Country Guide: UAE

In association with PwC

The UAE comprises of seven emirates namely, Dubai, Abu Dhabi, Sharjah, Fujairah, Ras Al-Khaimah, Umm Al-Quwain and Ajman, each having its own rules and regulations. Economic diversification in trade, logistics, banking, tourism, real estate and manufacturing along with the country‘s Free Trade Zones (offering 100% foreign ownership and zero taxes) make it very attractive to foreign investors.

Contracts and Unions

Federal Law No.8 of 1980 (‘Labour Law’) governs employment relations in the UAE. This law is loosely based on the International Labour Organisation‘s model and applies in all of the Emirates. The law governs most aspects of employer/ employee relations, such as hours of work, facilities, leave, termination rights, medical benefits and repatriation.

Right to be employed

While UAE nationals are provided the first right of employment under this law, expatriates i.e. non-UAE nationals may be employed with requisite approvals by UAE Ministry of Labour and Social Affairs (the ‘Ministry of Labour’). Employment preference is given to UAE nationals and, if UAE nationals are not available, the next in level of preference is given to nationals of other Arab states including other GCC nationals. The Emiratisation policies of the Labour department encourages and even, in some instances, compels the employment of UAE nationals in certain job sectors.

Employment Contracts

In the case of employment contracts where an employment is with an onshore company, the employee has to enter into a standard Ministry of Labour contract. This contract forms the basis to obtain sponsorship to work or a ‘work permit’ in the UAE. It is good practice to have a fully-fledged employment contract detailing the terms of employment.

Where the employee is employed to work in one of the free zones in the UAE, the free zones will provide their own standard form of employment contract, where applicable, which an employer and employee will be required to enter into before the free zone obtains sponsorship for the employee to live and work in the UAE. Some free zones do not require such employment contracts to be made.

As stated before, in practice, given that the content of either a Ministry of Labour contract or a free zone contract is fairly basic, employers enter into an additional form of contract with the employee.

Language 

All employment records, including contracts, files, statements and other documents, such as circulars, instructions and memoranda sent to employee should in theory be in the Arabic language. In cases where instruments are made in a foreign language and Arabic, the Arabic language will prevail over other texts.

Duration 

Article 38 of the Labour law provides for employment contracts to be for a fixed or indefinite term. A fixed-term contract must specify an end date and cannot exceed four years from the date of commencement of the contract. After the expiry of the fixed term, the contract can either be renewed or be considered as an indefinite term contract in the absence of written agreements or amendments to either explicitly treat it as a fixed-term contract or revise it with a fresh contract or addendum stating an end point thereto.

Probationary periods and termination during probation

The normal probationary period for any contract in the UAE should not exceed six months. The Labour Law specifies that a probationary period cannot exceed six months. During this time either employer or employee can terminate the contract without notice and without the employee being entitled to any end of service benefits.

Typical provisions in an employment contract

a. Employment Contract with an on-shore entity:

The contents of the employment contract will depend on the contract that the employer and employee will be required to enter into in order to obtain sponsorship. The Labour Law requires the following terms to be set out in the employment contract at a minimum:

  • Start date of the contract; 
  • Start date of the employment; 
  • The nature of the work; 
  • The place of work; 
  • The duration of the contract (if it is for a fixed period). Please note that a fixed term contract must not exceed four years in duration (although it can be renewed following the end of the four-year term); and
  • Remuneration. 

The standard Ministry of Labour contract contains a greater level of administrative information, as follows:

  • Contract number;
  • Labour card number; 
  • Date on which the contract was made and in which Emirate;
  • Name and address and nationality of the employer;
  • Name, nationality and passport number of the employee;
  • Job title; 
  • Basic salary; 
  • Whether the contract is unlimited or for a limited duration and where it is limited, the end date of the contract;
  • Length of probationary period; 
  • The employer‘s obligation to repatriate the employee at the end of the agreement;
  • References to UAE Labour Law permitting the employer to terminate without notice or an end of service gratuity;
  • A number of originals clause; 
  • Allowances granted to the employee, if any;
  • Other conditions; 
  • Daily working hours; and 
  • Non competition undertaking if any. 

It is common practice for employers to often enter into a more detailed contract with the employee in addition and separate to, the standard Ministry of Labour contract, as it is not permitted to add any more detail to that contract.

b. Employment Contract with a free zone entity:

The contents of the employment contract in a free zone may differ from the standard contract of the Ministry of Labour. Standard contracts between the different free zones may also vary.

Other relevant provisions 

Normally, the contents of the employment contract and the facilities provided are at the employer’s discretion in as much as they do not contravene any mandatory provisions of the law. Employers frequently provide allowances such as housing, travel and schooling. Many employers also include medical and health insurance although most of the Emirates do not yet require it. It is mandatory in the emirates of Abu Dhabi and Dubai. Pensions are not yet required for non-UAE nationals although they are referred to in the Labour Law.

Wages 

As prescribed by the Labour Law, the ‘basic salary’ is the employee’s principal wage excluding all allowances of whatever nature and must be specified in the employment contract as such. The reference of total wage includes basic salary with allowances such as those for travel, accommodation, medical insurance and any other regularly recurring benefit the employer has stipulated. Yearly or monthly rate employees must be paid their wages at least once a month. Hourly, daily and weekly rate employees must be paid at least once every two weeks.

Permitted deductions from an employee’s wages cannot exceed 10% of his wage and may be deducted from his salary for settlement of any advances, debts or loans due to the employer.

The structuring of the wage and allowances in proportionate ratios is significant with respect to termination gratuity benefits, which are calculated on the basic salary and not the total wage.

There is no decree issued or enforced by the Ministry of Labour with respect to minimum wages and cost of living allowances.

Social Security Payments 

The Social security regime is applicable to all employees of GCC nationality. Provisions are made by law for contributions to be made for each national as per the locally applicable rates and the registration is mandatory. Also refer to the section on ‘Taxation in the UAE’.

Working hours

Article 65 of the Labour Law stipulates that the maximum normal working hours (for adult employees) to be eight per day or 48 per week. However, these hours may be increased to nine daily for people working in the retail trade, hotels, restaurants and other such commercial establishments. The Ministry also retains the right to decide to reduce the daily working hours for hazardous and dangerous jobs or those that might be detrimental to health. Friday is ordinarily considered as the weekly day of rest. Time spent by the employee in transport from his residence to the place of work however, shall not be included in the working hours.

The daily working hours have to be arranged so that employees are not required to work for more than five consecutive hours without breaks for rest, meals and prayers. The total of such breaks must be at least one hour which will not be included in the daily working hours.

There are specific regulations and practices including circulars issued by the Ministry of Labour regarding reduction of work hours for construction labourers during the summer months of June, July, August and September. In practice, small and retail businesses work on a two-shift system. Larger corporate bodies, commercial and professional firms work 40-45 hours a week with a two-day break on Fridays and Saturdays. Government ministries work around 35 hours a week.

During the Muslim holy month of Ramadan, normal working hours are reduced by two hours per day. 

Overtime wages 

Any work done in excess of the work hours described above, on the day of rest, or overtime worked during the night attract payment of additional, ‘overtime’ wages to most employees. The only class of workers exempt from such overtime wages is that of persons in certain administrative or supervisory roles.

The computation of overtime pay for work done in excess of the normal working hours every day is to be equal to the employee’s normal wage plus at least 25% of such wage. However, for overtime work done between 9pm and 4am, the employee is entitled to receive overtime pay equal to his normal wage plus at least 50%. Article 69 also specifically restricts employees from being required to work for more than two hours of overtime per day unless such a measure is necessary to prevent substantial loss or alleviate its consequences.

Any work done on a public holiday or government declared holiday entitles the employee to his normal wage plus 50% and an additional substitute day off work. In the absence of such substitute holiday or time off in lieu, the employee is entitled to receive his wages plus 150% of such wage for the overtime hours worked.

Holidays 

The Labour Law provides for 10 days of public holidays (paid) in any year. The government could also, as and when applicable, declare additional days off during the year for celebrations or mourning.

Prescribed leaves 

Annual leave 

The employee‘s annual leave is two days for every month if his service is more than six months and less than a year. After every completed year of service, an employee is entitled to 30 days annual paid leave. Such leave is in addition to public holidays, maternity leave for women and sick leaves. Leave can also be carried forward without restrictions. In practice however, organisations can, if necessary, restrict such carry forward of leaves to a limited number every year.

Sick leave 

The Labour Law permits sick leaves for employees in each year subject to the following payments:

  • First fifteen days of sick leave: allowed at full wages;
  • Next thirty days of sick leave: allowed at half wages; and
  • Days thereafter: allowed at no wage.

In practice, different organisations have different policies with respect to the amount of sick leave they allow before considering actions within the ambit of the provisions of the Labour Law.

Mecca Pilgrimage/ Religious leave

The law also provides for leave of not more than thirty days without pay, for making a pilgrimage to Mecca once during the employment period. This leave period cannot be deducted from the employee’s other leave entitlements.

Maternity leave 

A female employee who has completed one year of service is entitled to maternity leave with full pay for a period of forty-five days including the time before and after delivery. In cases where the female employee has not completed one year of service, the maternity leave shall be with half pay. Such an employee, on the expiry of the maternity leave, may discontinue work without pay for a maximum period of one hundred consecutive or intermittent days on the production of a medical certificate issued by a medical authority attested by the competent health authority or endorsed by such authorities with respect to any illness resulting from the pregnancy or delivery. Such maternity leave is in addition to the annual leave.

Recruitment of staff (local hires and foreign expatriates) 

The rules and procedures adopted for the licences to recruit foreign labour to work in the UAE are applied in all the Emirates. The UAE Labour Law through the Ministry of Labour and Social Affairs governs both the employment of nationals and non-nationals. The Law provides in Article 9 that as a matter of right, UAE nationals have the first right to employment. All foreign expatriates are expected to follow the procedures set out in the Labour Law and by the Ministry of Labour and Social Affairs to work in the UAE. The basic requirements are for organisations to obtain approvals from the Labour Department and a work permit from the Ministry of Labour and Social Affairs in order to consider employing non- nationals or foreign expatriates.

In 2003, Dubai, and the United Arab Emirates (UAE), started making a determined push to increase the participation of locals in the work-force under a policy known as ‘Emiratisation‘. Under the Emiratisation programme’s implementation measures, employment quotas in the private sector were to meet prescribed percentages, including: the banking sector (4%), insurance companies (5%) and in trade companies employing 50 workers or more (2%). Full Emiratisation was intended for executive, administrative, clerical positions (and business ownership) of travel and tourism, manpower supply and real estate agencies. Currently, many organisations use local Emiratis as the Public Relations Officers (‘PROs’) to handle the dealings with government bodies, especially for immigration and visa formalities.

Normally, hiring a non-national or foreign expatriate is fairly easy and quick, subject to the requisite approvals being obtained. There is a large surplus of educated and experienced manpower available in all the Emirates. Employment advertisements are either placed in local and international newspapers in circulation within the Emirates or through hiring and placement agencies. Internet-based HR service solutions are also a reliable source of access to such foreign expatriates.

Immigration and visa rules 

It is illegal to live in the UAE without a residence visa. Therefore a person should be sponsored either on the basis of the ownership of a business in the UAE, or an employment contract with an employer in the UAE. The sponsorship requirements include obtaining a residence visa or work permit.

Nationals from certain countries may enter the UAE with a short visit visa issued upon their arrival and it is very common for individuals to come to the UAE on secondment or for business meetings on a visit visa provided that the assignment is less than 30 continuous days. The visit visa can be topped up for another 30 days.

Issuance of a Residence visa under the employer’s sponsorship

As part of the residence visa issuance process, a UAE employment contract must be entered into by the employer and the employee.

a. Residence visa issuance procedures: 

It is the obligation of the company to process and obtain the visa for its employees. The company will carry out the following process:

  • The Government Relations Officer or PRO in the assignment firm receives all of the employee’s documents and sends them to the Labour/ Immigration offices for the UAE to apply for the residence visa;
  • If approval is received from the Labour/Immigration offices, the employee goes for a medical test;
  • If the results of the medical test are satisfactory, the employee is issued with a residence visa.

A labour card is issued by the Ministry of Labour and identifies an employee and his/her place of work.

b. Issuance of a Residence visa under a Free Zone Authority’s sponsorship: 

Employees working for employers established in a Free Trade Zone are sponsored by the relevant Free Zones Authorities and not by their employers.

The Free Zone Authority sponsoring the employees refers directly to the immigration authorities and not to the Ministry of Labour. The potential employees will be under their sponsorship and will be registered with the Free Zone Authority and not with the Ministry of Labour.

Residence visa for partners, spouses and children

The employer can obtain the residence visa for the employee’s spouse and children. However, only married couples can sponsor and obtain residence visas for one another and for their children.

A male employee sponsoring his wife would require the following documents:

  • Residence visa; 
  • Employment contract certified by the UAE Ministry of Labour; and
  • Marriage certificate issued by the competent authorities, notarised and certified by the Department of Foreign affairs and the UAE embassy in the country of origin and by the Department of Foreign affairs in the UAE.

A female employee sponsoring her husband would require, in addition to the documents mentioned above, a university degree (copy certified by the Department of Foreign Affairs and the UAE embassy in the country of origin) and must have a monthly salary of more than AED10,000.

Emirates ID

A recent change in the immigration law requires that every residence of the UAE is required to apply for an Emirates ID. New residents / newcomers need to procure this at the time of residence application. Penalties are in force w.e.f. A recent change in the immigration law requires that every residence of the UAE is required to apply for an Emirates ID. New residents / newcomers need to procure this at the time of residence application. Penalties are in force w.e.f. 1 June 2012 for non-compliance with this requirement.1 June 2012 for non-compliance with this requirement.

Employment law changes

As part of its ongoing reforms in the labour market , the Ministry of Labour has issued notable changes to the UAE employment regulations which will grant foreign workers more freedom in the employment market. These changes have taken effect since January 2011.

a. Short-term/temporary work permits:

Non-GCC nationals who are above 18 years of age can now enter the UAE on a short-term work permit having validity for 60 days. These valid short-term work permits can be extended/renewed up to six times (subject to a specific fee and bank guarantee). However, if the extension/renewal is not done on time, a penalty fee of AED500 for every 10 days after the expiry date is levied on the sponsor. This facility is not extended to UAE or GCC nationals.

b. Non-requirement of consent from the previous employer for temporary work permits: 

In the past, an NOC and consent letter had to be obtained from the previous employer to avoid a six-month work permit ban. The amended law now allows new employers the freedom to obtain an approval from the Ministry of Labour for temporary work permits without the consent of the former employer. This approval can only be obtained if the current residence visa and labour/employment card of the employee are valid and clear.

c. Retirement age limit increase for expat employees:

Earlier limit for the retirement age of expatriate employees was fixed at 60 years. The Ministry of Labour has now extended this limit for expatriate employees to 65 years of age. This gives expatriate employees the right to obtain work visas up to the new extended limit of 65 years.

d. Introduction of new work permits:

Five new work permits have now been introduced by the Ministry of Labour and the Immigration Department, in an attempt to liberalise the labour market while giving a wider range of choices to potential employers. These five new internal work permit categories include:

  1. Multiple-entry Visa:
    Multiple-entry Visas are availed to business visitors who have a relationship with either a multinational or other reputable local establishments, and who are frequent visitors to the UAE. This type of visa is valid for six months from the date of issue and the duration of each stay is 30 days. The validity is non-renewable.
  2. Mission Visa:
    Mission Visa is a 90-day visa for the purposes of allowing expats to work for a short time in the UAE, or for employees on probation period, and is applied for at the Ministry of Labour by the sponsoring company. The Mission Visa is valid 60 days before entry to the UAE, the holder can stay up to 90 days after entry, and it is renewable once for another period of 90 days. It can be converted into a residence visa. There is a grace period of 7 days after expiry of the Mission Visa within which the holder must exit the UAE or obtain a residence visa.
  3. Temporary work permit:
    Temporary work permits would allow any non-UAE national to be engaged on any projects or assignments for a period not exceeding six months.
  4. Part-time work permit:
    Under which employees can be employed on a part-time basis.
  5. Permits for Juveniles:
    A very specific permit for persons between 15 and 18 years of age provided custodian approval has been sought on the minor’s employment and HSE restrictions are imposed. There are restrictions in respect of the types of work that can be performed, the time of work and the hours of work.

​Trade Unions

Trade unions do not exist in the UAE. In the case of a dispute between employer and employee, or in interpretation of the Labour Law, the Ministry of Labour and Social Affairs will initially act as an adjudicator. Where either party wishes to contest any such decision, it can file its case in the Civil Court. Strikes and lockouts are forbidden. It may be noted that the UAE Labour Law is generally perceived as an ‘employee friendly’ law.

Terminating employment 

The UAE Labour Law regulates termination of employment. Most of the disputes in the Labour courts arise from the termination of employment. Hence, the provisions of the Law have to be strictly considered by both employers and employees before termination of the employment.

Termination during probation

As discussed above, both an employer and employee have the right to terminate an employment contract within the probationary period without notice and without end-of-service benefits. Normally, a six-month probationary period allows some flexibility in determining if an employee is right for a certain position in a company and also allows time to terminate the employment during that period if required.

Termination after completion of probation 

After the completion of the probationary period, the termination of the employment by either party must be preceded by at least 30 days’ notice given to the other party before the termination of an employment contract. The Labour Law does not allow any room for negotiation in this respect, even for instance, when the employer is willing to consent to a shorter time period. Any shorter contractual notice period is unlikely to be enforceable.

Notice 

The minimum notice period applicable for an indefinite-term contract is 30 days, as per Article 117, or whatever longer notice period has been agreed upon by the parties. In this instance, the parties are permitted to terminate the employment provided the notice period is observed. As indicated above, the parties can extend the notice period or pay the employee in lieu of notice, but cannot cancel it or reduce its duration. This provision does not apply if the dismissal is based on grounds of the employee causing grave financial loss to the company, disclosing company secrets or having been found drunk and disorderly on the job.

End-of-service benefits 

Upon termination of employment, the Labour Law states that an employee must be reimbursed for all entitlements they have not been able to benefit from, such as unutilised leave. UAE law specifically states that on termination of a contract, an employer must return an employee to their country of origin, should the employee fail to find alternative employment within a set time period.

According to Article 132 of the Labour Law, an employee who completes one year or more of continuous service is entitled to a gratuity at the end of his/her service. This gratuity is calculated on the basis of 21 days’ basic salary for each year of the first five years and 30 days wages thereafter, on condition that the total of the gratuity does not exceed the wages of two years.

Article 137 cuts this gratuity to a third in the event that the employee was on an unlimited term contract and left work voluntarily after a continuous service of not less than one but not more than three years, and to two thirds if his/her continuous service was more than three but not more than five years. After the five-year mark, an employee receives full gratuity. Furthermore, under article 138, if the employee is under a limited-term contract and leaves work voluntarily before the end of the contract period, he shall not be entitled to the end-of-service gratuity unless the period of his continuous service exceeds five years.

It is worth mentioning that the days of absence from work without pay are not included in computing the period of service.

This end of service gratuity is calculated according to the employee’s last basic salary prior to the date of termination of employment. This salary is the basis for calculating the gratuity for the whole period of an employee’s employment.

Redundancy 

There are no provisions for redundancy under the UAE Labour Law; hence redundancy compensation is not prima facie recognised. The clause within the Labour Law that is akin to redundancy compensation is the requirement for an employer to provide pay of up to 3 months, salary where they have terminated the employment for a reason other than the employee‘s performance.

Severance compensations 

The mandatory elements of severance pay under the Labour Law include:

  • an end of-service gratuity; 
  • holiday/leave pay; 
  • the costs of repatriation; and
  • pension benefits to UAE nationals.

The payment of gratuities is discussed above. Gratuities are calculated from the basic salary, excluding all allowances. However, gratuities do not vest in the case of termination under provisions of Article 120 (discussed above) or the act of voluntary resignation by an employee to avoid the actions of termination on valid grounds.

The Labour Law also provides for payment in lieu of the balance of the annual leave at the time of dismissal or resignation.

In respect of repatriation costs, the Labour Law states that on termination of employment the employer must cover the cost of repatriation of the employee to the country from where he or she was recruited, or any other place agreed on by the two parties. This cost will cover the cost of his travel ticket and whatever is provided for in the employment contract or in the employment manual of the organisation, such as the employee‘s entitlement to travel tickets for his family and costs for shipment of his luggage. If the employee ends the contract, the employer need not pay the statutory costs of repatriation provided the employee can afford to repatriate. It is standard practice however, for the employer to pay for the cost of the travel ticket, whether or not the employee actually exits the country and returns to his country of origin or country from where he was recruited.

UAE nationals are entitled to additional pension benefits covered under a separate legislation.

Additionally, compensation may also be due for non-discretionary bonuses, stock options, or other items in the contract that would provide the employee with additional benefits.

Deductions 

The Labour Law allows an employer to deduct from the gratuity any monies due to it from the employee, such as loans or school fees paid after the termination date.

Non-competition provisions in the Labour Law 

It is increasingly commonplace to include non-competition agreements in employment contracts. With the explosion of an ever-increasing number of international and multinational organisations in the UAE, the need for non-competition provisions is natural. The Labour Law provides that when the employee’s position involves knowledge of the company’s clients or confidential information, employers may stipulate that, upon termination, the employee may not become part of any competing endeavour. Such an agreement shall, as far as time, place and the nature of work are concerned, be limited to what is necessary to protect the legal interests of the employer. This provision is being tested case-by-case in the courts. Non-competition agreements have been enforced in a number of instances.

Wage Protection System 

The Wage Protection System (‘WPS’) involves the payment of salaries by transfer through selected banks, financial institutions and bureaux de change approved and authorised by the Central Bank of the UAE.

All employers registered with the Ministry of Labour i.e. onshore entities and hiring one or more employees holding a labour card should apply for the WPS. The WPS covers all employers across all economic sectors and industries in the private sector. Currently this is not being applied in the free trade. However, it is expected that the system may also be applied there in the future.

  • The employer should open a bank account in any of the banks operating in the UAE.
  • The employer will choose any bank, bureau de change or financial institution approved and authorised by the Central Bank of the UAE, that will act as a third party (agent) to participate in the WPS to provide the service. 
  • If the employee holds a bank account in the UAE, then this bank can act as an agent (if listed and authorised by the UAE Central Bank to act as an agent).
  • The employer must pay their employees’ salaries at least on a monthly basis or on the dates specified in the work contract if salaries are paid more frequently than monthly.
  • All salaries must be paid in the local currency i.e. UAE Dirham (AED).
  • It is irrelevant if these salaries are paid by an employer located in the UAE or in a foreign country, or if the Head Office abroad transfers the salaries.
  • Wages must be transferred to the agent’s bank via the WPS.
  • The exact amount of wages as specified in the employee‘s file registered with the Ministry of Labour must be transferred via the WPS.
  • The employer must, upon request from the Authorities, submit all supporting documents asserting the payment of the salaries.
  • Before the employees‘ wages are transferred via the WPS, employers with fifty employees or more are required to submit a monthly declaration within
  • a deadline of 2 weeks from the salaries due date.
  • If the wages are not paid within a month of their due date or the declaration has not been submitted within a month of the wages‘ due date, the employer will be denied the right to have a new work permit for the following periods
  • Until the violation is rectified (the first violation);
  • For one month after the violation is rectified (second violation);
  • For two months after the violation is rectified (third violation); and
  • For three months after the violation is rectified (fourth violation). 

Employers that provide false information regarding the wage or salary of their employees will be prosecuted. In addition, they will be denied the right to apply for new work permits. This ban will remain in force until after any court proceedings.

Other stipulations by law 

There are several other provisions covered under the Labour Law, for instance employment of juveniles and their implications with respect to benefits, holidays and severance payments, limitations on construction labourer sponsorships, HSE requirements and the like. There have also been implications on the organisations in the recent past for salary cuts imposed during the economic downturn period, for malpractices such as keeping employees’ passports with the company and for termination of employment or dismissal during leave periods. Such provisions of the UAE Labour Law serve to protect the interests of employees from unscrupulous employers.