Can a UAE company charge interest on staff loan?
Plus, a look at the actions an employer can take against an erring employee
Question: I am a company owner. Am I legally allowed to give a loan to a worker and take interest on that loan? What penalties can an employer legally impose on a worker according to the Labour Law. Is it required to inform the Ministry of Labour after imposing the penalty?
Answer: The employer has the right to give an employee a loan, but with no interest, as Article (25) mentions.
No amount of money shall be deducted from the worker’s wage except in specific cases, including but not limited to recover the loans granted to the worker, within the maximum monthly deduction rate from the worker’s wage stipulated in the Article, after obtaining the worker’s written consent and without any interests.
According to Article 39 of the Labour Law, the action an employer can take against an erring employee are as under:
a. Written caution.
b. Written warning.
c. Deduction from the wage not exceeding the wages of five days per month.
d. Suspension from work for a period not exceeding 14 days, and non-payment of wages for the days of suspension.
e. Deprivation of the periodic raise for a period not exceeding one year, for establishments that adopt the system of periodic raises, which the worker is entitled to, in accordance with the terms of the employment contract or the provisions of the organisation’s regulations.
f. Deprivation from promotion, in establishments where there is a promotion system, for a period not exceeding two years.
g. Dismissal from service while preserving the worker’s right to end-of-service gratuity.
It is not required to inform the Ministry of Labour after imposing the penalty on the employee, because it is related to the internal policy of each company, taking into account that the employer shall draw up a schedule of penalties clarifying each of the disciplinary sanctions set out in Article (39) of the Decree-Law. Moreover, the employee shall have the right to file a labour complaint and to file a grievance claim with the management of the establishment against any penalty imposed against him.