentage of total salary is usually a basic salary in the UAE?

While UAE labour law does not mandate a specific percentage, it is common practice for the basic salary to constitute about 60% of the total (gross) salary, with the remaining 40% made up of allowances and benefits. Some sources may reference 50% as a typical figure, but 60% is the most widely cited.

Are commissions and bonuses part of the basic salary?

The inclusion of commissions and bonuses in basic salary is not explicitly defined in the law. Their treatment depends on the employment contract. If not clearly categorized as allowances, UAE courts have ruled that commissions and bonuses directly related to work may be considered part of basic salary. To avoid ambiguity, always specify their treatment in the contract.

Is there a minimum wage for basic salary in the UAE?

There is no specific minimum wage for basic salary or total salary set by UAE labour law. The law requires only that wages be sufficient to meet employees’ basic needs. The Cabinet may introduce minimum wage legislation in the future, but as of now, no minimum is enforced.

Is basic salary the same as take-home pay?

No, basic salary is not the same as take-home pay. Basic salary is the fixed contractual amount before any allowances, benefits, or deductions. Take-home pay (net salary) is the amount the employee actually receives after adding allowances and subtracting any deductions (such as pension contributions or other withholdings).