Key Considerations When Hiring in the UAE:

1. Nature of the Job: Whether the role is temporary, project-based, or permanent, as this will influence the type of employment contract to be used.
2. Duration of Employment: Assess whether the position is intended for a fixed term or an indefinite period to decide between limited-term and unlimited-term contracts.
3. Company’s Legal Capacity: Ensure that your company is authorized to employ individuals in the UAE and complies with all local labor laws and regulations.

An EOR UAE service like Globaine PEO provider can assist with legal compliance and help avoid issues with local authorities.

What types of Employment Contracts Are Permissible in the United Arab Emirates (UAE) ?

The UAE labor law recognizes several types of employment contracts, each suited to different employment scenarios.

1. Limited-Term Contracts: Also known as fixed-term contracts, these have a specified duration, typically not exceeding two years.
2. Unlimited-Term Contracts: These contracts do not have a defined end date and continue until either party decides to terminate, subject to agreed notice periods. They are commonly used for permanent positions.
3. Part-Time Contracts: Allow employees to work for one or more employers for a specific number of hours or days, providing flexibility for both parties.
4. Temporary Contracts: Designed for work that is project-based or for a specific assignment, ending upon the completion of the task.

Compliance with UAE Labor Law:

It is crucial for companies operating in the UAE to ensure that their employment contracts comply with the UAE Labor Law. This includes adhering to regulations regarding contract duration, Probation period, termination procedures, employee benefits, and working conditions.

When Can an Employee Be Hired Directly in the United Arab Emirates (UAE)?

According to Federal Decree-Law No. (33) of 2021, the conditions for direct hiring of employees in the UAE are as follows:

Legal Entity Requirement:

A company must have a legal entity registered in the UAE, such as a mainland company, free zone company, or offshore entity. These companies are legally allowed to hire and sponsor employees within the UAE. Without a registered legal presence, a company cannot directly employ staff as they cannot provide work permits or residence visas.

Work Permit and Residency Visa:

All foreign employees must have a valid work permit and residency visa issued by the UAE Ministry of Human Resources and Emiratisation (MOHRE) or relevant free zone authority. This process requires the employer to handle visa sponsorship, ensuring the employee is legally authorized to live and work in the UAE.

Employer’s Obligations:

The employer is responsible for ensuring the employee’s health insurance, visa expenses, work permits, and other associated employment costs. Employers are also required to provide fair wages, timely payment, and working conditions that comply with the labor law.

Employment Through Employer of Record (EOR):

If a foreign company does not have a registered entity in the UAE, they may use an Employer of Record (EOR UAE). An EOR acts as the official employer, handling the legal and administrative aspects of employment (e.g., payroll, benefits, visa sponsorship) while the employee works for the foreign company. The EOR is responsible for ensuring compliance with UAE labor law on behalf of the foreign company.

What Are the Different Contract Types in the UAE?

The Federal Decree-Law No. (33) of 2021 outlines several types of employment contracts in the UAE, each serving different employment needs. These contracts are essential for companies utilizing Employer of Record (EOR UAE) services to understand how to classify their workforce.

1. Limited-Term Contracts (Fixed-Term Contracts):

1. • Definition: These contracts have a defined start and end date, typically lasting for a maximum of 3 years (can be renewed).
   • Usage: Suitable for project-based roles or assignments with a specific completion date.
   • Probation: Maximum of 6 months probation, in line with Article 9 of the law.
   • Notice and Termination: Termination requires notice and adherence to contract terms.
   • Renewal: Limited-term contracts can be renewed, but if renewed multiple times, they may convert to an unlimited-term contract.
   • Article 8, 42, and 43 of Federal Decree-Law No. (33) of 2021.

2. Unlimited-Term Contracts (Permanent Contracts):

1. • Definition: These contracts have no specified end date and remain in effect until terminated by either party.
   • Usage: Commonly used for full-time, permanent positions.
   • Notice and Termination: Termination requires a notice period, typically 30 to 90 days depending on the agreement.
   • Previously, UAE labor laws distinguished limited and unlimited contracts, but the 2021 amendment aims to standardize them under a unified framework.

3. Part-Time Contracts:

1. • Definition: Part-time contracts are for roles where employees work fewer hours than a standard full-time employee.
   • Hours: Limited to 4 hours per day and 24 hours per week.
   • Usage: Typically used for roles like consultants, freelancers, or specific project assignments.
   • Payment: Payment must be made every 15 days, and no probation period is allowed for part-time contracts. Article 7 of Federal Decree Law.

4. Temporary Contracts:

1. • Definition: These contracts are tied to a specific task or project. The employment relationship ends automatically once the task is completed.
   • Usage: Common in industries such as construction, IT projects, or seasonal jobs.
   • Termination: The contract ends upon task completion. If the task is delayed or incomplete, compensation for the employee must be provided.
   • Article Reference: Article 7 of Federal Decree-Law No. (33) of 2021.

5. Remote Work Contracts:

1. • Definition: Remote work contracts allow employees to perform their tasks outside the employer’s physical office space.
   • Usage: With the rise of remote work due to COVID-19, this type of contract has become more common.
   • Considerations: Companies using EOR UAE can hire remote employees without establishing a physical entity, as the EOR will provide visa sponsorship and manage remote work regulations.
   • Article Reference: Article 7 of Federal Decree-Law No. (33) of 2021.

What Are the Benefits and Risks of a Probation Period in a Fixed Employment Contract in UAE ?

The probation period in an unlimited-term employment contract in the UAE offers both advantages and challenges for employers:

Benefits:

• Simplified Termination: Employers can terminate employees during the probation period with 14 days’ prior notice, unlike after the probation period, when longer notice periods are required.
• Reduced End-of-Service Gratuity Obligations: If the contract is terminated during the probation period, employers are not required to pay end-of-service gratuity, as gratuity applies only after one year of continuous service.
• Flexibility for Employers: The probation period allows employers to make quick staffing decisions if the employee does not meet performance expectations.

Risks:

• Short Notice Resignation: Employees may resign during the probation period with just 30 days’ notice, which could disrupt workflow and create staffing gaps.
• Training Costs and Onboarding Expenses: Employers incur recruitment, visa, onboarding, and training costs for employees who may not stay beyond the probation period.
• Increased Turnover Risk: Employees may leave during probation for more stable roles, resulting in higher staff turnover.

How an Employer of Record (EOR) Can Help

If a foreign company wishes to hire employees in the UAE but lacks a local legal entity, an Employer of Record (EOR) is a viable solution.

What is an EOR?

An Employer of Record (EOR) is a third-party provider that acts as the official employer for the employee, managing payroll, benefits, visa processing, and labor compliance on behalf of a foreign company.

Benefits of an EOR in the UAE

1. No Need for Local Entity: Companies can expand to the UAE without establishing a physical entity.
2. Visa Sponsorship: The EOR handles visa processing and residency permits for employees.
3. Labor Law Compliance: The EOR ensures compliance with Federal Decree-Law No. (33) of 2021, mitigating legal risks for the employer.
4. Employee Onboarding: The EOR manages employee onboarding, payroll, and benefits, ensuring a seamless experience for new hires.

Summary

Understanding the different types of employment contracts in the UAE is essential for compliance with Federal Decree-Law No. (33) of 2021. Employers must decide which contract type is most appropriate based on the job’s nature, duration, and company’s legal status.

Key Takeaways:

• Employers have five main employment contract options: Limited-Term, Unlimited-Term, Part-Time, Temporary, and Remote Work Contracts.
• Employers must meet their obligations, such as providing work permits, medical insurance, end-of-service gratuity, and annual leave entitlements.
• Companies without a legal presence in the UAE can use an EOR (Employer of Record), like Globaine, to hire employees legally and compliantly.

How Globaine PEO Can Help

Globaine PEO provides comprehensive Employer of Record (EOR) services in the UAE, allowing foreign companies to hire employees legally without establishing a local entity.

• Compliance with UAE Labor Law: Ensure all employment contracts and HR policies comply with UAE labor laws.
• Payroll Management: Handle payroll, tax deductions, and employee benefit distributions.
• Employee Onboarding: Seamlessly onboard employees with visa and work permit processing.

Need help managing employment contracts in the UAE? Contact Globaine today!