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Eight hundred of the UAE’s biggest companies have been banned from hiring new workers because they did not join the federal government’s new Wage Protection System (WPS) by the November 30 deadline. The WPS was introduced after companies in the UAE failed to pay salaries of their employees, sometimes for several months, leading to demonstrations and unreported riots by workers.

 

The WPS enables the ministry to automatically check if a company is defaulting on salaries or making illegal deductions from salaries. Under the first phase of the scheme, the country’s 4,100 or so companies with at least 100 employees – which employ a total of 2.1 million workers – had to comply by the end of November. The Minister of Labour, Saqr Ghobash, said that some 3,000 large firms had signed up for the scheme, and that 1,100 had not. About 300 of those have been granted a grace period because they claimed to have “technical issues” that prevented them from joining on time. Employees at some of the 800 companies who have yet to join the system say they have not received their salaries for several months.

 

The deadline for the second phase of the scheme, which covers 35,000 companies that have between 15 and 99 employees, passed in February, meaning that 80 per cent of the workforce should be covered by now. The deadline for the third and final phase, covering 900,000 workers in 230,000 small companies, is the end of May.

 

The ministry will start penalising medium-sized companies that have not complied at the end of March.

 

March 15, 2010

 

 

Analysis and Forecast: Decreasing Risk

 

The action by the federal government is the first major step towards addressing what has become a chronic and widespread issue in the UAE generally, and in the northern emirates led by Dubai in particular. There have been a number of demonstrations by workers belonging to large companies in Dubai, complaining about months of non-payment of wages. The authorities’ response has usually been to round up and deport the leaders of those demonstrations, but that has often led to an inflammation of the situation.

 

However, the action taken by the government is not near enough to address the ongoing problem. The majority of those companies are construction companies. Most of them work on projects for the government or for government-affiliated entities (mostly in Dubai). The economic crash of Dubai has meant that large government-affiliated clients, including Nakheel and Union Properties for example, have not been paying their mounting bills. This in turn has led to the inability of those large companies to pay salaries. The decision to censure those companies is therefore a decision taken by the federal government, is an indirect result of problems facing the concerned companies created by the local governments (in most cases of Dubai).

 

The large companies who are the subject of the ministry’s decision are unlikely to be directly affected as they are unlikely to be hiring new staff, as they struggle to deal with the staff they currently have. However, the decision does show that the federal government is moving slowly. The decision has a longer-term impact in regulating salary pay for the country’s work-force, most of which is expatriate and puts some limited pressure on the companies that have been censured to address the situation.