13 min read
How to Simplify Payroll Calculation in a Construction Company in the UAE
Published 15 Aug 2024
If you own a construction business in the UAE, there are several rules you must follow when running payroll. The country’s payroll processes require you to consider the number of workers you employ when calculating payroll. This means you must know how to calculate payroll, especially if you want to avoid mistakes that can lead to non-compliance and hefty fines.
Unfortunately, construction industry payroll is notoriously complex. In the UAE, construction companies face even more challenges. These include complicated salary structures, calculating fluctuating work hours, and sticking to overtime regulations. Fortunately, an automated payroll system that simplifies payroll calculations can help your business comply with WPS rules and avoid penalties. [?]
This article explains how simplifying payroll calculations can help you overcome the challenges you may experience when processing payroll for construction workers. It will also give you the information you need to effectively run a construction payroll in the UAE.
Unfortunately, construction industry payroll is notoriously complex. In the UAE, construction companies face even more challenges. These include complicated salary structures, calculating fluctuating work hours, and sticking to overtime regulations. Fortunately, an automated payroll system that simplifies payroll calculations can help your business comply with WPS rules and avoid penalties. [?]
This article explains how simplifying payroll calculations can help you overcome the challenges you may experience when processing payroll for construction workers. It will also give you the information you need to effectively run a construction payroll in the UAE.
Contents
What to Remember About Running Payroll in a UAE Construction Company?
Construction businesses must adhere to all labor law rules and regulations. The volume of requirements overwhelms those in charge of payroll, resulting in costly errors.
Moreover, the UAE government revises labor laws regularly. This will result in chaos if a construction company’s HR department is not on top of these changes.
Your UAE construction company must also comply with the country’s Wage Protection System (WPS).
Moreover, the UAE government revises labor laws regularly. This will result in chaos if a construction company’s HR department is not on top of these changes.
Your UAE construction company must also comply with the country’s Wage Protection System (WPS).
WPS means uploading construction payroll data to the system and making payments through the right channels.
This system was implemented to ensure workers get paid correctly and on time.
What Is Payroll Processing in Construction?
The payroll process in construction means systematically calculating and distributing wages and salaries to permanent and temporary employees. Construction payroll processing involves steps that ensure workers get their salaries on time. These steps also guide HR managers in adhering to the UAE’s complex labor laws and construction regulations.
Payroll Cycles and Payment Frequencies
Your business can have more than one payroll cycle, or you could pay everyone at the same time. The most common types of payroll cycles are as follows.
Weekly payroll. This means paying your workers on a specified day every week, so they will receive 52 payments in a year.
Bi-weekly payroll. A bi-weekly payroll run pays your employees once every two weeks, equaling around 26 pay periods annually. These pay periods happen on the same day of the week each time, typically on a Monday.
Semi-monthly payroll. These cycles are similar to bi-weekly cycles but run on specific dates. Because these dates may fall on a weekend or holiday, the salary payments may be delayed.
Monthly payroll. When you pay your employees monthly, you can calculate their salaries based on a 30-day month or the actual number of days each month.
The payroll cycle you choose for your business will depend on cash flow, business size, and industry norms or standards. You can also consider your employees’ preferences.
Most trade sectors in the UAE, including construction, prefer weekly payrolls. If you have several hourly-paid workers, it is easier to calculate weekly payments.
Most trade sectors in the UAE, including construction, prefer weekly payrolls. If you have several hourly-paid workers, it is easier to calculate weekly payments.
But remember that if you outsource your payroll function, the costs can quickly add up. This will pose a problem if you struggle with cash flow.
Bi-weekly pay periods are often ideal for startups, but only if your business has a strong cash flow that can cover payroll processing. It will also work well if you have a mix of hourly and salaried employees.
Semi-monthly payroll cycles are often easier to calculate and allow paychecks to be distributed on either the 1st and 15th or the 15th and 30th of each month. These dates will not always fall on the same day of the week, so the pay periods often increase from 24 to 26 each year.
If you choose a semi-monthly payroll cycle, paydays that fall on weekends will move to the Monday either before or after the weekend.
Monthly payment cycles are not ideal for a small business or startup. Instead, they are ideal for contract or freelance workers. Monthly payroll cycles are also more heavily regulated than other payment cycles.
Semi-monthly payroll cycles are often easier to calculate and allow paychecks to be distributed on either the 1st and 15th or the 15th and 30th of each month. These dates will not always fall on the same day of the week, so the pay periods often increase from 24 to 26 each year.
If you choose a semi-monthly payroll cycle, paydays that fall on weekends will move to the Monday either before or after the weekend.
Monthly payment cycles are not ideal for a small business or startup. Instead, they are ideal for contract or freelance workers. Monthly payroll cycles are also more heavily regulated than other payment cycles.
Payroll Components
If you do not handle the payments yourself (yet), you must familiarize yourself with the key components of construction payroll.
Basic salary. This is the fixed amount an employee earns for a set number of work hours.
Allowances. These are the grants or additional payments for meals, transportation, and housing.
Deductions. It is important to be aware of deductions subtracted from the salaries of permanent and temporary workers. Deductions for full-time workers typically include taxes, social security contributions, and pension contributions. Temporary employees do not usually get all these deductions taken from their wages.
Bonuses. This depends on whether your company policy allows for extra compensation based on performance or company profit.
Overview of the UAE Labor Laws Governing Payroll
Simplifying payroll processes involves more than knowing about salary frequency and payroll components. You must learn the basics of the UAE labor laws that govern payroll. The UAE legal framework dictating employment relationships is comprehensive. This framework outlines the rights and obligations of employers and employees and provides for wages, working hours, overtime, and end-of-service benefits. [?]
The Federal Law No. 8 of 1980 provides general regulations and guidelines, but specific rules are also in place for the construction industry.
These provisions include the following:
The Federal Law No. 8 of 1980 provides general regulations and guidelines, but specific rules are also in place for the construction industry.
These provisions include the following:
Compensation
Insurance
The federal law also mandates that all construction employers provide employee workers' compensation insurance.
Furthermore, the law states you must pay your employees’ wages in the UAE’s official currency. You also cannot withhold any part of an employee’s wages without a legal order. Moreover, give wages by the 14th of each month or pay penalties.
According to federal law guidelines, employers must subtract all deductions. Employees are also entitled to an end-of-service pay based on length of service.
To ensure you are in line with construction payroll guidelines in the UAE, your HR manager should stay updated with the latest amendments to the labor laws.
Furthermore, the law states you must pay your employees’ wages in the UAE’s official currency. You also cannot withhold any part of an employee’s wages without a legal order. Moreover, give wages by the 14th of each month or pay penalties.
According to federal law guidelines, employers must subtract all deductions. Employees are also entitled to an end-of-service pay based on length of service.
To ensure you are in line with construction payroll guidelines in the UAE, your HR manager should stay updated with the latest amendments to the labor laws.
Common Challenges in Construction Payroll
Awareness of the changes in the UAE labor laws does not mean you will not encounter challenges when running payroll. The construction industry faces specific issues when processing payroll.
Managing Diverse Workforce Classifications
Your construction business likely employs workers who fall into different classifications, including permanent employees, part-time workers, contractors, and sub-contractors. Such a diverse employee complement already makes payroll management more difficult.
Running a construction payroll for all these classified workers means calculating wage rates and overtime eligibility. It also means working out each worker’s benefits.
Running a construction payroll for all these classified workers means calculating wage rates and overtime eligibility. It also means working out each worker’s benefits.
For example, if your employees work overtime, you must pay them extra at 125% of their regular wage. [?] This percentage goes up to 150% if your employees work on holidays.
Moreover, track each worker's employment status in real-time. You can do this by integrating your payroll system with Human Resource Information Systems (HRIS) or automating your time and attendance system. This also ensures your business complies with labor laws at all times.
Ensuring Compliance With Labor Laws
The construction sector is heavily regulated in the UAE. Keeping up with all the relevant rules and laws can become overwhelming. If your HR manager misinterprets a regulation, it may result in a non-compliance penalty for your business. It can also damage your reputation in the construction industry because non-compliance erodes trust and damages business relationships.
If the news of your company’s non-compliance spreads, it can deter potential clients from supporting you or even top talent from seeking work in your business.
In serious cases, non-compliance leads to legal action, while repeated regulatory breaches results in your business being blacklisted (revoked trading license) by industry bodies.
If the news of your company’s non-compliance spreads, it can deter potential clients from supporting you or even top talent from seeking work in your business.
In serious cases, non-compliance leads to legal action, while repeated regulatory breaches results in your business being blacklisted (revoked trading license) by industry bodies.
Handling Allowances and Overtime Calculations
Furthermore, you cannot afford to make mistakes when calculating allowances and overtime pay. You should correctly calculate how much extra pay to give eligible employees based on roles, locations, and project requirements. Errors can lead to penalties and costly employee-employer disputes.
Strategies for Simplifying Payroll Calculations
Considering the many factors and elements to remember when processing payroll, it is easy to see why a simplified construction payroll is necessary.
There are several ways you can implement a simplified and streamlined payroll process. These include the following strategies.
There are several ways you can implement a simplified and streamlined payroll process. These include the following strategies.
Go Paperless
If you still haven’t switched to paperless payroll processing, now is the time. It’s the single best step to making your payroll process more efficient.
Going paperless means digitizing employee records and timesheets by logging everything into a computer in PDF or document form.
You should also enforce digital strategies for saving other payroll-related documents, including hiring documents, employee handbooks, compensation agreements, leave documents, and termination letters.
With digital record keeping, you can benefit from cloud storage, which makes your information more secure and easily accessible from anywhere. Paperless payroll streamlines data entry and instantly improves accuracy, by eliminating manual data processes.
When your business goes paperless, you also reduce the risk of human error while enabling instant calculations and checks.
With digital record keeping, you can benefit from cloud storage, which makes your information more secure and easily accessible from anywhere. Paperless payroll streamlines data entry and instantly improves accuracy, by eliminating manual data processes.
When your business goes paperless, you also reduce the risk of human error while enabling instant calculations and checks.
Outsource Payroll Activities
If you cannot manage payroll processing independently or do not have a dedicated HR manager, consider outsourcing your payroll function. This means handing over your payroll function to a third party that will handle salary calculations, salary deductions, pay slips, and payment processing. Companies that handle payroll for construction businesses have the latest software, experience, and resources to manage payroll accurately and efficiently.
This will alleviate the burden of overseeing or managing a process you may not fully understand. It also ensures compliance with labor laws and reduces the risk of expensive errors. Outsourcing payroll will also free your office staff to focus on other core business activities.
Additionally, most payroll service providers offer features like employee self-service portals, adding more automation to the payroll process.
This will alleviate the burden of overseeing or managing a process you may not fully understand. It also ensures compliance with labor laws and reduces the risk of expensive errors. Outsourcing payroll will also free your office staff to focus on other core business activities.
Additionally, most payroll service providers offer features like employee self-service portals, adding more automation to the payroll process.
Automate Payroll Systems
Automated systems can handle even the most complex calculations for you, including tax deductions.
You will also get time and attendance tracking features if you choose an advanced payroll system. The system can also manage your business expenses (related to payroll) and set up a self-service portal for your employees.
You will also get time and attendance tracking features if you choose an advanced payroll system. The system can also manage your business expenses (related to payroll) and set up a self-service portal for your employees.
FirstBit ERP payroll accounting software offers all these features and more. With this software, you can document employee records, set up end-of-service payments, and create payroll reserves.
The software can help you manage all employee timesheets and schedules. It will also calculate periods of absence, sick leave, and vacations. With the ERP system, you can track personnel expenses and reimbursements.
Involve Employees in the Payroll Processes
It is crucial to involve your employees in the payroll process. If they know what to look for (error-wise) on their pay slip, it will highlight where your current process is going wrong.
Encourage your employees to report discrepancies so you can correct them quickly. Self-service portals also make a huge difference here. If your employees can access their pay slips by logging into a portal, they will discover errors faster.
With the FirstBit ERP payroll software solution, you can easily implement a self-service portal where your employees can access more than just their pay slips. They can update their personal details, check whether their leave days have been calculated correctly, and stay updated on the status of their company loans.
Encourage your employees to report discrepancies so you can correct them quickly. Self-service portals also make a huge difference here. If your employees can access their pay slips by logging into a portal, they will discover errors faster.
With the FirstBit ERP payroll software solution, you can easily implement a self-service portal where your employees can access more than just their pay slips. They can update their personal details, check whether their leave days have been calculated correctly, and stay updated on the status of their company loans.
Classify Workers Properly
If your business cannot correctly classify workers, it is time to overhaul your classification process. You cannot run an efficient payroll if your employees are misclassified, and misclassification is unfair and can lead to significant business penalties.
For example, if you misclassify your employees as independent contractors, it becomes a legal and ethical issue. Your employees work under your supervision, while independent contractors are allowed to follow their own processes.
Employees in your business have benefits like paid leave and overtime, while independent contractors typically do not. It is also your responsibility to ensure that your payroll process includes tax deductions for your employees while independent contractors calculate their own taxes.
If you are unsure of where to start when classifying your workers, get legal advice. A legal professional can also help you clarify ambiguous classifications.
For example, if you misclassify your employees as independent contractors, it becomes a legal and ethical issue. Your employees work under your supervision, while independent contractors are allowed to follow their own processes.
Employees in your business have benefits like paid leave and overtime, while independent contractors typically do not. It is also your responsibility to ensure that your payroll process includes tax deductions for your employees while independent contractors calculate their own taxes.
If you are unsure of where to start when classifying your workers, get legal advice. A legal professional can also help you clarify ambiguous classifications.
Update Your Construction Business’s Payroll System
If you already work with an automated payroll system, you must update it as tax laws and other regulations evolve. This is the only way to ensure your payroll software keeps you compliant with the law.
Important updates also include incorporating new technologies to improve the efficiency of your payroll software. Ideally, you want to increase data security and improve cloud integration periodically.
Your software updates should also include bug fixes, such as patches, to prevent errors that may disrupt the payroll process. Keeping your payroll system updated helps maintain the software’s stability over a longer period.
If your current system does not allow for critical updates, it may be time for an upgrade. You can choose from excellent automated payroll systems designed specifically for the construction industry.
Important updates also include incorporating new technologies to improve the efficiency of your payroll software. Ideally, you want to increase data security and improve cloud integration periodically.
Your software updates should also include bug fixes, such as patches, to prevent errors that may disrupt the payroll process. Keeping your payroll system updated helps maintain the software’s stability over a longer period.
If your current system does not allow for critical updates, it may be time for an upgrade. You can choose from excellent automated payroll systems designed specifically for the construction industry.
Ensure Compliance and Accuracy
Regardless of these strategies, your ultimate goal should be to keep your business in line and compliant with the UAE’s stringent labor laws.
Conduct internal audits regularly to assess the accuracy of your payroll. This will allow you to identify areas for improvement. If you have a payroll department, ensure they are trained in the laws and regulations that pertain to construction. Also, implement internal controls to enhance the security of your payroll process.
Conduct internal audits regularly to assess the accuracy of your payroll. This will allow you to identify areas for improvement. If you have a payroll department, ensure they are trained in the laws and regulations that pertain to construction. Also, implement internal controls to enhance the security of your payroll process.
Internal controls often mean separating payroll duties. For example, one employee may be in charge of timekeeping while another enters the data into the system and processes payroll.
You also do not want everyone in your business to access the payroll system. Limit access to authorized employees and assign unique user IDs and passwords. Always review and update access permissions when employees resign or when you hire new staff members.
Develop detailed manuals for all payroll processes, including a step-by-step guide for payments. The manuals should also include a formal approval process before any payments are made. It is also crucial to train your employees to recognize and report any potentially fraudulent activity.
Following these steps will help protect your business and build trust with your workforce.
Develop detailed manuals for all payroll processes, including a step-by-step guide for payments. The manuals should also include a formal approval process before any payments are made. It is also crucial to train your employees to recognize and report any potentially fraudulent activity.
Following these steps will help protect your business and build trust with your workforce.
Choosing the Right Construction Payroll Software
With the many payroll software options available, you must consider purchasing a system that offers features unique to the UAE construction industry. Ideally, you want a software option designed to include UAE labor laws. It should also accommodate varying work hours, allowances, and deductions.
Other features to look for include:
Other features to look for include:
Time and attendance tracking. You want to be able to record, manage, and calculate each employee's hours, including overtime, breaks, and leave.
Wage calculations. The software must instantly calculate wages for each classified employee. The calculations must include basic salaries, allowances, and deductions. Moreover, the system should also calculate overtime pay based on labor law regulations and wage structures.
Expense management. Managing your business expenses forms part of payroll processing. Your software should track and manage site allowances and transportation and accommodation costs. This will further enhance the accuracy of payroll calculations.
Taxes. The program must deduct taxes and other deductions automatically. These deduction percentages must comply with UAE regulations.
End-of-service pay calculation. A good software program will also allow you to calculate the end-of-service pay owed to workers.
The software you decide on should allow you to customize payroll reports and analytics. You should also be able to integrate it with your existing HR and accounting systems.
For example, if you have a large workforce with several wage structures and employment contracts, you need a software system that calculates on different levels. You also need a system that accurately tracks time and attendance while ensuring your payroll complies with UAE requirements and regulations.
Most importantly, you must choose a reputable payroll software provider. While researching software providers, make a point of reading customer reviews and testimonials.
This will give you a solid idea of the quality of the provider’s products and services. Also, test how easy it is to contact the provider’s customer service team. If you can reach them without having to jump through a lot of hoops, it is a good sign that the team will assist you with after-sale queries.
Most software providers offer basic features for outsourced payroll functions. What you want is a provider that goes above and beyond, especially if your business is a startup.
For example, if you have a large workforce with several wage structures and employment contracts, you need a software system that calculates on different levels. You also need a system that accurately tracks time and attendance while ensuring your payroll complies with UAE requirements and regulations.
Most importantly, you must choose a reputable payroll software provider. While researching software providers, make a point of reading customer reviews and testimonials.
This will give you a solid idea of the quality of the provider’s products and services. Also, test how easy it is to contact the provider’s customer service team. If you can reach them without having to jump through a lot of hoops, it is a good sign that the team will assist you with after-sale queries.
Most software providers offer basic features for outsourced payroll functions. What you want is a provider that goes above and beyond, especially if your business is a startup.
Simplifying Construction Payroll Calculations with FirstBit ERP
The FirstBit ERP software system has all the features your construction payroll process needs and more. This system will instantly simplify your payroll by:
Ensuring compliance with UAE labor laws
Calculating all payroll deductions, compiling timesheets, and taking sick leave and vacations into account
Working out end-of-service payments and payroll reserves
Providing information on issued loans and relevant interest
Storing HR documentation and employee records securely
Calculating working time and hours
With the FirstBit HR software solution, you can keep track of all employment records. Using one platform, you can stay on top of deductions, accruals, terminations, sick leave, vacations, etc.
FirstBit software allows you to manage your employees and optimize your HR operations. You can deploy the system on-premises or use the cloud version. When you invest in the FirstBit ERP software system, you can integrate it with your existing HR systems and immediately enhance your business’s overall efficiency.
FirstBit software allows you to manage your employees and optimize your HR operations. You can deploy the system on-premises or use the cloud version. When you invest in the FirstBit ERP software system, you can integrate it with your existing HR systems and immediately enhance your business’s overall efficiency.
FAQs
1. How Can I Prevent Payroll Errors?
Outsource your payroll function to a reputable payroll services provider. If you have an in-house payroll function, implement strong internal controls such as access restrictions, audits, and ongoing training.
2. What method of payroll accounting is best for a construction company in the UAE?
Accrual basis accounting is recommended for payroll accounting in UAE construction companies. This means wages and salaries are recognized as expenses in the period they are earned, not paid.
3. Are payslips mandatory in the UAE?
Companies are not required to provide payslips, but employees can request them.
4. What is the payroll tax in the UAE?
Payroll tax in the UAE includes social security contributions, which means the employer must pay 12.5% compared to employees who pay 5%.
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