- Federal Decree-Law No. 33 of 2021 covers all free zone employees except those in DIFC and ADGM, which operate under their own employment frameworks.
- Annual leave entitlement is 30 calendar days after one year of service; pro-rata accrual applies in the first year.
- End-of-service gratuity accrues at 21 days of basic salary per year for the first five years, rising to 30 days per year beyond five years.
- WPS requires salaries paid within 10 days of due date; late payment carries a AED 5,000 fine per employee per month delayed.
- Employee visa sponsorship via a free zone costs AED 3,500–5,000 per hire; health insurance is mandatory for all visa-sponsored staff.
- Maternity leave is 60 calendar days (45 full pay + 15 half pay), extendable by 45 days unpaid for medical complications.
Updated August 2026. If your company is licensed in a UAE free zone and you are hiring employees, you are operating under one of the most significant labour law reforms in the UAE’s history. Federal Decree-Law No. 33 of 2021 — effective 2 February 2022 — replaced the previous 1980 Labour Law and introduced fixed-term contracts, clearer gratuity rules, strengthened maternity protections, and tighter WPS enforcement. This guide covers every employer obligation you face in 2026: which law applies to your free zone, contract types, leave entitlements, gratuity calculations, WPS compliance, visa sponsorship costs, and termination rules — including how DIFC and ADGM companies operate under an entirely separate legal framework.
Which UAE Labor Law Applies to Your Free Zone?
The most important threshold question for any free zone employer is whether the federal UAE Labor Law or a zone-specific framework governs your employment contracts. The answer depends on which free zone you are licensed in.
| Free Zone / Jurisdiction | Governing Employment Law | Contract Registration | WPS Required |
|---|---|---|---|
| JAFZA, DMCC, DAFZA, DWC, SHAMS, RAKEZ, AFZA, IFZA, MEYDAN, DUQE, and most other UAE free zones | Federal Decree-Law No. 33 of 2021 | MOHRE (or free zone authority on MOHRE’s behalf) | Yes |
| DIFC (Dubai International Financial Centre) | DIFC Employment Law No. 2 of 2019 | DIFC Authority | No (own payroll rules) |
| ADGM (Abu Dhabi Global Market) | ADGM Employment Regulations 2019 | ADGM Registration Authority | No (own payroll rules) |
If your free zone is not DIFC or ADGM, the federal UAE Labor Law applies to your employment contracts in full. This guide focuses on that federal framework.
Employment Contract Types Under the 2022 UAE Labor Law
The 2022 reform eliminated the old unlimited-term (open-ended) contract as the default for new hires and replaced it with a two-contract system:
- Fixed-term (limited) contract: The standard form for new employees from February 2022 onwards. Maximum initial duration is three years, renewable at the end of the term. Renewal does not interrupt gratuity continuity — the calculation runs from the original start date.
- Open-ended contract: Still permissible but requires specific justification in certain sectors. Must include a clear job description, salary, and notice obligations.
Every employment contract must specify, at minimum: employee name and nationality, job title, workplace location, working hours, agreed salary (and any allowances paid separately), leave entitlements, and the notice period. Contracts must be in Arabic, or bilingual Arabic-English, and must be registered with MOHRE or the relevant free zone authority before the employee’s work permit is issued.
The Ministry of Human Resources and Emiratisation has standardised contract templates available via the MOHRE portal. Using these templates — rather than company-drafted documents — is strongly recommended to avoid registration delays.
Working Hours, Overtime Rates & Leave Entitlements
Federal Decree-Law No. 33 of 2021 sets the following working time and leave minimums. Employers may provide more generous terms; they may not provide less.
| Provision | Standard Entitlement | Notes |
|---|---|---|
| Normal working hours | 8 hours/day; 48 hours/week | Reduced to 6 hours/day during Ramadan |
| Overtime premium (daytime) | +25% above normal hourly rate | Applied to hours worked beyond 8 per day |
| Overtime premium (10 pm–4 am) | +50% above normal hourly rate | Night-shift supplement |
| Work on public holidays | +100% (double pay) or a substitute rest day + 50% | Employer’s choice between the two options |
| Annual leave | 30 calendar days after 1 year of service | Pro-rata accrual in the first year |
| Sick leave (per year) | 15 days full pay + 30 days half pay + 30 days unpaid | Requires 3 months’ continuous service before entitlement begins |
| Maternity leave | 60 calendar days (45 full pay + 15 half pay) | Extended by up to 45 days unpaid for medical complications |
| Probation period | Maximum 6 months | Either party may terminate without notice or gratuity during probation |
Notice Periods: What Employers and Employees Must Give
The standard statutory notice period under Federal Decree-Law No. 33 of 2021 is 30 days. Employer and employee may agree in the written contract to extend this up to a maximum of 90 days. Mutual agreement in writing can waive the notice period entirely.
During the maximum six-month probation period, no notice is legally required from either side. However, if an employee resigns during probation without cause, the employer may notify MOHRE of this departure. Depending on the circumstances, this can result in a six-month bar on the employee obtaining a new UAE work permit — a provision intended to protect employers from early abandonment.
End of Service Gratuity: How It Accrues and What You Owe
Gratuity is a mandatory lump-sum payment made to employees at the end of any employment relationship lasting at least one year. It is calculated on the employee’s last basic salary only — housing allowances, transport allowances, and any other cash components are excluded.
| Years of Service | Gratuity Rate | Worked Example (AED 10,000 basic/month) |
|---|---|---|
| Less than 1 year | No gratuity payable | AED 0 |
| 1 year to 5 years | 21 days of basic salary per year | 3 years: 63 days = AED 21,000 |
| Above 5 years | 30 days per year for years beyond 5 (first 5 years still at 21 days) | 7 years: (5 × 21) + (2 × 30) = 165 days = AED 55,000 |
How to calculate the daily rate: Divide the employee’s last monthly basic salary by 30 to get the daily figure. Multiply by the applicable days. For a basic salary of AED 12,000, the daily rate is AED 400; five years of service gives 105 days × AED 400 = AED 42,000.
Employer provisioning tip: Rather than absorbing a large gratuity payout at exit, best practice is to provision monthly — approximately 5.83% of basic salary for employees in years one through five (equivalent to 21 days per year). Many free zone companies hold this in a separate liability account or invest it in an approved savings scheme (DEWS is available to DIFC companies; federal-law companies may use third-party EOSB schemes voluntarily).
Wage Protection System (WPS): Full Compliance Requirements
The Wage Protection System is a mandatory electronic payroll infrastructure operated by the Central Bank of the UAE and monitored by MOHRE. Every UAE employer — mainland and free zone alike — must pay employee salaries through a WPS-registered financial institution: a UAE-licensed bank, an authorised exchange house, or a stored-value card provider on the approved list.
| WPS Requirement | Rule / Consequence |
|---|---|
| Payment deadline | Salary must be paid within 10 days of the contractual due date |
| Fine for late or missed payment | AED 5,000 per affected employee for each month overdue |
| Enrolment authority | MOHRE via the WPS portal; financial institution then uploads your SIF (Salary Information File) |
| Monitoring mechanism | Central Bank receives the SIF from your bank automatically after each payroll run |
| Escalation (persistent non-payment) | MOHRE can freeze the company’s work permit quota; refer to UAE courts for criminal prosecution |
| Partial payment | Treated as non-payment if the shortfall exceeds an agreed amount; employees may file a complaint via MOHRE’s Tasheel centres or the MOHRE app |
JAFZA operates its own WPS monitoring arrangement through its Labour Department but enforces the same 10-day deadline and AED 5,000 fine structure. DIFC and ADGM do not participate in the federal WPS but require equivalent payroll protections under their own employment regulations — failure to pay in those zones is handled through DIFC/ADGM courts rather than MOHRE.
Employee Visa Sponsorship Through Your Free Zone
Free zone companies can sponsor employee residency visas directly through the free zone authority — you do not need a mainland trade licence or a local sponsor. The number of visas available to your company depends on your office arrangement with the free zone:
| Office Type | Typical Visa Quota | Notes |
|---|---|---|
| Virtual licence / flexi-desk (shared) | 1–6 visas | Quota varies by free zone; some allow up to 6 on a flexi-desk package |
| Executive suite / serviced office | 3–15 visas | Based on office size (sq m) and the free zone’s internal ratio policy |
| Dedicated unit / warehouse | Calculated per sq m (typically 1 visa per 9 sq m) | Larger premises can support 20+ staff visas without restriction |
Each employee visa involves immigration processing fees, a mandatory medical fitness test at an approved clinic, and Emirates ID issuance. The total out-of-pocket cost to the employer runs from AED 3,500 to AED 5,000 per hire for initial entry and status change. Visa renewals (every two or three years) cost a similar amount.
Full Hiring Cost Breakdown for Free Zone Employers
Beyond the salary itself, hiring an employee in a UAE free zone involves the following recurring and one-off costs:
| Cost Item | Amount (AED) | Frequency & Notes |
|---|---|---|
| Employee visa (immigration + medical + EID) | 3,500–5,000 | Per employee; renewed every 2–3 years |
| Health insurance (basic compliant plan) | 600–7,200 per year | Mandatory; Dubai basic plan from ~AED 600/yr; comprehensive family cover is higher |
| WPS bank account setup | 0–500 | One-time; many UAE business banks waive the setup fee |
| Monthly payroll processing | 0–500 per month | Free if run in-house; outsourced HR bureaus charge per employee per month |
| Gratuity provision (monthly accrual) | ~5.83% of basic salary per month | Equivalent to 21 days/year for yrs 1–5; paid on exit as a lump sum |
| MOHRE contract registration | 0–300 | Per contract; some free zones include this in their licence package |
Termination Rules Under the 2022 UAE Labor Law
The 2022 law sets out clear grounds and financial consequences for ending employment. Employers need to understand the difference between lawful termination and arbitrary dismissal — the financial exposure is very different.
| Termination Scenario | Notice Required | Gratuity Payable | Additional Compensation |
|---|---|---|---|
| Employer terminates (lawful grounds, with notice) | 30–90 days as per contract | Yes (if service > 1 year) | None |
| Arbitrary dismissal (without lawful cause) | Full notice pay in lieu | Yes | Up to 3 months’ salary (awarded by court) |
| Employee resigns (with proper notice) | 30–90 days as per contract | Yes (if service > 1 year) | None |
| Either party terminates during probation | Not required | No | None |
| Mutual agreement to end contract | Can be waived by written consent | Yes (if service > 1 year) | As mutually agreed |
Arbitrary dismissal under the 2022 law is defined as termination that is unrelated to work performance or legitimate operational grounds — for example, dismissing an employee because they filed a legitimate complaint with MOHRE, or because of discriminatory reasons. UAE courts have consistently awarded the maximum three months’ salary in such cases, in addition to full gratuity and any unpaid notice pay.
DIFC vs ADGM vs Federal UAE Labor Law: Key Differences
Companies in DIFC and ADGM operate under English common law-based employment frameworks that differ materially from the federal law in several important respects. If you are evaluating free zone options partly on employment law grounds, the comparison below covers the most commercially significant differences.
| Employment Provision | Federal Law (Decree-Law 33/2021) | DIFC Law (No. 2/2019) | ADGM Regulations 2019 |
|---|---|---|---|
| End of service payment | Gratuity — 21 days/year (first 5 yrs); 30 days/year (above 5 yrs) | DEWS (DIFC Employee Workplace Savings) — monthly employer contribution to an approved fund | ADGM Employee Workplace Savings — similar contribution model |
| Annual leave | 30 calendar days (after 1 year) | 20 working days minimum | 20 working days minimum |
| Maternity leave | 60 calendar days (45 full + 15 half pay) | 65 working days | Extended parental leave provisions (up to 52 weeks total parental package) |
| Anti-discrimination protections | Limited explicit statutory protections | Broad — covers age, gender, race, disability, pregnancy, religion | Broad — aligned with international employment standards |
| Dispute resolution | MOHRE mediation, then UAE civil courts | DIFC Courts (English common law; judgments enforceable in UAE) | ADGM Courts (English common law) |
| WPS participation | Mandatory federal WPS | Not applicable — own payroll oversight | Not applicable — own payroll oversight |
MOHRE Registration: What Free Zone Employers Must Submit
For most free zone companies, employment contracts must be registered with MOHRE or through the free zone authority acting on MOHRE’s behalf. The registration process typically requires the following documents before a work permit is issued:
- A signed employment contract (Arabic or bilingual Arabic-English)
- Copy of the employee’s passport and, if already in the UAE, current visa page
- Trade licence copy of the sponsoring free zone company
- Confirmation of agreed salary (must be consistent with what will be submitted to WPS)
- Educational qualification attestation (for certain regulated professions)
Free zones with their own labour departments — JAFZA being the clearest example — often handle contract registration internally and submit the required data to MOHRE on your behalf. Check with your free zone authority at the point of licence issuance whether you register contracts directly via the MOHRE portal or through the zone’s own HR system.
Frequently Asked Questions
Does the new UAE federal labor law apply to employees working in DIFC or ADGM companies?
No. DIFC and ADGM are financial free zones with their own legislative frameworks, and the federal UAE Labor Law (Federal Decree-Law No. 33 of 2021) does not apply within their boundaries. DIFC employment is governed by DIFC Employment Law No. 2 of 2019, and ADGM employment is governed by the ADGM Employment Regulations 2019. Neither zone participates in MOHRE registration or the WPS payroll system. If your free zone is not DIFC or ADGM — for example JAFZA, DMCC, SHAMS, RAKEZ, DAFZA, or any of the 40-plus other UAE free zones — the federal labor law applies to your employment contracts in full.
How is gratuity calculated if an employee resigns after three years of service?
If the employee has completed at least one year of continuous service, gratuity is payable on resignation under the 2022 law. For three years of service at a basic salary of AED 8,000 per month: the daily basic rate is AED 8,000 ÷ 30 = AED 266.67. Multiplied by 21 days per year gives AED 5,600 per year; for three completed years the total gratuity is AED 16,800. The employer pays this as a lump sum on or shortly after the last working day. Note that gratuity is calculated on basic salary only — housing allowance, transport allowance, and any other non-basic components are excluded from the calculation regardless of their size relative to the total package.
What is the WPS penalty for late salary payment, and how is it enforced in practice?
The fine is AED 5,000 per employee for every month the salary remains unpaid beyond the 10-day grace period after the contractual due date. MOHRE monitors payment data automatically through the Salary Information File submitted by WPS-registered financial institutions to the Central Bank after each payroll run. Persistent non-compliance escalates: MOHRE can issue a stop-work order freezing the company’s ability to apply for new work permits, and can refer the matter to the UAE courts for criminal prosecution of responsible individuals. A company with five employees late by a single month faces an immediate AED 25,000 fine — making on-time WPS payments one of the highest-priority compliance tasks for any UAE employer.
Can a free zone employer terminate an employee during probation without paying notice or gratuity?
Yes. Under Federal Decree-Law No. 33 of 2021, either party may end the employment contract during the probation period — which cannot exceed six months from the employee’s first day — without giving advance notice and without any gratuity obligation. However, if the employer terminates during probation without any legitimate reason and the employee can demonstrate that the dismissal was discriminatory or retaliatory, an arbitrary dismissal claim may still be raised before MOHRE or the UAE courts. As a practical matter, it is always advisable to document any reason for a probationary termination even though the law does not require it.
Is health insurance mandatory for employees sponsored by a free zone company, and who pays?
Yes. In Dubai, Dubai Law No. 11 of 2013 requires all UAE residents to hold valid health insurance, with the employer legally obligated to provide and pay for coverage for all employees they sponsor on a UAE work permit. Abu Dhabi has an equivalent mandatory insurance requirement under its own health insurance law. Health insurance must be in place before or at the time the employment visa is issued — insurance certificates are typically required as part of the visa application process in Dubai. The cost of a basic plan that meets the minimum statutory requirements starts at approximately AED 600 per year in Dubai, though actual premiums vary significantly by the employee’s age, nationality, medical history, and the coverage level selected. Employers who allow health insurance to lapse for sponsored employees risk fines and complications at visa renewal.