Isaac Thomas, Vice President and Head of Cash Management, ADCB, provides a guide to the Wages Protection System (WPS) and working efficiently with your bank.
Established as per the Ministerial Decree No.788 by the Ministry of Labour (MOL) in September 2009, the process requires all companies registered under the MOL to pay their employee salaries through the system.
The WPS covers all sectors, as registered with the MOL and benefits different categories of labour. It is an electronic salary transfer system that allows institutions to pay workers’ wage via banks, exchange houses, and financial institutions approved and authorised to provide the service.
The following were the objectives of WPS when it was setup:
– Assuring the commitment of UAE to protect worker’s wages
– Taking protective and pro-active measures to reduce labour disputes pertaining to wages
– Worker salaries to be routed through the banking system in a systematic and orderly manner
– Ensure salaries are paid on time
– Declared salaries and other monetary allowances (as per the labour contract) are paid correctly by their employers
– Salaries are received through accredited, secure and efficient channels, i.e., bank account, prepaid/payroll card, over-the-counter and cash collection at exchange houses
WPS involves the following parties:
– Workers: Each and every worker in the private sector and who has a labour card issued by the MOL.
– Employers: Company or institutions registered with the MOL. Government bodies are exempt from WPS.
– Banks: The Financial Institutions which the employer has a bank account with
– Agent: Any bank, exchange house, or financial institution, approved by the Central Bank to offer WPS
Since its implementation, we have seen close to 2.7 million workers and 130,000 employers reaping the benefits of WPS. The chart below, from the Central Bank, suggests the extra-ordinary growth of WPS clients since its inception.
Impact of WPS
In a way, WPS has created a great opportunity for banks and financial institutions to engage their corporate clients in delivering a more efficient and reliable salary transfer service. Gone are the days of workers being at the mercy of their employers with regards to receiving correct salaries at the prescribed salary date. WPS has ensured that workers are paid the correct salaries at the proper time, and any violation by the employer entail immediate suspension of their privileges with the Ministry.
Defaulting companies can be easily identified, and sanctions are simple and yet quite harsh. Defaulting companies are prevented from obtaining new work permits, and this is a good incentive for the company to comply with the WPS.
Another consequence of the WPS is that now disclosures need to be made to the MOL, impacting on the ability of local companies to sponsor the employees of international businesses that do not have a corporate presence in the UAE.
While WPS offers wage protection to all employees, the unskilled workers are the ones particularly vulnerable today. They need special attention, but there are some difficulties experienced in extending the WPS to this sector.
While some banks have shown unwillingness to open accounts for low income workers, it has created opportunities for others to introduce payroll cards allowing workers to receive cash through any UAE-based banks’ ATM machines.
Some banks have invested in allowing corporate to upload the salary file into their electronic banking platforms for further processing and transmission to the Central Bank. Others have tied-up with exchange houses and third party card providers and bundled end-to-end solutions intended for both the corporate and its employees.
The following processes are involved:
– Company to open an account with one of the banks for this purpose. They can use their existing bankers, if they have one.
– There should be an agreement between the company and the agent to provide this service for them. Commercial terms are decided and agreed on a bilateral basis.
– The company prepares the wages list and sends it to the bank for onwards processing by the WPS. The delivery channel used can vary but the agent needs to forward an electronic file to the WPS. The MOL provides companies with a tool to create salary files (SIF), which can be used by them to be sent to their respective banks for salary distribution.
– The WPS validates the wage related details with the information registered with the MOL.
– Once validated, these wages are then approved for processing by the banks.
Wage protection System
Challenges for the banks
Banks are facing stiff competition with exchange houses and third party card providers in the following areas:
– Exchange houses and third party card providers do not need an employee account to be opened for salary transfers
– Times in processing transactions relative to exchange house and third party card providers
– Cross sell opportunities on the employee accounts
Key differentiators in the WPS offerings today among the corporate clients:
– Fast and secure way of transmitting the SIF, normally achieved through electronic banking
– Convenience for staff in receiving their salaries, i.e., through payroll card, cash delivery at the labour camps, worksites and accounts
– Potential tie-ups or value-added services relating to remittance services, utility bill payments, over-the-counter shopping
Benefits of the ADCB proposition
– We currently process around 2000 SIF files serving around distinct 1600 customers. ADCB has a success rate of greater than 92% in terms of processing the SIF files. Over 70% is serving our SME client base.
– Fully automated systems to process both SIF and PAF files.
– Customer uploads SIF file through a secured hard token based login and upload files which are then processed using straight through process mechanism. Alerts are generated and transmitted to customers email inbox for various activities done on the file.
– ADCB also has a dedicated service desk for WPS customer to offer them guidance and information for the processing of WPS payments.
WPS is here to stay and will evolve into a more robust mechanism to ensure complete transparency and automation of employee rewards and entitlements for all labour categories. SME companies, given their staff size and efficiency needs, cannot afford to have multiple parties for their banking and WPS needs, and banks on their part, cannot assume that WPS is a trivial requirement. In that sense, both banks and these companies need to work together on a win-win situation with regards to the WPS business.
Isaac Thomas is the Vice President and Head of Cash Management, ADCB and has over 21 years of banking experience, primarily in transaction banking and banking technology. In his most recent assignment, spanning two years, Isaac was heading the MENA regional corporate sales for cash management and trade at Deutsche Bank in Dubai. Prior to this he was with Standard Chartered Bank in Singapore and Dubai with the transaction banking team.
Isaac has experience managing clients in a service and sales capacity and has set up and managed premier client service teams at Standard Chartered and Deutsche Bank during his assignments there. He has a Masters in Electrical Engineering and MBA in Finance from the US.