UAE Employment Law Bulletin – January 2023

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1. New UAE Federal Labour Law comes into effect on 2 February 2023.

The new UAE Federal Labour Law comes into effect on 2 February 2023, governing all onshore “mainland” UAE companies and those operating in certain UAE free zones (but excludes DIFC and ADGM employers).

Most importantly, employers need to enter into new employment contracts with their employees primarily to change all unlimited term contracts to fixed term contracts by the 2 February 2023 deadline.

Other significant changes have been made regarding flexible and part-time working, family leave entitlements, discrimination and harassment, end of service gratuity amongst other things.

There are substantial fines ranging between AED 5,000 to AED 1,000,000 for employers for non-compliance so please ensure that all relevant employment contracts have been updated by 2 February 2023.

2. UAE Involuntary Loss of Employment (ILOE) Scheme rolled out from 1 January 2023

Effective 1 January 2023, onshore UAE employees will be required to register and make payments to the Involuntary Loss of Employment (ILOE) Scheme. The purpose of the Scheme is to provide income for employees for a period of three months upon termination of their employment for reasons other than disciplinary action or resignation until they find a new job.

ILOE applies to all onshore UAE employees (i.e. excluding those working in any of the UAE free zones). Employees have different obligations and compensation rights depending on which of the below two categories they fall under:

1. Employees in the “first category” and earning a basic salary of AED 16,000 per month or less will need to pay AED 5 (plus VAT) per month (AED 60 plus VAT annually) and their monthly compensation is capped at a maximum of AED 10,000 per month up to 3 months.

2. Employees in the “second category” and earning a basic salary exceeding AED 16,000 will need to pay AED 10 (plus VAT) per month (AED 120 plus VAT annually) and their monthly compensation is capped at a maximum of AED 20,000 per month up to 3 months.

The authorities have provided a six month grace period (until 30 June 2023) for employees to register with the Scheme. Failure to register with the Scheme may result in a fine payable by the employee of AED 400 and a fine of AED 200 for failing to pay the required premiums for more than three months. There are many ways to subscribe to the Scheme, details of which can be found here: www.iloe.ae.

In terms of best practice, we recommend that UAE employers inform their employees of the requirements to register for the Scheme so that employees can comply before the end of the grace period by 30 June 2023. Please contact us if you need any assistance with creating appropriate employee communications regarding the Scheme.

3. Emiratisation quotas implemented as of 1 January 2023

From 1 January 2023, all onshore UAE companies (excluding free zones) with 50 or more employees must increase Emiratisation by 2% per year until they reach 10% Emirati workforce by 2026.

The fines for non-compliance with the quotas are AED 6,000 per month per Emirati employee short of the quota. This fine is increased by AED 1,000 per month per year for non-compliance.

We can advise UAE employers on the quota requirements and the incentives given to companies which substantially exceed these Emiratisation targets.

For further assistance and guidance relating to any of the above or if you have any general UAE employment law queries, please contact David McDonald or Tara Jamieson.