You have registered your company, signed your lease, and sponsored your first employee visa. Now what? As soon as someone starts working for you in the UAE, a different set of rules kicks in, and getting them wrong can cost you anywhere from AED 5,000 to AED 1,000,000 in fines.
UAE employment law is governed by Federal Decree Law No. 33 of 2021, which replaced the older 1980 labour law and took effect on February 2, 2022. It applies to every private sector employer in the country, whether you run a mainland LLC, a free zone company, or a single-person operation with one part-time hire. The only exceptions are employees of federal or local government, the armed forces, and domestic workers (who fall under a separate law).
This guide covers the practical rules you need to follow as a small business owner: contracts, working hours, leave, pay, gratuity, termination, and the compliance obligations that most new employers overlook.
What Counts as an Employment Relationship
When You Need a Formal Contract
UAE law defines an employment relationship as any arrangement where a person works under the direction and supervision of an employer in exchange for a wage. If someone works set hours, uses your tools, follows your instructions, and depends on you for income, they are legally your employee, regardless of what you call the arrangement.
Every employment relationship must be documented with a written contract registered through MOHRE (the Ministry of Human Resources and Emiratisation) or through your free zone authority. Verbal agreements are not legally recognized. As of 2026, all private sector employment contracts must be fixed-term, with a maximum duration of three years. The old "unlimited contract" category was abolished in February 2022.
What the Contract Must Include
Your employment contract must contain specific elements required by law. Missing any of them can result in fines and complications during disputes. The mandatory elements are:
- Employer name, address, and trade license number
- Employee name, nationality, date of birth, and qualifications
- Job title, description, and place of work
- Contract start date and duration (maximum 3 years)
- Salary amount, currency, and payment frequency
- Benefits and allowances (housing, transport, etc.)
- Working hours and rest days
- Annual leave entitlement
- Probation period (if applicable, maximum 6 months)
- Notice period for termination (minimum 30 days)
- Non-compete clause details (if applicable)
The contract must be in Arabic. A bilingual Arabic-English version is common and acceptable, but in any legal dispute, the Arabic text takes precedence.
Probation Period Rules
Probation cannot exceed six months. During probation, an employer may terminate the employee with 14 days written notice. The employee must give 30 days notice if they want to leave for another employer within the UAE, or 14 days if they plan to leave the country entirely (Source: UAE Government Portal).
An employee cannot be placed on probation more than once with the same employer.
Working Hours, Overtime, and Rest Days
Standard Working Hours
The standard workweek in the UAE private sector is 48 hours, or 8 hours per day. Most businesses operate Sunday through Thursday, though some industries use a Saturday through Wednesday schedule.
During Ramadan, working hours are reduced by 2 hours per day for all employees regardless of religion, nationality, or seniority. Pay stays the same during the reduced hours.
Employers must provide a minimum one-hour break for every five consecutive working hours. Break time does not count toward total working hours.
Overtime Rules
Overtime is capped at 2 hours per day, making the maximum workday 10 hours. Over any three-week period, overtime cannot exceed 144 hours. The compensation rates are:
- Daytime overtime (between 4 AM and 10 PM): base hourly rate plus 25%
- Nighttime overtime (between 10 PM and 4 AM): base hourly rate plus 50%
- Rest day or public holiday work: base daily rate plus 50%, or a compensatory day off
Senior management and certain supervisory roles may be exempt from overtime entitlements under Article 15 of the labour law.
The Weekend and Public Holidays
Friday is the official rest day for private sector employees, though the actual weekly rest day can be any day as specified in the employment contract. The UAE moved to a Saturday-Sunday weekend for government and most private sector employers in January 2022. Employees are entitled to at least one rest day per week.
The UAE has approximately 10 to 14 public holidays per year, with exact dates announced annually by the government. Employees who work on a public holiday are entitled to either a compensatory day off or their daily wage plus 50%.
Salary, WPS, and Payroll Compliance
How Salaries Must Be Paid
The UAE does not have a national minimum wage for the general private sector, but salaries must be sufficient to meet an employee's basic needs. As of January 2026, Emirati employees specifically must earn a minimum of AED 6,000 per month. Employers with existing Emirati staff had until June 30, 2026 to update contracts to meet this threshold.
Salaries must be paid at least once per month, and the employer is considered in default if wages are not paid within 15 days of the due date.
WPS: The Wage Protection System
WPS is a mandatory electronic salary payment system monitored by MOHRE and the Central Bank of the UAE. Every private sector employer must pay salaries through WPS-approved channels (banks or exchange houses), not in cash.
Here is what WPS compliance requires:
- Register with a WPS-approved bank or exchange house
- Enroll new employees within 30 days of their start date
- Submit a Salary Information File (SIF) each payroll cycle
- Transfer at least 80% of total wages on time through WPS
- Ensure each employee receives at least 80% of their contractual pay per cycle
If wages are late by 17 days past the due date, MOHRE can block new work permit applications for your company. Penalties for WPS non-compliance include fines of AED 5,000 per affected employee up to a maximum of AED 50,000, and submitting false wage data carries a AED 1,000 fine per employee (Source: Central Bank of the UAE).
Leave Entitlements
Annual Leave
Annual leave accrues based on length of service. During the first six months, employees have no paid leave entitlement. From 6 months to 1 year, they earn 2 calendar days per month. After completing one year, they are entitled to 30 calendar days per year (Source: UAE Government Portal).
Unused annual leave can be carried over or paid out at the employer's discretion, but employees cannot be forced to waive their leave entitlement. If an employee is terminated, unused leave days must be paid based on the last basic salary.
Sick Leave
Employees are entitled to 90 days of sick leave per year after completing the probation period. The structure is:
- First 15 days: full pay
- Next 30 days: half pay
- Remaining 45 days: unpaid
Sick leave requires a medical certificate from a licensed healthcare provider. An employee who exhausts all 90 sick days may be terminated, but their end-of-service benefits must still be paid in full.
Maternity and Parental Leave
Female employees receive 60 days of maternity leave: 45 days at full pay followed by 15 days at half pay (for employees with 1+ year of service). Those with less than one year of service receive the same duration at half pay throughout.
If the baby has a health condition or disability, the mother can take an additional 30 days at full pay, extendable by another 30 days without pay. Nursing breaks of up to 2 hours per day are allowed for 6 months after delivery, at full pay.
Both mothers and fathers are entitled to 5 working days of paid parental leave, which can be taken consecutively or intermittently within 6 months of the child's birth.
Other Leave Types
Bereavement leave: 5 days for the death of a spouse, 3 days for a parent, child, sibling, grandchild, or grandparent.
Study leave: 10 business days per year for employees enrolled in UAE-accredited institutions, provided they have completed 2 years of service with the employer.
Hajj leave: up to 30 unpaid days, once during the employee's entire employment, for pilgrimage.
End of Service Gratuity
How Gratuity Is Calculated
End of service gratuity is a mandatory lump-sum payment owed to every employee who completes at least one year of continuous service. It is calculated based on the employee's last basic salary (excluding allowances like housing and transport).
The formula is straightforward:
- First 5 years of service: 21 days of basic salary per year
- After 5 years: 30 days of basic salary per year
- Maximum total gratuity: capped at 24 months (2 years) of basic salary
For example, an employee earning AED 15,000 basic salary who works for 7 years would receive: (21 days x 5 years x AED 500/day) + (30 days x 2 years x AED 500/day) = AED 52,500 + AED 30,000 = AED 82,500. The daily rate is calculated as monthly basic salary divided by 30.
When Gratuity Must Be Paid
Employers must settle all end-of-service payments, including gratuity, within 14 days of contract termination. Failure to pay within this window can result in penalties and complaints to MOHRE.
Gratuity is owed regardless of who initiates the termination, whether the employee resigns or the employer terminates the contract. The only exception is termination for gross misconduct under Article 44 of the labour law, but even then, the burden of proof falls on the employer.
The Voluntary Savings Scheme Alternative
Under Cabinet Resolution 96 of 2023, employers can opt into a voluntary savings scheme instead of the traditional gratuity model. In this system, employers contribute monthly percentages of employees' basic salary into a regulated investment fund (5.83% for the first five years, 8.33% thereafter). This is similar to a pension contribution and helps employers manage cash flow rather than facing large lump-sum payments when employees leave.
DIFC companies already operate under a similar scheme called DEWS (DIFC Employee Workplace Savings). ADGM has introduced equivalent provisions as of 2025.
Termination and Notice Periods
Lawful Grounds for Termination
Either party can terminate a fixed-term contract with written notice, as long as the notice period specified in the contract is observed (minimum 30 days, maximum 90 days). Legitimate reasons for employer-initiated termination include:
- Mutual agreement between employer and employee
- Expiry of the contract term without renewal
- Redundancy or restructuring (with documented business justification)
- Employee misconduct under Article 44 (fraud, assault, intoxication, safety violations, unauthorized absence of 20+ consecutive days or 7 non-consecutive days)
Arbitrary dismissal, meaning termination without a legitimate reason, entitles the employee to compensation of up to 3 months' salary in addition to their notice period and gratuity.
Non-Compete Clauses
Non-compete clauses are enforceable in the UAE but only under strict conditions. They must be limited to a maximum of 2 years, specify the geographic area and type of work, and protect a legitimate business interest. Courts will not enforce clauses that are overly broad or unreasonably restrictive.
If an employee breaches a valid non-compete, the employer can seek damages through the courts, but UAE law does not allow courts to issue injunctions preventing the employee from working.
Emiratisation Requirements
Who Is Affected
Emiratisation is the UAE government's policy requiring private sector companies to hire a minimum percentage of Emirati nationals. As of 2026, the rules apply to two groups:
1. Companies with 50 or more employees must reach 10% Emirati representation in skilled roles by the end of 2026, up from 8% at the end of 2025. This is part of a phased 2% annual increase that began in 2023.
2. Companies with 20 to 49 employees in 14 targeted sectors (including finance, real estate, professional and technical activities, healthcare, and construction) must hire at least 2 Emirati employees by the end of 2025 (Source: UAE Government Portal).
Penalties for Non-Compliance
The financial penalties are significant and escalate annually. Companies with 50+ employees that miss their targets face monthly fines of AED 7,000 per missing Emirati employee in 2025 (up from AED 6,000 in 2023), with the fine increasing by AED 1,000 each year.
For companies with 20 to 49 employees in targeted sectors, the fine for 2025 non-compliance is AED 108,000, payable in January 2026.
Fake Emiratisation (hiring Emiratis on paper without genuine employment) carries fines of AED 20,000 to AED 100,000 per affected employee, plus potential work permit suspensions.
Exemptions
Most free zone companies are currently exempt from Emiratisation quotas. However, this exemption may not last indefinitely, and some larger free zones are beginning to introduce voluntary Emiratisation incentive programmes.
If your business has fewer than 20 employees and does not operate in one of the 14 targeted sectors, Emiratisation requirements do not currently apply to you.
Free Zone vs Mainland Employment Rules
Key Differences
Most UAE free zones follow Federal Decree Law No. 33 of 2021 and process employment matters through MOHRE, just like mainland companies. The practical experience, from contract registration to WPS compliance, is nearly identical.
The two major exceptions are DIFC and ADGM, which operate under completely separate employment frameworks based on UK common law principles. If your company is registered in either of these financial free zones, different rules apply for contracts, termination procedures, working hours, and dispute resolution. For a detailed comparison of free zone types, see our guide to choosing between a freezone and mainland structure.
DIFC and ADGM Specifics
DIFC and ADGM allow greater contractual freedom, with no requirement to register contracts externally. English-language contracts are standard and enforceable. Working hours can be set at 40 to 48 per week, and there is no mandatory Ramadan reduction.
DIFC replaced traditional gratuity with the DEWS savings plan (employer contributes 5.83% of basic salary for the first 5 years, 8.33% thereafter). ADGM introduced a similar framework in 2025.
Employment disputes in DIFC and ADGM are resolved through their own tribunals, typically within 8 to 12 weeks, compared to 6 to 12 months through mainland MOHRE and courts.
Neither DIFC nor ADGM companies are subject to Emiratisation quotas.
Common Mistakes New Employers Make
Many first-time employers in the UAE run into problems not because they intend to break the rules, but because they do not realize the rules exist. Here are the most common errors and how to avoid them.
Contract and Payroll Errors
Paying salaries in cash instead of through WPS is the single most common violation, especially among small businesses. Even if your employee agrees to cash payment, it exposes you to fines and work permit blocks.
Using an outdated unlimited contract template is another frequent mistake. All contracts issued or renewed since February 2022 must be fixed-term. MOHRE will reject unlimited contract registrations.
Failing to include all mandatory contract elements (particularly the probation period, notice period, and job description) creates liability in any future dispute. Use MOHRE's standard contract template as your starting point.
Visa and Employment Timing
Starting an employee before their work permit and visa are finalized is illegal and carries penalties. The correct sequence is: offer letter, then visa sponsorship and work permit, then start date. Never reverse this order.
Compliance Gaps
Not tracking annual leave balances, failing to submit WPS files on time, and ignoring Emiratisation requirements are the three compliance gaps that trigger the most penalties for small businesses. Set up a simple tracking system from your first hire. For a complete list of annual obligations, see our UAE business compliance checklist.
Setting Up Your First Employee: A Quick Checklist
If you are setting up a company in the UAE and preparing to make your first hire, here is the sequence you should follow:
- Confirm your establishment card and trade license allow the number of visas you need
- Prepare a compliant fixed-term employment contract with all mandatory elements
- Apply for the employee's entry permit, work permit, and residency visa through MOHRE or your free zone authority
- Register the employee in your WPS system within 30 days
- Arrange mandatory health insurance (required in Dubai, Abu Dhabi, and Sharjah)
- Set up a leave tracking system for annual, sick, and parental leave
- Begin gratuity accrual tracking from the start date
- Check whether Emiratisation requirements apply to your company size and sector
If your business is growing and you need help structuring employment contracts, visa sponsorship, or compliance systems in the UAE, Zola can help you get it right from the start. Tell us about your situation and we will walk you through the process.