An investor-friendly environment, robust infrastructure, and flexible tax regime have made the UAE a preferred destination for investors worldwide. Countless businesses want to set shop in the UAE. Regardless of the industry or size of your business, once the company is set up, recruiting and hiring talent from the local market becomes the immediate concern for most.  

In this article, we will look at the key considerations of payroll in the UAE.

Laws governing employment in the UAE 

The UAE Labour Law, a federal law, governs all employees and staff working in the UAE. Companies also need to follow the ministerial resolutions and circulars issued by the Ministry of Human Resources and Emiratization (MHRE) periodically. The labour law provides protections to the employees for working hours, leaves and public holidays, maintenance of employee records, minimum safety standards, payment of gratuity, and conditions for termination of employment, etc.

Additionally, some free trade zones also have their employment laws in place. However, in most cases, the provisions are similar to the UAE Labour Law. In case of any conflict between the laws, the standalone employment laws of the free trade zones will prevail.

Employment Contract

Any company or business that falls within the purview of MHRE must execute a standard form of the employment contract with any new employee. A copy must be submitted to the governmental authorities to obtain the necessary approvals. The employment contract should contain the basic terms of employment. 

In case an employee requires a work permit, companies need to execute the template contract issued by MHRE or the relevant free trade zone authority. A supplementary contract may be executed later, reflecting the other terms of the employment in such cases.

Working Hours

While the maximum number of working hours in a day cannot exceed eight hours, special decrees may allow certain businesses to set different working hours. However, workers are not permitted to work for more than five hours without taking a break for rest and offering prayers. Moreover, during Ramadan, working hours are reduced by two hours per day.

If workers clock in more than forty-eight hours in a week, they are entitled to receive overtime pay. The overtime wages should be computed separately and not considered a part of the regular compensation of such employees. 

Although most businesses are closed on Friday, in case employees need to work on Fridays, they are entitled to get paid for those hours or take off on another day of the week. Except for those employed in managerial or technical positions or hold jobs in the medical sector, women are not allowed to work between 10 PM to 7 AM. 

Typically, the work week begins on Sunday and ends on Thursday. However, private companies are allowed to set their schedule. 

Leave policy

An employee is eligible for a maximum of 90 calendar days of sick leave. Typically, only the first 15 days are fully paid leaves. Paid sick leaves are not available for employees on probation. Employees cannot roll over sick leave to the next year. 

Employees are also entitled to 30 calendar days of paid leaves every year. On average, the employees earn two paid days of leave per month. Special leave of not more than 30 days can be availed for performing Hajj. However, this leave is without pay and can be availed only once during the employment period. 

Female employees are eligible for 45 calendar days of paid maternity leave. Once such an employee resumes work, she can also take two 30 minutes breaks in the day to nurse her child until the child is 18 months old. There is no concept of paternity leave under UAE law.

Hiring local employees

As per the UAE Labour Law, only UAE nationals can be hired for certain administrative positions. Companies up outside free trade zones that employ more than 50 employees must employ a specific percentage of UAE nationals as per the “Emiratization” policy.

Compensation and Taxation 

The law does not prescribe any minimum wages. Employers can decide the wages based on the skills and qualifications of the employees. Salaries of all employees must be paid through the Wages Protection System. Employers are not legally mandated to make bonus payments.

The probation period cannot exceed six months. If the employment contract terminates or expires, employees who have been employed for at least one year are entitled to severance pay. For the first five years of employment, severance pay is equal to the wages for 21 days. For every year after that, the pay is equal to the wages for 30 days.  

The maximum payout is equivalent to the wages for two years. However, if the employment contract is terminated for a particular cause or the employee quits before the expiry of the employment period, the employer doesn’t have to pay severance. There are no separate legislation or decrees for mass layoffs and redundancies.

Companies need to make statutory pension contributions of 5 percent for local employees. Foreign nationals employed in the UAE are not eligible for pension benefits. 

There’s no personal income tax in the UAE. However, the Government imposes a Value Added Tax on goods and services @ 5 percent. 

Dispute Resolution

The competent courts can resolve employment disputes in the UAE. However, companies based out of DIFC or ADGM are subject to the court systems of DIFC and ADGM. 

Are you looking for more insights about issues related to payroll in the UAE?

If you are venturing into the UAE market, you need a payroll specialist to help you maneuver through the various regulatory requirements. This will allow you to focus on what you do best — your business. 

Looking for assistance on these matters and an expert consulting team to set up your business in the UAE? Centurion Consulting LLC is here to help. Our experienced business and finance experts bring in a wealth of knowledge about various aspects of business consulting, including entry strategy, VAT compliances, incorporation services, and corporate structuring. With Centurion Consulting LLC by your side, you can seamlessly set up your business in the UAE and take it to new heights. 

Set up a 45 min free online or offline consultation session with Centurion Consulting LLC to learn more. 


Scroll to Top