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Bonus, Commission are part of the Basic Wage | Employment Labor Law | Hamdan Al Shamsi

Alaa Galal

Senior Associate

Publish : 25 Jul 2022

EXECUTIVE SUMMARY

This article is intended to explain how the commission and/or the bonus that an employee may receive from his employer might increase his labour claim.

What is the definition of the bonus and commission?

One of the simple definitions of “bonus” is an “addition to salary or wages normally paid for extraordinary work” and one of the simple definitions of “commission” is a “fee paid to an employee for transacting a piece of business or performing a service.”

Why is that 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 to the employee immediately at the end of the employment contract whether the employee resigned or terminated, and whether the employment contract is a fixed or non-fixed term contract. There are only a few exceptions where the end of service may not be due.

The method of calculating the end-of-service compensation might be different from a case to another, based on the term of the service of the employee and the party who ended the employment contract. But in all cases the calculation must be done based on the basic wage of the employee, so it is very important to understand the meaning of the basic wage and if bonus and commission are part of the basic wage.

What is the definition of the wage and 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 Wage as follows “Whatever is given to the worker in return for his service by virtue of an employment contract, whether in cash or in rem, on a yearly, monthly, weekly, daily, hourly, piece basis or in accordance with 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 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 that “It is 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 defined as a wage stipulated in the employment contract during the term thereof between the parties, exclusive of any allowances whatsoever”.

The calculation of end of service is based on the basic wage

The employment law stated that, the end of service gratuity shall be computed on the basis of last wage which the employee was entitled to, in respect of those drawing their salary per month, week or day.

The wage which is considered as 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”.

The important argument

The commission and/or bonus are not mentioned as an allowance and not mentioned as a part of the basic salary in the UAE Labor law, which begs the questions of whether they are calculated as an allowance or as part of the basic salary.

The practice in the UAE courts

The Dubai Cassation Court have made decisions that eliminated all doubts in respect of the commission and bonus being part of the basic salary through several judgments and set the legal principles in this regard. The judgements state 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 that is 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 long as it is related to the work performed. The bonus and the commission are part of the basic salary provided that; it is continuous for a period which makes the employee consider it as a part of the salary not a one-off ad hoc payment.

How can we help?

Hamdan Al Shamsi Lawyers and Legal Consultants are perfectly positioned to assist our clients in respect of all claims in the Dubai Courts. HAS has three divisions including (1) the DIFC Team (2) the UAE Litigation team and (3) the Corporate team, and currently deals with a network of other law firms around the world including the USA, UK, France, Italy, Germany, Saudi Arabi, Oman, Kuwait, Bahrain, Jordan, Lebanon, China and Australia.

 

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