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Wednesday , December 11 2019

Payroll calculation

First of all thanks a lot for guiding expatriates with your legal advice service through the Legal Clinic column — I am seeking your clarification for my issue, please help.

I am working in the Human Resources Department of my company and have been in charge of payroll process for a period of time.

During my experience in that field, with that company and some others, I found many way of calculating the payroll.

I regularly read your legal responses which has inspired me to contact you as I have found no other channel to give me advice on my case.

Therefore, I am attaching an excel file which shows the different methods of calculation of the payroll. I am seeking your comments and advice which is suitable for both employees and company in according with the Kuwait Labor Law.

Your assistance on this issue will be very much appreciated as it will be very helpful to me.

Name withheld

Answer: If you are in the Human Resources Department of your company and are connected with preparation of the company’s payroll, then the first thing you need to do is get a good translated copy of the Kuwait Labor Law.

We say this because once you make the correct calculations, your company will want proof that you are using the correct method for calculation of the payroll … because most companies (even some of the good ones) have shut their eyes to the correct method and are using a method which benefits them financially … well, which company owner wouldn’t but then there is only one way to make the payrolls — “the correct way” — although we are sure that even if you give proof of the correct method most companies won’t use it.

But before we go on, we must stress that Articles 55 to 62, plus the second paragraph of Article 67 are very important in the calculation of the dues of an employee.

While it is obligatory to follow the rules laid down in the Kuwait Labor Law, not everything is contained in these laws, especially the ministerial decisions and explanation of various laws by the Ministry of Social Affairs and Labor.

So, here is the correct method (after including all the explanations and various decisions of the Ministry of Social Affairs and Labor) of making the payrolls and also the salary to be used in the calculation of both the indemnity and leave salary of the employees.

Before we detail the procedure, we like to make it clear that you can always (officially through the company) approach the Legal Department of the Ministry of Social Affairs and Labor.

We will not, however, individually discuss the various copies of the payroll you sent and only detail the correct procedure.

For calculating the monthly salary of the employees, you must include every day of the month. For example, if a month is of 28, 30 or 31 days then the total salary of the individual must be divided by those number of days to get the daily wage. The issue of subtracting the weekends is not considered during the preparation of the normal monthly payrolls.

In the preparation of these payrolls the total days of the month are considered and not only the working days. So, if a month is of 30 days and a person’s monthly salary is KD 300 his daily wage will be considered as KD 10.

In such a case — for example — if a person is absent for three days KD 30 will be deducted from his salary. But things are different in the calculation of the daily overtime, annual leave salary and indemnity.

Since, you have months of both 30 and 31 days and also one of either 28 or 29 days (February) every month is considered to have 26 working days.

This is important because some months have 5 Fridays (weekends off) like in this year we find 5 Fridays in January, April, July, September and December. For uniformity the working days are taken to be 26.

So, while calculating overtime, annual leave and indemnity we take the working days as 26. So, if an employee has 30 working days paid leave a year the salary is first divided by 26 and only then multiplied by 30 to arrive at the leave salary.

For example, if an employee is earning KD 300 monthly you need to divide this first by 26 = KD 11.540.

You then multiply this figure by 30 = 11.540 x 30 = KD 346.200.

So, this will be his annual leave salary for the 30 working days.

Now, in case of indemnity, a person gets 15 days salary for each of the first five years of service for a total of 75 days.

These 75 days are first divided by 26 and then multiplied by the salary = 75 / 26 = 2.88 months salary for these five years and not 2.5 months salary as some companies calculate.

We hope that you are now clear on the issue but you are welcome to send any number of questions to the Arab Times Legal Clinic if doubts persist.

For your queries email it to arabtimes@arabtimesonline.com or admin@arabtimesonline.com

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