18 Oct 2016

Ministerial Decree No. 739 of 2016 introduces new penalties for late and non-payment of wages under the Wages Protection System

Authored by: Natasha Dowding

Ministerial Decree No. 739 of 2016 introduces new penalties for late and non-payment of wages under the Wages Protection System

In brief:

  • Ministerial Decree No. 739 of 2016 Concerning the Protection of Wages (‘MD 739’) was recently introduced by the UAE Federal Ministry of Human Resources and Emiratisation (‘MOHRE’) (formerly the Ministry of Labour).
  • MD 739 reinforces the existing requirement for employers registered with the MOHRE to subscribe to and pay the wages of their employees through the Wages Protection System (‘WPS’).  It importantly also introduces new penalties against employers who fail to pay their employees’ wages on time or who refuse to pay their employees’ wages at all. Such penalties depend on the size of the employer and further include (among other penalties):
  1. blocking the employer’s ability to procure work permits;
  2. reducing the employer’s classification; and
  3. fines.

Background

The WPS is a well-established electronic wages transfer system which has been in operation in the UAE since it was introduced in 2009 under Ministerial Decree No. 788 of 2009 on Protection of Wages (‘MD 788’).  Under the WPS employers pay employees’ wages via third party banks, which are authorised to provide the service, rather than directly to the employee. Subscription to the WPS is obligatory for all employers registered with the MOHRE.

The WPS allows the MOHRE to create a database that records wage payments.  This consequently allows the MOHRE to monitor payment of wages and therefore more easily identify and penalise employers if they default on their payment obligations. As a consequence, the WPS offers protection to workers against late and/or non-payment of wages.

Previously, the penalties for violations in relation to late payment of wages under Article 8 of MD 788 (in respect of wages which were not paid within a month of their due date) were limited to a ban on the issue of new work permits for certain periods, depending on the length of the delay and the number of previous violations by the employer. The MOHRE also had the ability to impose bans on issuing any work permits to all institutions owned by the owner of the violating employer if the ban(s) mentioned above had been to no avail.

The key provisions of Ministerial Decree No. 739 of 2016 Concerning the Protection of Wages

  1. Failure to subscribe to the WPS

MD 739 reinforces the fact that employers which are registered with MOHRE must subscribe to the WPS. Failure to do so will mean that the MOHRE will refrain from dealing with the employer, until they have subscribed. 

  1. Late payment and non-payment of wages

MD 739 stipulates that:

  1. An employer shall be deemed as late in paying wages if the wage is not paid to the employee within 10 days of the due date (‘Payment Delay’); and
  1. An employer shall be deemed as refusing to pay wages if the wage is not paid to the employee within one month of the due date (unless a shorter term is provided for in the contract) (‘Payment Refusal’).
  1. Penalties

MD739 goes further than MD 788 (which is repealed by MD 739) in relation to penalties for late payment of wages and details a number of different penalties, depending on the length of the delay in payment and the size of the employer. The main penalties introduced by MD 739 are:

  1. If an employer has 100 or more employees and  commits a Payment Delay, the MOHRE will, for delays of at least:
  1. 10 days - give the employer a warning notice that the penalty detailed below at a) ii) will be imposed if the payment becomes 16 or more days late.
  2. 16 days - suspend the employer from granting any more work permits (‘Permit Suspension’) and give the employer a warning notice that the penalties described at b) below will be imposed if the payment becomes a month late.
  1. If an employer has 100 or more employees, to the extent that the employer commits a Payment Refusal, the MOHRE will, for delays of at least:
  1. One month - impose a number of sanctions, including informing judicial and other bodies to take precautionary and punitive procedures against the employer, extending the Permit Suspension to the remaining establishments of the employer without notice, refusing to register new establishments of the employer, utilising the employer’s bank guarantee and decreasing the establishment classification of the employer to the third class.
  2. 60 days – enforce administrative fines in addition to the penalties listed above.
  1. If an employer commits a Payment Delay, the Permit Suspension will be removed immediately following the employer’s payment of the outstanding wages.
  1. If an employer commits a Payment Refusal, the Permit Suspension will remain in force for a further two months following the employer’s payment of the outstanding wages and can be extended the more the Payment Refusal is repeated.
  1. If an employer has less than 100 employees, the above penalties will not apply unless the employer’s violation is repeated more than once in the same year.

Summary

It is important that employers who are registered with the MOHRE ensure that they subscribe to the WPS. Further, employers (especially those with 100 or more employees) should ensure that they pay their employees in a timely manner in order to avoid the above penalties, many of which could cause serious disruption to the employer’s business as well as reputational damage.

MD 739 will be published in a future edition of the Official Gazette and will come into force at a date following publication of that Gazette.

 
 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.