The UAE offers businesses a powerful enabling environment: stable political and macroeconomic conditions, a future-oriented government, good general infrastructure, and ICT infrastructure. Moreover, the country has made continuous and convincing improvements to its regulatory environment and is usually a top country for doing business.
From the 2018 Arab Youth Survey, the UAE emerges as the top Arab country in areas like living, safety and security, economic opportunities, and starting a business, and as an example for other states to emulate.
For those who want to expand their business to Western Asia, knowing how to hire employees in the United Arab Emirates (UAE) might be your first choice to test and start with fewer risks, but what are some must-knows to avoid risk and to reduce cost?
Requirements To Hire Employees In The UAE
After setting up your business and acquiring your license, you need to sponsor your employees. According to Article 13 of the UAE Labour Law, companies cannot employ non-nationals without taking prior consent of the Department of Labour and obtaining a work permit.
When giving a work permit, the Ministry of Human Resources and Emiratisation considers the following:
- The worker must possess the professional competence or academic qualifications needed in the country.
- The worker has lawfully entered the country and satisfied the conditions of residency in the UAE.
- The Department of Labour may not consent to the employment of non-nationals unless it examines its records and ensures that there are no nationals registered in the employment section, capable of performing the required job.
Overview Of Hiring Options In The UAE
When it comes to hiring employees in the UAE, you must first decide whether you want to establish your business on the mainland or opt for a free zone. Each alternative comes with its own set of considerations and requirements, providing entrepreneurs with the flexibility to select the most suitable approach based on their specific needs and objectives.
If you decide to run your business on the mainland, there are several key points to thoroughly understand before embarking on this path. Firstly, you’ll need to navigate the process of opening a bank account, which involves liaising with local financial institutions and fulfilling their respective criteria. Additionally, you’ll need to familiarize yourself with the Wages Protection System (WPS), a mechanism designed to ensure timely salary payments to employees, and ensure compliance with this essential requirement.
Furthermore, when running a business on the mainland, it is crucial to address the matter of health insurance for yourself and your employees. Familiarize yourself with the legal obligations and options available to provide adequate healthcare coverage, keeping in mind the regulations set forth by the UAE authorities. Understanding and adhering to the various legal issues surrounding your specific industry or business sector is also vital to ensure smooth operations and compliance with local laws and regulations.
On the other hand, if you opt to establish your business in a free zone, there are a distinct set of considerations to bear in mind. Initially, you’ll need to focus on furnishing your office space and equipping it with the necessary utilities and infrastructure. This process entails selecting suitable office premises, procuring furniture, and ensuring seamless connectivity and utility services to support your business operations effectively.
Moreover, marketing and advertising play a crucial role in establishing and promoting your business in a free zone. Developing a comprehensive marketing strategy tailored to your target audience and the specific characteristics of the free zone is essential for achieving brand visibility and attracting customers. Additionally, familiarize yourself with the intricacies of conducting foreign trade within the free zone, including import/export regulations, customs procedures, and logistics considerations.
While operating within a free zone, you may also have the opportunity to engage in business transactions with the government. Understanding the procedures and requirements for bidding on government contracts and establishing fruitful partnerships can unlock various growth opportunities for your business. Additionally, compliance with local laws, such as labor and taxation regulations, remains a fundamental aspect of operating within a free zone.
Considering the complexity and unique challenges of establishing a business in the UAE, partnering with an international Professional Employer Organization (PEO) or Employer of Record (EOR) company can provide valuable support and guidance throughout the process. These companies specialize in assisting foreign entities with the legal, administrative, and human resources aspects of setting up and operating a business in a foreign country, facilitating a smoother and more efficient entry into the UAE market.
Global PEO company, such as NNRoad enables you to hire talented professionals on your behalf. We assure the hiring of staff in full compliance with local labor laws and employ best practices to locate and onboard staff members.
By Utilizing NNRoad’s PEO services any business can launch in UAE without the requirement to put in minimum capital investments or the need of establishing a separate legal entity which is a lengthy and complex process.
Hiring And Employment Practice In The UAE
Under the labor law in the United Arab Emirates (UAE), companies are allowed to implement a probationary period for their employees. This probationary period serves as a trial period during which the employer assesses the employee’s suitability for the position and their ability to meet the performance expectations set for the role.
According to UAE labor regulations, the maximum duration of the probation period ranges from three to six months, depending on the company’s policies and the nature of the job. This period is typically agreed upon and stated in the employment contract between the employer and the employee.
During the probationary period, both the employer and the employee have the opportunity to evaluate each other’s performance and suitability for the job. The employee is expected to demonstrate their capabilities, adaptability, and commitment to the assigned tasks and responsibilities. Likewise, the employer evaluates the employee’s performance, work ethic, and compatibility with the company culture.
If, during the probation period, the employer finds that the employee’s performance does not meet the expected standards or the employee is not a good fit for the position or the organization, the employer has the right to terminate the employment contract. However, it is important to note that the employer must provide a valid reason for termination, which should be related to the employee’s performance or suitability for the role.
In cases where the employer decides to terminate the employee during the probationary period, the employer has the authority to do so on short notice, typically without the need for an extended notice period. However, it is essential to ensure that the probation period does not exceed the maximum limit of six months, as mandated by the UAE labor law.
During the probationary period, both the employer and the employee should engage in open communication and constructive feedback to address any performance issues or concerns. The employer may provide guidance, additional training, or support to help the employee improve their performance if they believe there is potential for growth and development.
It is crucial for both parties to adhere to the terms and conditions outlined in the employment contract, including the probation period’s duration and any specific performance criteria or evaluation processes agreed upon. By doing so, employers can make informed decisions regarding employee retention or termination based on objective assessments, and employees have the opportunity to showcase their capabilities and suitability for the role.
Termination Of Contract Without Notice By The Employer
An employer can terminate an employment contract without notice and deprive the employee of his end of service gratuity if the latter:
- adopts a false identity or nationality or if he submits forged documents or certificates;
- is appointed under a probationary period and dismissal occurred during or at the end of the said period;
- commits an error causing substantial material loss to the employer-provided that the latter advises the labor department of the incident within 48 hours from having knowledge of the same;
- violates instructions concerning safety of the place of business provided that such instructions are displayed in writing at conspicuous places or verbally informed to an illiterate employee;
- fails to perform his basic duties under the employment contract and persists in violating them despite formal investigation with him in this respect and warning him of dismissal if the same is repeated;
- divulges any secrets of the establishment where he is employed;
- is awarded a final judgment by the competent court in respect of an offense prejudicing honor, honesty, or public morals;
- during working hours, is found drunk or under the influence of prohibited drugs;
- in the course of his work, commits an assault on the employer, the manager, or any of his colleagues;
- absents himself without lawful excuse for more than 20 intermittent days or for more than 7 successive days during one year.
Termination Of Contract Without Notice By The Employee
An employee can terminate an employment contract without a notice period if:
- the employer has failed to meet contractual or legal obligations towards the worker (for example, if he fails to pay wages for a period exceeding 60 days);
- the employee has filed a court complaint against an employer who has failed to secure employment of the worker (for example, in case of a business shutdown or if the business has been inactive for a period exceeding two months);
- the final ruling for a labor complaint referred to the labor court by MoHRE is in favor of the worker.
In the United Arab Emirates (UAE), employees are granted the right to annual leave as a form of paid time off. The duration of annual leave entitlement is determined based on the length of service of the employee.
According to the UAE labor law, employees who have completed six months of continuous service, but less than one year, are entitled to two days of annual leave per month. This means that during this initial period, the employee accrues a total of 12 days of annual leave.
Once an employee completes one year of continuous service with an employer, their annual leave entitlement increases significantly. Employees who have completed one year of service are entitled to a total of 30 days of annual leave per year. This provides employees with an extended period of paid time off to rest, rejuvenate, and spend quality time with their families.
When calculating the duration of annual leave, it is important to note that it includes both official holidays specified by law or through mutual agreement between the employer and employee, as well as any other leaves taken due to sickness that fall within the annual leave period. This ensures that employees do not lose their entitlement to annual leave if they happen to fall ill during their scheduled vacation time.
It’s worth mentioning that the granting and scheduling of annual leave should be mutually agreed upon by the employer and employee. Employers have the responsibility to ensure that employees are able to utilize their annual leave entitlement within the prescribed time frame, taking into account operational requirements and the employee’s preferences whenever possible.
Additionally, employees have the right to carry forward a portion of their unused annual leave to the following year, as per the UAE labor law. The carryover limit is typically determined by the employer’s policies or any specific provisions mentioned in the employment contract.
Annual leave serves as a fundamental right for employees, allowing them to rest and recharge, which ultimately contributes to their overall well-being and productivity. It is encouraged for both employers and employees to communicate and plan annual leave in advance, considering the needs of the business and the personal preferences of the employees.
- Gregorian New Year: 1 January
- Eid Al Fitr: From the last day of the Islamic month of Ramadan to 3 Shawwal* (4 days)
- Arafah Day and Eid Al Adha (Feast of Sacrifice): From 9 to 12 Dhu al Hijjah* (4 days)
- Hijri New Year: 1 Muharram* in 2019 and on23 August in 2020
- Prophet Mohammed’s birthday: 9 November in 2019 and on 29 October in 2020
- Commemoration Day: 1 December (previously known as Martyr’s Day and observed on 30 November)
- National Day: 2 and 3 December (2 days).
There is no minimum salary stipulated in the UAE Labour Law, however, it broadly mentions that salaries must cover the basic needs of the employees. Article 63 of the Labour Law mentions that the minimum wage and cost of living index is determined either in general or for a particular area or a particular profession by virtue of a decree and consent of the Cabinet.
UAE nationals working in government and private sectors are eligible for pensions and other retirement benefits after reaching the retirement age of 49 or after serving for 20 years minimum. GCC nationals employed in the UAE are entitled to a pension in accordance with the schemes established in their home countries. Expatriate workers are not entitled to a pension but are entitled to end-of-service benefits also known as gratuity or severance pay.
Individual Income Tax
The UAE does not levy income tax on individuals. However, it levies a corporate tax on oil companies and foreign banks. Excise tax is levied on specific goods that are typically harmful to human health or the environment. Value Added Tax is levied on a majority of goods and services.
Employee Termination/Severance Payment
If the employee resigns of his or her own free will before completing one year, then they will not be entitled to any gratuity pay. The worker is entitled to a gratuity for the served fraction of a year, provided that he completes one year of continuous service. The end of service gratuity is calculated on the basis of the last wage to which the employee was entitled, namely the basic salary. Hence, it will not include allowances such as housing, conveyance, utilities, furniture, etc. If the employee owes any money to the employer, the employer may deduct the amount from the employee’s gratuity.
How To Hire Employees In The UAE Without A Local Entity (PEO/EOR)
NNRoad provides Professional Employment Solutions to clients, enabling you to hire employees in UAE on your behalf as we serve as the employer of record. We assure the hiring of staff in full compliance with local labor laws and employ best practices to locate and onboard staff members.
By utilizing NNRoad’s PEO services in UAE, any company can launch a business without the requirement to put in minimum capital investments or the need of establishing a separate legal entity which is a lengthy and complex process.
- Sponsoring an expat employee and proceeding with visa/work permits and labor contracts.
- Engaging employees through local labor contracts including contract administration, engagement, extension, termination, and conversion to a permanent hire.
- On-boarding and off-boarding employees following local labor law practice like offer letter, contracts, medical test, work permits, Emirates ID, Visa stamp, etc.).
- Registration of employees with health insurance, if required.
- Complete payroll solution and mandatory benefit administration.
- Employee management according to local laws, including employee record, timekeeping, bonus, and allowance management, expense and claims, and leave employee database management.
- Payment management, including invoicing customers/clients and salary payments.
- Dealing with HR-related matters during the course of employment.
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