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Employment & HR

How UAE salary packages are structured — and why

A low basic and large allowances is the standard structure, and it exists because gratuity is calculated on basic pay alone. It also quietly caps what your staff can do with their visas.

Basic drives gratuityAllowances do notThresholds read basic

The entitlement

What the law gives, regardless of contract.

A typical UAE salary package splits into basic salary and allowances — commonly housing, transport and sometimes education or utilities. The split is not cosmetic. End-of-service gratuity is calculated on basic salary only, so a package weighted towards allowances produces a materially lower gratuity liability for the same total cost. A basic salary of forty to sixty per cent of the total is the common range, and it exists because employers designed it that way.

What is less discussed is the effect on the employee. Several thresholds that matter enormously are assessed on salary in ways that can read the basic figure rather than the total: family sponsorship, the AED 15,000 monthly condition for the five-year Green Visa, and the ILOE unemployment insurance categories, which key explicitly off basic salary. An employee on AED 22,000 total with AED 8,000 basic may be well above a threshold on one reading and clearly below it on another. For employers this is worth knowing because it is a cheap thing to get right at offer stage and an awkward one to fix afterwards.

The numbers

Gratuity
Calculated on basic salary only
Typical basic
40–60% of total package
ILOE category
Keyed to basic salary, with AED 16,000 as the boundary
Green Visa
AED 15,000 monthly — check how it is read
Family sponsorship
AED 4,000, or AED 3,000 with accommodation
Transfer pricing
Owner-manager salary must be arm's length

What it costs

Basic salary50%Drives gratuity, ILOE category and most salary thresholds
Housing allowance30%Excluded from gratuity; often the largest allowance
Transport allowance12%Excluded from gratuity
Other allowances8%Education, utilities, phone — also excluded

Proportions indicative — they shift with visa count, premises and activity.

A representative structure. The split is a choice, and it decides the gratuity liability.

In practice

How this is actually administered.

  1. Decide the basic proportion deliberatelyIt sets the gratuity accrual for the whole employment, and it is very hard to reduce later without consent.
  2. Check thresholds before finalising an offerGreen Visa, family sponsorship and ILOE all read salary, and some of them read basic.
  3. State the figures unambiguously on the certificateAmbiguity is resolved by whoever is reading it, which is rarely to the employee's advantage.
  4. Accrue gratuity monthly in the accountsIt is a real liability building from day one and companies routinely fail to provide for it.
  5. For owner-managers, price the salary at arm's lengthA shareholder-director's salary is a connected-person transaction under corporate tax.
The mistake people make. Reducing an existing employee's basic salary to cut gratuity exposure. It requires consent, it is visible in the MOHRE record, and it is treated as an unfavourable variation — which makes it evidence rather than planning.

Related

Questions

Basic salary only. Allowances are excluded, which is why packages are structured with a low basic.

Commonly forty to sixty per cent of the total. There is no fixed statutory ratio, but an unusually low basic invites scrutiny.

It can. The ILOE category keys off basic salary, and salary thresholds for the Green Visa and family sponsorship may be read against basic rather than total.

Not unilaterally. It requires consent, and an unfavourable variation is treated as such if the matter reaches MOHRE.

One question

How many people are on the payroll?