VZCZCXYZ0000
RR RUEHWEB

DE RUEHDE #0007/01 0251238
ZNY CCCCC ZZH
R 251237Z JAN 10
FM AMCONSUL DUBAI
TO RUEHC/SECSTATE WASHDC 0046
INFO GULF COOPERATION COUNCIL COLLECTIVE

C O N F I D E N T I A L DUBAI 000007 
 
SIPDIS 
DEPARTMENT FOR NEA/FO 
NEA/ARP/BMCGOVERN 
DRL/IL CAVEY 
 
E.O. 12958: DECL: 2020/01/25 
TAGS: ELAB PHUM EFIN KTIP PGOV AE
SUBJECT: Dubai-based Companies Transition to New Wage Protection 
System 
 
REF: ABU DHABI 1010 
 
CLASSIFIED BY: Jennifer Gavito, Political/Economic Chief, U.S. 
Consulate General, Dubai; REASON: 1.4(B), (D) 
 
¶1. (C) Summary:  The UAE Ministry of Labor (MOL) issued a decree on 
the "protection of wages" in September 2009 affecting all the 
emirates, including Dubai.  The Wage Protection System (WPS) is an 
electronic salary payment system meant to shield the UAE's massive 
foreign labor population from delayed salary payments.  Discussions 
with a number of the largest private exchange firms authorized by 
the government to implement the system highlight the uneven 
compliance to date of this new system, due in part to insufficient 
guidance to companies and banks.  Further uncertainty has arisen 
over the applicability of the decree to companies located in 
Dubai's many free zones, and whether the requirement applies to 
companies that pay their employees offshore.  Companies already 
using one of the banks on the approved agents list did not have any 
problems complying with the WPS.  End Summary. 
 
 
 
¶2. (C) The WPS is an electronic salary transfer system via approved 
banks and exchange houses designed to protect workers' wages 
throughout the UAE.  The Central Bank created the system that 
enables the Ministry of Labor to maintain a database of all 
registered wage payments electronically, thus ensuring all workers 
receive their salaries.  (Note: The WPS system is partly a response 
to reports that some UAE employers routinely withheld and/or 
delayed salary payments to foreign workers, particularly unskilled 
workers, leading to charges of indentured servitude practiced in 
the UAE.  End Note.) The MOL deadlines for employers to adopt the 
WPS are as follows:  Companies with more than 100 employees were 
required to comply by November 30, 2009; companies with 15 to 99 
employees must comply by February 28, 2010; and companies with 
fewer than 15 employees must comply by May 31, 2010.  Speaking to a 
group of major employers in Abu Dhabi late October, Minister of 
Labor Saqr Ghobash made it clear there were no plans to back off 
this implementation schedule; however HSBC Manager for Global 
Payments and Cash Management Antonio Vidal told PolOff November 24 
that the MOL is informally issuing waivers for companies "in the 
application implementation process." 
 
 
 
¶3. (SBU) PolEcon Specialist spoke with several large Dubai-based 
companies to survey their transition to the WPS.  While some 
companies have already transferred the majority of their employees 
to the new system, for most it remains a work in progress.  Several 
firms are still working with their respective banks to set up the 
electronic transfer systems.  Many of the approximate 74 agents 
approved to implement the system are unprepared, and, in some 
cases, have not yet established detailed procedures such as setting 
transaction fees.  (Note: According to the Decree, companies are 
responsible for the associated costs of the WPS; employers are not 
to pass the costs on to their employees.  End Note).  Al Ghurair 
Exchange Marketing Manager Imad Ul Malik explained to PolOff that 
the Al Ghurair Exchange charges its clients a fee for salary 
payment transactions and has a mechanism to ensure the client does 
not deduct the fee from the employee's salary. 
 
 
 
¶4. (C) Particular complications have arisen in transferring 
lower-paid employees who do not have bank accounts to WPS, arguably 
the target audience for the scheme.  This is not easily resolvable 
given that many such employees do not have the minimum balance 
required to open an account, and banks see little up-side in 
extending facilities to such workers.  Low-salary laborers who do 
not have bank accounts are able to receive their salary by cash or 
pre-paid card.  Vidal and Ul Malik told PolOff that banks will not 
open accounts for low-salary laborers because banks do not want to 
maintain accounts for low balances and they do not want laborers 
coming inside their branches.  (Note: A bank can be both the bank 
and agent for a company; whereas an exchange house is only an 
agent.  All companies need have an account with an approved bank. 
A bank can either transfer the money or outsource to another 
approved agent such as in cases to disburse cash payment for 
low-salary employees.  End Note.) 
 
 
 
¶5. (C) The burden of the WPS has been largely taken on by the 
banks.  Vidal said that the MOL provided banks with a basic 
computer application that only allows for manual data input with an 
interface that is incompatible with banks' systems.  Vidal said 
that some banks such as Mashreq and Citibank have purchased newly 
developed applications especially for WPS, but that HSBC has 
 
 
decided to develop its own application.  The financial burden to 
develop the application was in the USD 100,000's. 
 
 
 
¶6. (C) Vidal opined that the MOL probably does not have the 
infrastructure to automatically verify any of the data.  The data 
received by the Central bank does not verify salary, but validates 
only the employee's personal number and the establishment number. 
He surmised that the data is with the MOL in case someone raises an 
issue for an investigation or auditing.  He believes it is nearly 
impossible to verify the correct salary amount as salaries change 
month-to-month for employees.  Companies are supposed to submit 
data to the MOL only for employees getting paid each month.  Data 
is not submitted on those employees not paid. 
 
 
 
¶7. (C) The decree implementing the WPS is ambiguous as it relates 
to companies in Dubai's free zones since free zone companies are 
not directly registered with the MOL.  Free zone companies report 
they do not know if, when or how they must comply with WPS. Poloff 
met with General Electric's HR Operations Leader and its Employee 
Services Leader to discuss its transition to the WPS.  GE has 
implemented the WPS in Dubai proper, but remains unsure how the 
system affects the approximately 30 percent of GE's employees who 
work out of GE's regional headquarters building within the Dubai 
Media City free zone.  These employees are often paid in their home 
country.  The law firm Fulbright and Jaworski also acknowledge that 
private sector employers who have employees with a home office 
contract as well as a MOL contract may encounter accounting issues. 
(Note.  With a home office contract, the employee is paid offshore. 
End Note.)  The complexity of these employees' situations makes it 
difficult for GE's HR staff as well as other private firms to 
understand the decree as MOL guidance has been unclear. 
 
 
 
¶8. (C) Comment:  In general, Dubai-based companies are undergoing a 
smooth transition to the WPS when their employees have had 
pre-existing relationships with one of the approved banks and have 
only locally-employed, locally-paid employees.  However, companies 
with employees who are under home office contracts are concerned 
because of the potential legal and administrative burden associated 
with WPS compliance when guidance is not clear regarding employees 
with offshore accounts.  Smaller companies with employees without 
bank accounts and employees who are hesitant to open new bank 
accounts probably will continue to find the transition to the WPS 
more arduous.  As smaller companies are asked to implement the 
system in the coming months, the MOL is likely to be called upon to 
offer more hand holding than that required by firms with greater 
resources.  At the end of the day, and despite the growing pains 
associated with this new requirement, the UAE should be commended 
for taking these initial steps towards protection of the foreign 
labor force, in particular its lowest-wage workers. End Comment. 
 
 
 
SIBERELL 
SIBERELL