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Hiring in the UAE: EOR vs WPS Payroll — 2026 Employer Guide
Summary:
- You cannot sponsor or pay staff in the UAE without a MOHRE-registered mainland entity or a free-zone licence — which is why most foreign companies hire through an Employer of Record (EOR).
- Salaries must run through the Wage Protection System (WPS); wages unpaid within 15 days of the due date are late and can trigger work-permit suspensions, fines and prosecution.
- There is no income tax on salaries and no state pension for expats — their statutory severance is the end-of-service gratuity (21 days’ basic pay per year for the first 5 years, 30 days thereafter, capped at 2 years’ wages).
- All private-sector contracts are now fixed-term under Federal Decree-Law No. 33 of 2021; unlimited contracts were abolished.
Quick answer: To employ someone in the UAE you need a local licensed presence (mainland via MOHRE or a free zone) to sponsor the residence visa and work permit, then run payroll through the Wage Protection System (WPS). There is no personal income tax and no expat state pension, but employers owe end-of-service gratuity and the employee-funded ILOE unemployment premium. An Employer of Record lets you hire compliantly in days without setting up an entity.
Do you need an entity to hire in the UAE?
Yes. Employment, residence-visa sponsorship and work permits in the UAE can only be issued through a licensed local presence — either a mainland company registered with the Ministry of Human Resources and Emiratisation (MOHRE) or a company licensed by a free-zone authority. A foreign company with no UAE presence cannot legally sponsor or pay staff on its own.
Mainland entities are governed by the federal labour law and can trade across the UAE market; free zones (including the separate DIFC and ADGM jurisdictions, which run their own employment regimes) tie activity and visa sponsorship to the zone. Either route involves licensing, capital and weeks of setup — which is why companies placing one or a handful of employees typically use an Employer of Record in the UAE instead. The EOR becomes the legal employer, sponsors the visa and work permit, runs WPS-compliant payroll and carries the compliance liability, while you direct the day-to-day work.
The Wage Protection System (WPS)
WPS is MOHRE’s electronic salary-transfer system, operated with the UAE Central Bank. It is mandatory for all private-sector employers registered with MOHRE: wages must be paid in full, on time, through approved banks or exchange houses, and the system reconciles each transfer against the registered contract.
Wages are treated as late if they are not transferred within 15 days of the due date. Consequences escalate quickly — suspension of new work permits, downgrade to the lowest MOHRE classification (which raises fees), referral to Public Prosecution for persistent delays at larger firms, and a fine of AED 5,000 per worker for recording wages that were not actually paid. In December 2025 MOHRE announced an upgraded WPS with the Central Bank and Al Etihad Payments aimed at faster, more closely monitored transfers.
End-of-service gratuity
Expat employees who complete at least one year of continuous service are entitled to end-of-service gratuity, calculated on their last basic salary (allowances such as housing and transport are excluded):
- First 5 years: 21 days of basic pay for each year of service.
- After 5 years: 30 days of basic pay for each additional year.
- Cap: total gratuity may not exceed two years’ wages.
Under Federal Decree-Law No. 33 of 2021 the old resignation-based reductions were abolished, so an employee who resigns now receives the full 21/30-day rate (provided they have completed a year). All final dues, including gratuity, must be paid within 14 days of the contract ending.
Tax, pensions and unemployment insurance
The UAE levies no personal income tax on salaries, and there is no employer payroll-tax withholding for expat staff. A 9% corporate tax applies to business profits above AED 375,000 (for financial years starting on or after 1 June 2023), but this does not tax employee wages.
Expats are not enrolled in a state pension — gratuity is their severance entitlement. Employers must, however, contribute to the GPSSA pension for any Emirati they employ (15% employer / 11% employee for new entrants under the 2023 law). Separately, the ILOE “Involuntary Loss of Employment” insurance is mandatory and employee-funded: AED 5/month for basic salaries up to AED 16,000 and AED 10/month above that, plus VAT. After 12 months of contributions an eligible worker can claim 60% of average basic salary for up to three months. In the DIFC, statutory gratuity has been replaced by the funded DEWS savings scheme.
Key employment terms at a glance
- Contracts: fixed-term only (max 3 years, renewable); unlimited contracts abolished.
- Working hours: 8/day or 48/week, reduced by 2 hours/day in Ramadan.
- Probation: up to 6 months.
- Annual leave: 30 calendar days/year after one year of service.
- Sick leave: up to 90 days/year (15 full pay, 30 half pay, 45 unpaid).
- Maternity leave: 60 days (45 full pay + 15 half pay).
EOR vs setting up your own entity
Setting up a mainland or free-zone entity makes sense when you are building a substantial, long-term UAE presence and want full control. For testing the market, hiring quickly, or employing a small team, an EOR removes the licensing, capital and visa-sponsorship burden and gets a compliant employee onboarded in roughly 1–3 weeks. If you already have an entity but want the monthly run handled compliantly, managed payroll in the UAE covers WPS, gratuity accruals and end-of-service processing. Talk to our UAE team to compare the two routes for your headcount.
Frequently asked questions
Does a foreign company need a legal entity to hire employees in the UAE?
Yes. To employ and sponsor staff you need a presence licensed with MOHRE (mainland) or a free-zone authority, because visas and work permits are only issued through a registered local employer. Many companies avoid incorporation by using an Employer of Record, which acts as the legal employer and sponsors the visa while the client manages the work.
Is there income tax on salaries in the UAE?
No. The UAE levies no personal income tax on employment income. A 9% corporate tax applies to business profits above AED 375,000 from financial years starting on or after 1 June 2023, but it does not tax employee wages.
What is the Wage Protection System (WPS) and is it mandatory?
WPS is MOHRE’s electronic salary-transfer system that ensures employees are paid in full and on time through approved channels. It is mandatory for all private-sector employers; wages not transferred within 15 days of the due date are late and can trigger work-permit suspensions, fines and prosecution.
How is end-of-service gratuity calculated in the UAE?
For expat employees with at least one year of service, gratuity is 21 days of basic salary per year for the first five years and 30 days per year thereafter, based on the last basic salary excluding allowances. The total is capped at two years’ wages and must be paid within 14 days of the contract ending.
Do employers pay pension or social security for expat employees?
No state pension or social security applies to expatriate employees — their severance entitlement is the end-of-service gratuity. Employers must, however, make GPSSA pension contributions for any Emirati staff, currently 15% employer and 11% employee for new entrants under the 2023 law.
What is ILOE unemployment insurance and who pays for it?
ILOE is the UAE’s mandatory unemployment insurance, in force since January 2023 and paid by the employee — AED 5/month for basic salaries up to AED 16,000 and AED 10/month above that, plus VAT. After 12 months of contributions, an eligible employee can claim 60% of average basic salary for up to three months.
Are unlimited employment contracts still allowed in the UAE?
No. Under Federal Decree-Law No. 33 of 2021 all private-sector contracts must be fixed-term (maximum three years, renewable). As a result, gratuity is now paid at the full 21/30-day rate even when an employee resigns, with no resignation-based reduction.
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