SALARY ADVANCES: WHAT YOU CAN OR CANNOT DO

Dubai is an expensive city – especially for newcomers.  As such, employees will often request an advance on their salaries in order to pay for various expenses.  A good employer must always be careful to stay within the law when allowing a salary advance.

There is no law that controls how long an employee may have to repay a salary advance.  However, the law does control how much of an employee’s salary you can deduct per month to repay an advance.  Additionally, there are possible limits to how much can be deducted from an employee’s final salary to recoup a debt owed to the company.

 

I. Monthly Repayment Limit on the Loan Amount.

According to UAE law (Federal Law No. (8) of 1980, Labor Law and its Amendments, Article 60(a)) an employer may only deduct 10% of an employee’s total salary per payment period to repay a salary advance/loan.  Therefore, the percentage of monthly total salary that an employee may borrow is x10 the number of months the employee will repay it in.  

Examples: 

  • An employee that makes AED 1,000 per month can repay an AED 600 loan (60% of his monthly salary) in six months by paying AED 100 per month (which is 10% of each month’s salary).
  • An employee that makes AED 1,000 per month can repay a 70% loan (AED 700) in seven months by making the same AED 100 per month payment.
  • An employee that makes AED 27,000 per month can repay a 30% loan (AED 8,100) in three months by paying AED 2,700 per month.

 

II. Deducting Owed Amounts from an Employee’s End of Service Benefits.

This is permitted.  According to UAE law (Federal Law No. (8) Of 1980, Labor Law and its Amendments, Article 135 an employer may deduct any amounts owed from an employee’s end of service entitlements.

 

III. Deducting Owed Amounts from an Employee’s Final Salary.

As of now, this is only partially permitted.  As mentioned above, the law states that an employer may only deduct 10% of an employee’s salary per payment period to repay a salary advance/loan.  

There is no additional law that says the employer may deduct more than 10% of the month’s salary if it is the employee’s final month.  As such, the courts and Ministry of Labor have often refused to let an employer deduct more than 10% of an employee’s final salary in order to repay a salary advance, and instead have ruled that the employer must simply wait for repayment of the remaining amount. 

There is, however, very little record to prove that an employer was ever punished for deducting amounts lawfully owed to him from an employee’s final salary.  Assuming the employer deducted the amounts in good faith it is unlikely he would be penalized (but of course, possible).  What it is reasonably likely is that if an employee took the matter to the courts or the Ministry of Labor, they would only permit the employer to recover 10% of the final month’s salary to put towards the loaned amount.

 

IV. Deducting Owed Amounts from an Employee’s Improper Termination or In Lieu of Notice Compensation.

The law is silent on the matter of whether an employer can deduct a salary advance from amounts that the employer owes the employee (such as compensation for lack of notice or improper termination).  In the absence of evidence to the contrary, it is safe to assume that an employer may deduct a salary advance from any termination compensation amounts owed to the employee.

 

V. Deducting Housing Advances.

An advance given for housing expenses is no different than an advance given for any other reason.  However, if the employer is responsible for the lease, this might not be seen as an advance of salary but simply employer-provided housing.  In this situation, the employer simply remains the rightful lease holder of the property in question, and the employee must vacate as per the rules laid out for employer-provided housing.