New UAE Labour Law 2023 - Working hours, Annual leave and Gratuity

If you work in the UAE we’ve got some good news for you: the new uae labour law has changed. From now on, employers can officially have part-time jobs. They have also the possibility to sign off flexible work contracts with more than one employer. This is groundbreaking because it is the first time in 40 years since this legislation has been renewed.

The Federal Decree-Law N° 33 of 2021 is set to replace the Federal Labor Law N°8 of 1980. It will become effective from February 2022. In this article, you’ll learn everything you need to know about this revolutionary change in UAE legislation.

1. What do you need to know about the new Labor Law?

2. Scope and application

3. Equality and no-discrimination

4. Part-time and flexible jobs

5. Different types of work contracts

6. Employment termination during the probation period

7. Employer Obligations

8. Employee Obligations

9. Wages and salary

10. Severance payments

11. Sick leave

12. Other paid leaves

13. Reasons to terminate an employment contract

14. How can you find the perfect part-time job for you with The Talent Point?

1. What do you need to know about the new Labor Law?

Minister of Human Resources and Emiratisation announced this new labor law. It is part of an effort to protect the rights of the workers. As well as to enhance the job market conditions in the country. Especially now that the UAE is one of the fastest-growing countries in the world. The pandemic performed a key role in this initiative because of the rise of remote-working.

Let’s take a look at the specifics of this law:

Deadline for Compliance with the New UAE Labour Law 2023

The employment landscape in the United Arab Emirates (UAE) has witnessed significant transformations with the introduction of the new UAE Labour Law in February 2022. These changes have far-reaching implications for both employers and employees, impacting various aspects of labor relations. In this article, we will shed light on the key aspects of the new labor law, including the transition to fixed-term employment contracts, the Emiratisation initiative, and the introduction of an unemployment insurance scheme.

Transition to Fixed-Term Employment Contracts

One of the central features of the new UAE Labour Law is the requirement for employees in the private sector (excluding the Dubai International Financial Centre and Abu Dhabi Global Market) to be employed on fixed-term contracts. These contracts provide a degree of stability to both employers and employees, clarifying the terms of employment.

Initially, the law imposed a three-year cap on the length of fixed-term contracts. However, this cap was removed in October 2022, allowing employers and employees to agree on the contract's duration, essentially making fixed-term contracts a flexible tool for structuring employment relationships.

The removal of the maximum cap on contract duration means that employers and employees can mutually agree on longer-term contracts, effectively rendering them similar to permanent employment contracts. This flexibility can accommodate various business needs and the expectations of both parties.

Emiratisation Quotas

Emiratisation, an initiative aimed at increasing the employment of UAE nationals in the private sector, has taken on a renewed significance. The new labor law introduces Emiratisation quotas for private sector companies registered with the Ministry of Human Resources & Emiratisation (MoHRE). These quotas require companies to employ a minimum of 2% UAE nationals in their workforce, a percentage that will incrementally rise by 2% each year until reaching 10% of the total skilled workforce.

Companies that fail to meet their mandatory Emiratisation quotas will face fines, starting at AED 6,000 per month for each outstanding UAE national employee. These fines increase annually by AED 1,000 for each year of non-compliance. Remarkably, fines have been imposed for non-compliance in 2022, covering the period before the initial resolution was issued on June 6, 2022. This move has caught many companies by surprise, as they anticipated that the fines would apply prospectively, starting from January 1, 2023.

The criteria for compliance seem to involve assessing a company's skilled and unskilled workforce, further emphasizing the significance of adhering to Emiratisation requirements.

Introduction of Unemployment Insurance Scheme

Another significant development is the introduction of an unemployment insurance scheme, effective from June 30, 2023. Under this scheme, all employees in the private sector (excluding free zones, although this may change) must register.

Employees are required to contribute to the scheme by paying AED 5 per month if they earn less than AED 16,000 per month and AED 10 per month if they earn more. To be eligible for unemployment benefits, employees must be enrolled in the scheme for at least 12 months and have received 12 months' worth of employer contributions.

Eligible employees can receive unemployment benefits, which amount to 60% of their registered monthly salary, up to a maximum of AED 20,000, for a three-month period following their termination.

Employers are encouraged, although not obligated, to facilitate their employees' registration and contributions to the scheme.

What Lies Ahead

The new UAE Labour Law has ushered in a period of significant change for businesses operating in the UAE. The transition to fixed-term employment contracts, the stringent enforcement of Emiratisation quotas, and the introduction of an unemployment insurance scheme have far-reaching implications.

Businesses need to be proactive in complying with these changes and consider the strategic implications. Employers and employees alike must adapt to the evolving legal landscape, understanding their rights and responsibilities to ensure a harmonious and productive working environment in the UAE.

As the compliance deadline of February 1, 2023, approaches, it is essential for companies to take the necessary steps to meet the requirements of the new labor law, and to devise strategies for navigating the complex Emiratisation quotas and understanding the potential impact of the unemployment insurance scheme on the employment landscape. This evolving legal landscape underscores the importance of staying informed and proactive in ensuring compliance and promoting the well-being of the UAE's workforce.

2. Scope and application

The new UAE labour law will apply to employers and employees within the private sector in the UAE with the exception of the federal and local government sectors. It will also become effective in the free zones that don’t have their own legislation on labor. 

What’s more interesting is that this law will not apply in Abu Dhabi or the Dubai International Financial Centre because they have its own labor law. President His Highness Sheikh Khalifa bin Zayed Al Nahyan issued this Decree-Law and it will take effect from February 2022. 

3. Equality and no-discrimination

Discrimination will not take place under the new legislation. Article 4 prohibits any kind of discrimination based on race, gender, religion, or ethnicity. Also, women will have the same rights and wages as men if they’re doing the same work. Eliminating the notorious gender pay gap that is present in many western countries.

Additionally, it is not allowed the employment of people under the age of fifteen years old. Minors above fifteen can work if they have permission from their parents or legal guardians. Also, they can’t work for more than six hours daily.

4. Part-time and flexible jobs

Part-time jobs under the new UAE labour law has been a subject of debate because it was not part of the previous labor-law regime. Even though it is a highly popular modality around the world, especially among students. Well, now a part-time job allows somebody to accept to work for one or more employers.

It is now allowed to have a temporary job without long-period work contracts. This type of work ends when a certain task is performed or completed. It is similar to freelancing jobs and it is highly accepted in western countries. 

Finally, we have flexible working. This implies the working hours can change (increase or decrease) depending on the workflow and economic resources of the employer.

Evolving Working Hours

1. Standard Working Hours: In the UAE, the standard workweek is typically 48 hours, with six working days and eight hours per day. This totals 48 hours a week, though certain industries, like manufacturing, may work up to 9 hours a day. The law acknowledges the importance of work-life balance and emphasizes the need for a two-day weekend.

2. Flexible Working Arrangements: The new labor law allows companies to adopt flexible working arrangements, such as remote work, part-time employment, and flexible hours. These arrangements promote work-life balance and offer flexibility to both employers and employees.

3. Overtime Regulations: Overtime work is compensated with additional pay, usually 25% extra on a regular workday and 50% extra on a weekend or holiday. Workers can now choose between additional pay or compensatory time off for overtime work.

5. Different types of work contracts 

This Decree-Law represents a big shift because, with the previous law, employers and employees could engage in unlimited-term work contracts. Which were very common in the UAE. From now on, employment contracts will be only for a limited term. Not exceeding the three years of duration. 

Extensions of the contract will be established with the agreement of both parties. Therefore, those who have unlimited employment contracts shall agree with new contracts to be in compliance with the new labor law.

There is a deadline until February 1st in which employers should make all the necessary changes in employment contracts. Including the replacement of those with unlimited term contracts to fixed-term contracts. 

6. Employment termination during the probation period

With the previous labor law, the employer was able to terminate the employment contract during the probation period without notice. But now, under the new UAE labour law, the employers have a period of 14 days in which they must give written notification to the employee. This is to notify the termination of the employment contract. This is necessary because it protects the rights of the workers by avoiding unfair situations.

The employees also have new obligations in this regard. Under the new UAE labour law, they have to give written notice with at least one-month anticipation. This applies if they intend to terminate the employment contract while the probation period is running. In this situation, the new employer is liable to compensate the former employer for recruitment costs.

Furthermore, if the employee wishes to terminate the employment contract and leave the country during the probation period, he/she must give written notice with 14 days of anticipation. If the employee returns to the UAE and gets hired by another employer, this new employer is liable to compensate the former employer for recruitment costs.

7. Employer Obligations

The new labor law comes with several obligations for both employers and employees. Let’s start reviewing the obligations for employers. It starts with the responsibility of maintaining the records and files of employees, for a minimum time of 2 years after they leave the company. On the other hand, the employer cannot hold any of the official documents of their employees. This is to prevent any attempt to force them to leave the country. 

Additionally, the employer has the obligation to provide all the conditions for his employees and the employment relationship to improve and make them feel safe, that includes medical insurance o repatriation costs if that’s the case. Needless to say, the employer cannot force their employee to work by coercion or under threat.

If the employee dies, the employer must deliver the end-of-service benefits to his/her family within a period of 10 days from the day of the death. In order to do this, the employee has had to provide the employer with a document that specifies the authorized person who will receive the benefits.

8. Employee Obligations

To begin with, the first obligation the employee has is that he/she must perform the tasks of the job specified in the work contract. And he/she must perform his/her work without using another person or any third party. This is a general rule that is applicable to most labor legislation around the world. Also, the employee can’t work for another employer for the duration of the contract, unless agreed otherwise.

Additionally, the employee is obligated to comply with the code of work ethics and good conduct, this includes the preservation of all of the equipment and tools to work properly. The employee also commits himself/herself to return back all of the assets that were assigned to him/her at the beginning. In case of any property damage, the employee is obligated to financially compensate it.

In regards to working hours, it has been reduced to 8 hours daily or 48 hours per week, if both parties agree to night time hours, it will start from 10 pm to 4 am. After the last working day, the employee must leave the facilities or office within 30 days after the actual last day, unless otherwise agreed by both parties. 

9. Wages and salary

The employer is obligated to pay a salary to their employees in a determined way, time and amount. One of the reasons to resign without notice it’s if the employer is holding the payment, or deducting it. 

However, the labor legislation sets out that the employer can deduct the salary of the employee for one of the following cases:

• If the employee has damaged tools or equipment from the office property of the employer, whether to be by accident or intentionally. 

• Court decisions can dictate even a quarter of the salary.

• Loans from the employer to the employee.

In any case, the deductions to the salary of the employee can’t exceed 50% of the employee’s salary.

10. Severance payments

If an employee completes at least 1 year of service at the company, he/she is automatically entitled to receive severance pay at the end of their service. According to the law, this will be calculated over their basic salary. This way, the employee should receive severance pay as it follows:

• 21 working days of salary for the first 5 years of work.

• 30 working days of salary for each additional worked year.

The new UAE labour law establishes that there is a limit over severance pay which should not exceed the 2 years of salary, no matter the case. 

Additionally, if the employee resigns and decides to terminate the work contract, he/she will receive the full amount of the severance pay. This is something new that offers the new law because, with the previous legislation, the employee could only receive one-third of the severance pay for their services.

11. Enhanced Annual Leaves

1. Annual Leave Entitlement: Under the new law, employees are entitled to annual leave based on their length of service. Employees with over six months but less than a year of service receive two days of annual leave for each month worked. Those with over a year of service earn 30 days of leave per year.

2. Sick Leave: The updated law provides for paid sick leave, offering greater protection to workers during times of illness. Employees can take sick leave for up to 90 consecutive or non-consecutive days per year, depending on their service length and medical certification.

3. Maternity Leave: Female employees are entitled to paid maternity leave of 45 days, with the possibility of additional leave without pay. The law also emphasizes the importance of providing appropriate childcare facilities for working mothers.

According to the law, when an employee has finished 6 months of full service, it is free to choose up to 90 days as recovery time if he/she gets sick. If so, the employee must provide the employer with medical reports. It depends on the employee whether to select the 90 days altogether or separately. 

12. Other paid leaves

If the employee suffers a personal loss such as the death of a relative, he/she is eligible for a mourning leave and it will be paid. It is as follows:

• 5 days of paid mourning leave if the spouse dies

• 3 days of paid mourning leave for the death of sons, siblings, parents, grandparents, or grandsons. 

But this is not the only type of paid leave. If the employee is studying in a determined educational institution and he/she has been working for 2 years in the company, it is entitled to receive 10-working days of study leave, which is completely paid by the employer.

13. Reasons to terminate an employment contract according new uae Labour law

The new UAE labour law sets out a series of valid reasons to put the employment contract to an end. This will proceed with one of the following cases:

• A written agreement of both parties.

• The original term has expired.

• Death of the employer or the employee.

• The bankruptcy of the employer.

However, there is also a set of reasons in which the employer can dismiss the employee without notice, these are the main ones:

• Violation of internal policies about health and safety inside the facilities of the company.

• Incompetence or bad quality of work even after two written warnings.

• Divulgation of secret projects of the company.

• Reckless actions would cause substantial financial losses for the employer.

• Physical or psychological violence against the person of the employer or colleagues. 

Gratuity and End-of-Service Benefits

1. Gratuity Calculation: The gratuity system remains an integral part of the new labor law. It offers a severance pay to employees based on their years of service. The formula for calculating gratuity is as follows:

• 21 days' basic salary for each year of service for the first five years.

• 30 days' basic salary for each year of service beyond the initial five years.

2. End-of-Service Benefits: Employers are also required to provide end-of-service benefits to employees, which include severance pay, leave salary, and other dues. This is to be paid upon the termination of an employment contract.

The UAE's labor laws have evolved to align with international labor standards, emphasizing fairness, worker protection, and employment stability. The introduction of flexible working arrangements, enhanced annual leave, and gratuity calculations demonstrates the UAE's commitment to ensuring a conducive and equitable working environment for its diverse workforce.

Both employers and employees in the UAE should familiarize themselves with the provisions of the new labor law to ensure compliance and to make the most of the improved benefits and working conditions it offers. As the UAE continues to grow as a global business hub, these changes further reinforce its commitment to balancing economic growth with worker rights and welfare.

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