EXECUTIVE SUMMARY

This article is intended to explain how the commission and/or the bonus that an employee may receive from the employer is included in the end-of-service compensation claim, but recently according to the new labor law NO. 33 of 2021, the calculation has been changed, and the end-of-service compensation shall not be increased because of the bonus or commission.

The new UAE Federal labor law took effect on February 2, 2022, and has effectively replaced the existing labor law, Federal Law No. 8 of 1980, and its revisions.

WHAT IS THE DEFINITION OF THE BONUS AND COMMISSION?

 A bonus is defined as an additional payment to the salary or wages as a result of extraordinary work or a sum of money added to a person’s wages as a reward for good performance.

A commission is simply a fee paid to an employee for conducting business or performing a service, or a payment based on the sales the employee makes.

WHY INCLUDING OR EXCLUDING BONUSES OR COMMISSIONS IN THE BASIC SALARY IS IMPORTANT

The end-of-service compensation is one of the most important employee rights against the employer in the event of the termination of the employment contract. The employer must pay the end-of-service compensation to the employee immediately at the end of the employment contract, whether the employee resigned or was terminated.

The method of calculating the end-of-service compensation might differ between cases based on the term of the employee’s service. However, all cases agree that the calculation must be done based on the employee’s basic wage. So, it is essential to understand the meaning of the basic wage and if the bonus and commission are part of the basic wage.

WHAT IS THE DEFINITION OF THE WAGE ACCORDING TO THE UAE FEDERAL LAW NO. 8 OF 1980 REGARDING LABOR LAW, AND WHAT HAS CHANGED ACCORDING TO THE NEW LABOR LAW NO. 33 OF 2021?

The UAE Federal Law No. 8 Of 1980 Of Labor Relations As amended by Federal Law no. 12 dated 29/10/1986, in article 1 defined Wage as follows; “Whatever is given to the worker in return for his service under an employment contract, whether in cash or rem, on a yearly, monthly, weekly, daily, hourly, piecework basis or following the production or on a commission basis. The wage shall include the cost-of-living allowance and every grant conferred upon the worker in recognition of his honesty or efficiency should such sums be set in the employment contracts or the by-laws of the establishment or be customarily granted so as the workers deem such grants as part of the wage and not a donation”.

The Federal Decree-Law No. (33) of 2021 Regarding the Regulation of Employment Relationships, “The new Employment Law” defines a wage as follows; “Wage is the basic wage, in addition to the cash allowances and benefits-in-kind allocated to the worker under the employment contract or this Decree-Law, and which may include: benefits-in-kind that the employer shall grant to the worker or their cash equivalent if allocated as part of the wage in the employment contract or the establishment’s by-laws; the allowances that the worker is entitled to obtain in return for his effort, the risks he is exposed to while performing his work or for any other reasons; or the allowances granted to meet the cost of living, a percentage of sales, or a percentage of the profits paid for what the worker markets, produces or collects.

WHAT IS THE DEFINITION OF THE BASIC WAGE?

The UAE Federal Law No. 8 Of 1980 Of Labor Relations As amended by Federal Law no. 12 dated 29/10/1986, in article 1 defined basic Wage as; “The pay provided for in the employment contract during its validity between both parties. Allowances whatsoever are not included in this remuneration. Subsequently, Basic Salary is defined as a wage stipulated in the employment contract during the term thereof between the parties, exclusive of any allowances whatsoever”.

The Federal Decree-Law No. (33) of 2021 Regarding the Regulation of Employment Relationships, the “New Employment Law,” defined the Basic Wage as the wage stipulated in the employment contract, which is paid to the worker in consideration of his work under the employment contract on a monthly, weekly, daily, hourly or piecework basis, and which does not include any other allowances or benefits-in-kind.

THE CALCULATION OF THE END-OF-SERVICE IS BASED ON THE BASIC WAGE

The previous canceled employment law stated that the end-of-service gratuity shall be computed based on the last wage to which the employee was entitled to, in respect of those drawing their salary per month, week, or day. And the wage which is considered as the basis for computation of the end-of-service gratuity shall not include anything given to the laborer in-kind, housing allowance, transport allowance, travel allowance, overtime allowance, representation allowance, cashier’s allowance, children education allowance, recreation, and social services allowance or any other allowances”.

Accordingly, the commission and/or bonus were not mentioned as an allowance and not mentioned as a part of the basic salary in the now canceled UAE Labor law. This previously meant calculating the two as part of the basic salary when computing the end-of-service compensation. And this was the practice in the UAE courts.

According to the previous canceled law, the previous practice at Dubai Cassation Court stated that the salary includes everything that is given to the employee for the work performed, whether it is cash or any kind. Following this, anything given to the employee which is not categorized as an allowance is considered a basic salary, notwithstanding any category that the employer terms it as, so long as it is related to the work performed. The bonus and the commission are part of the basic salary provided; it is continuous for a period, making the employee consider it a part of the salary, not a one-off ad hoc payment.

THE LAW HAS BEEN AMENDED, AND THE PRACTICE IN THE UAE COURTS SHALL BE CHANGED FROM THE YEAR 2022 REGARDING THE CALCULATION OF THE END-OF-SERVICE COMPENSATION

Under the new labor law, the Basic Wage is a wage stipulated in the employment contract, which is paid to the worker in consideration of his work under the employment contract on a monthly, weekly, daily, hourly, or piecework basis, and which does not include any other allowances or benefits-in-kind. The total wage is the basic wage, in addition to the cash allowances and benefits-in-kind allocated to the worker under the employment contract or this Decree-Law. They may include benefits-in-kind that the employer shall grant to the worker or their cash equivalent if allocated as part of the wage in the employment contract or the establishment’s by-laws; the allowances that the worker is entitled to obtain in return for his effort, the risks he is exposed to while performing his work or for any other reasons; or the allowances granted to meet the cost of living, a percentage of sales, or a percentage of the profits paid for what the worker markets, produces or collects.

Accordingly, courts shall not include any bonus or commission in the calculation of the end-of-service. The end-of-service shall be counted based on the basic salary as mentioned in the contract.

HOW CAN WE HELP?

We are perfectly positioned to represent and assist our clients in handling all claims in the Dubai Courts and provide any legal advice and/or contracts.