Updated August 2026. UAE private sector employment law was fundamentally rewritten with Federal Decree-Law No. 33/2021, effective February 2022. Gone are unlimited-term contracts; in their place is a structured fixed-term framework covering all mainland and most free zone employees. Whether you are setting up a new company, onboarding your first hire, or reviewing an existing payroll process, this comprehensive guide covers every MOHRE compliance requirement — from WPS payroll registration to end-of-service gratuity calculation, annual leave entitlements, overtime rules, and Emiratisation targets — with real AED cost and penalty figures for 2026.
Key Takeaways
- Federal Decree-Law No. 33/2021 abolished unlimited contracts — all UAE private sector employees must be on fixed-term agreements (max 3 years, renewable).
- WPS (Wages Protection System): salaries must be processed through MOHRE-approved banks or exchange houses within 10 days of the due date.
- End-of-service gratuity: 21 working days of basic salary per year for years 1–5, 30 days per year thereafter, capped at 2 years’ total salary.
- Maximum working hours: 8 per day / 48 per week; overtime at 125% on normal days, 150% on rest days or public holidays.
- Emiratisation: private sector firms with 50+ employees must add 2% Emirati headcount annually across targeted sectors, or face AED 96,000/year per unfilled position.
- Typical UAE HR compliance cost for a 10–50 person company: AED 5,000–30,000 per year.
1. Federal Decree-Law No. 33/2021: What Changed for UAE Employers
Federal Decree-Law No. 33/2021 — officially the UAE Labour Law — replaced the decades-old Federal Law No. 8/1980 and entered full effect on 2 February 2022, with a grace period for existing unlimited contracts running until February 2023. The law applies to all private sector employers on the UAE mainland and in most free zones (excluding DIFC and ADGM, which maintain independent employment legislation).
The headline change is the elimination of unlimited-term employment contracts. Every employer-employee relationship must now be structured as a fixed-term contract of maximum three years, renewable on mutual agreement. Employers who had unlimited contracts were required to convert them to fixed-term agreements by 1 February 2023; failure to convert is treated as a three-year fixed-term contract under MOHRE enforcement guidelines.
Beyond contract type, the law introduced or strengthened several protections: anti-discrimination provisions covering race, colour, gender, national origin, social origin, religion, and disability; clearer definitions of termination for cause and without cause; enhanced maternity and paternity leave; new flexible work models (part-time, temporary, freelance, shared employment); and mandatory health insurance covering all employees in line with each emirate’s mandate. MOHRE registers all contracts electronically through Tasheel service centres or the MOHRE Smart App, and every employee must receive a copy in a language they understand.
Employers operating in free zones must ensure their employment contracts comply with both the Federal Labour Law and their free zone authority’s supplementary regulations. Most free zones (JAFZA, DMCC, DAFZA, RAKEZ, Hamriyah, Sharjah free zones) enforce the federal framework. Exceptions are DIFC (DIFC Employment Law Amendment 2019) and ADGM (Employment Regulations).
2. Employment Contract Types Under the 2021 Labour Law
The 2021 law introduced a broader menu of permitted employment models to reflect the modern UAE workforce:
- Full-time fixed-term: The standard model. Maximum 3-year term, renewable. Applies to the vast majority of skilled, professional, and managerial roles.
- Part-time: An employee works for more than one employer simultaneously. A MOHRE part-time work permit is required. Leave, gratuity, and other benefits are prorated based on actual hours worked.
- Temporary: Tied to a specific project or seasonal requirement. The contract ends on project completion. ESG accrues and is payable if service exceeds one year.
- Flexible / task-based: Variable hours with payment per task or deliverable. Must still be registered with MOHRE. Benefits apply proportionally.
- Freelance (independent contractor): Governed by a freelance permit from a free zone or mainland authority (e.g., TECOM, DET). No ESG obligation; not an employment relationship under the Labour Law.
All employment contracts must be in Arabic, or bilingual Arabic-English. They must specify: basic salary and allowances breakdown; contract duration and start date; role and job title; working hours; annual leave entitlement; and applicable termination notice periods. Terms that are less favourable than the statutory minimum are void and the legal minimum applies by default.
3. WPS Payroll System: Compliance Requirements
The Wages Protection System (WPS) is an electronic salary monitoring system co-managed by MOHRE and the Central Bank of UAE. It mandates that all private sector employers process employee salaries through a WPS-registered financial channel — a list of approved UAE banks, exchange houses, and finance companies maintained by MOHRE. The key compliance rule: salaries must reach employees within 10 calendar days of the contractual due date.
MOHRE monitors all WPS transactions in near-real time. Missing the deadline triggers automated sanctions. Steps to set up WPS:
- Open a UAE corporate bank account at a WPS-enabled bank (Emirates NBD, FAB, ADCB, Mashreq, ENBD, RAKBank) or register with an approved exchange house (Al Ansari, Al Fardan, Western Union Business Solutions).
- Register the company and link the WPS account on the MOHRE Business Portal (mohre.gov.ae).
- Each payroll cycle, generate a SIF (Salary Information File) — a structured CSV listing each employee’s IBAN and salary — and upload via the bank’s WPS module.
- Retain proof of successful SIF upload and bank confirmation for MOHRE audits.
WPS applies to all salary-earning employees regardless of salary level. Domestic workers have been subject to WPS since 2023. Part-time employees are processed under WPS with prorated payment per the contract terms. Free zone employees must use a WPS-enabled free zone authority bank or standard UAE bank approved under the free zone’s WPS framework.
4. End-of-Service Gratuity: AED Calculation and Rules
Every private sector employee completing a minimum of one year of continuous service is entitled to end-of-service gratuity (ESG) upon termination, regardless of who initiates the termination. ESG is calculated on the employee’s last drawn basic salary — the base pay excluding housing allowance, transport allowance, commissions, bonuses, and any other benefits.
ESG Formula:
- Service years 1–5: 21 working days’ basic salary per year (or fraction thereof)
- Service year 6 onwards: 30 working days’ basic salary per year (or fraction thereof)
- Total ESG is capped at 2 years’ gross salary
AED Example — 4 years service, AED 8,000/month basic: Daily basic = AED 8,000 ÷ 26 working days = AED 307.69. ESG = 4 × 21 × AED 307.69 = AED 25,846.15.
AED Example — 8 years service, AED 15,000/month basic: Daily = AED 576.92. Years 1–5: 5 × 21 × AED 576.92 = AED 60,576.92. Years 6–8: 3 × 30 × AED 576.92 = AED 51,923.08. Total = AED 112,500.00.
Resignation rules: Employees who resign receive reduced ESG if they leave before completing 5 years: less than 1 year = zero; 1–3 years = one-third; 3–5 years = two-thirds; 5+ years = full gratuity regardless of who initiated the end of employment.
UAE Cabinet Decision No. 96/2023 introduced the option to replace traditional ESG with an approved Employee Savings Scheme (ESS). The DIFC Employee Workplace Savings (DEWS) plan and equivalent ADGM schemes are the most commonly adopted alternatives — monthly employer contributions replace the end-of-service liability on the balance sheet, providing portability for mobile employees.
5. Working Hours, Annual Leave, and Sick Leave
UAE Labour Law sets a maximum of 8 hours per day and 48 hours per week for standard working time. During Ramadan, the working day for Muslim employees is reduced to 6 hours per day, with no reduction in pay. The UAE market norm is 40 hours per week (5 × 8 hours), though the law permits up to 48 hours without triggering overtime for the extra 8 hours.
Overtime rates: Work beyond the contractual daily or weekly limit is compensated at 125% of normal hourly wage on regular days, and 150% on the weekly rest day or public holidays. Overtime must be authorised in writing by the employer; employees cannot unilaterally claim overtime for unauthorised extra hours.
Annual leave entitlement: Employees completing 6 months to 1 year receive 2 days per month. After 1 year: 30 calendar days per year. Leave pay is based on the employee’s full remuneration (basic + allowances). Leave must generally be taken in the year it is earned; unused leave can roll forward with employer approval but unused leave at termination is paid out.
Other statutory leave: Sick leave: 90 days per year (first 15 days full pay; next 30 days half pay; remaining 45 days unpaid). Maternity leave: 60 days (45 days full pay + 15 days half pay, before or after birth). Paternity leave: 5 paid days. Study leave: up to 10 days per year for UAE-accredited study. Bereavement leave: 5 days for spouse or child; 3 days for other first-degree relatives.
Public holidays (2026): Approximately 12 days including New Year (1 Jan), Eid Al Fitr (3 days), Arafat Day, Eid Al Adha (3 days), Islamic New Year, Prophet’s Birthday, Commemoration Day (30 Nov), UAE National Day (2–3 Dec). Eid dates are announced by MOHRE each year based on moon sighting.
6. Emiratisation and the NAFIS Programme
Emiratisation requires private sector companies to maintain and grow a minimum percentage of UAE nationals in their workforce. The 2026 framework distinguishes by company size and sector:
- Companies with 50+ employees in 14 targeted sectors: Must increase Emirati headcount by 2% annually. Targeted sectors include banking, finance, insurance, health, retail, hospitality, manufacturing, real estate, transportation, telecom, education, food and beverages, IT, and media.
- Companies with 20–49 employees: Must hire at least 1 Emirati employee in a skilled role (monthly salary above AED 4,000).
- Non-compliance penalty: AED 96,000 per year per unfilled Emirati position (AED 8,000/month), assessed and collected by MOHRE.
The NAFIS programme (careers.nafis.ae), managed by the Emirati Talent Competitiveness Council, substantially reduces Emiratisation costs by topping up Emirati private sector salaries. Government contributions: AED 5,000/month for bachelor’s degree holders; AED 7,000/month for postgraduates. For a company hiring an Emirati at AED 10,000/month, the employer’s effective net cost may be as low as AED 3,000–5,000/month. NAFIS registration is also the mandatory pathway for counting an Emirati hire toward the company’s Emiratisation quota.
7. Probation, Notice Periods, and Termination Rules
The maximum probation period under UAE Labour Law is 6 months. During probation, either party may terminate with a minimum notice of 14 days. If the employer terminates during probation without notice, they must compensate the employee for 14 days. If an employee leaves during probation to join a UAE competitor, the new employer may be barred from sponsoring their visa for 1 year. After successful probation, standard notice periods apply: a minimum of 30 days, up to 90 days for senior staff (as specified in the contract).
Termination for cause (without notice): Article 44 of Federal Decree-Law No. 33/2021 lists specific grounds including physical assault, intoxication on duty, disclosure of confidential business information, causing intentional loss or damage, absence without notice for more than 7 consecutive days or 20 non-consecutive days in a year, and criminal conviction. Termination for any other reason is “without cause” and entitles the employee to ESG plus a 3-month wrongful dismissal compensation.
8. HR Compliance Cost Summary Table
| Compliance Item | Frequency | Est. AED Cost | Non-Compliance Penalty |
|---|---|---|---|
| MOHRE contract registration | Per hire | AED 100–300 | AED 1,000–5,000 |
| WPS payroll processing | Monthly | AED 0–500/month | Work permit ban + AED 5,000/employee |
| ESG provision (accrual) | Annual book entry | 21 days basic/employee/yr | Labour court claim |
| Medical insurance (all emirates) | Annual premium | AED 700–3,000/employee | AED 500/month per uninsured employee |
| Emiratisation quota (50+ staff) | Annual | Offset by NAFIS subsidy | AED 96,000/unfilled position/yr |
| HR software + compliance audit | Annual | AED 5,000–30,000/yr | Internal risk only |
9. Domestic Workers: Federal Law No. 9/2017
Domestic workers — housemaids, drivers, gardeners, nannies, private cooks, security guards, and similar household staff — are governed by a separate law, Federal Law No. 9/2017, administered through MOHRE’s Tadbeer service centres. Key differences from the standard Labour Law include: employer must provide accommodation, meals, and medical insurance; 12-hour maximum working day with 8 hours of rest; 30 days’ annual leave; WPS payroll (mandatory since 2023); and employment contracts processed through official Tadbeer centres. The minimum wage for registered domestic worker categories starts at AED 400/month though market rates are AED 1,500–4,500/month depending on skills and nationality. Unregistered domestic workers expose the employer to a fine of AED 10,000 plus deportation of the worker.
Frequently Asked Questions
Can a UAE employer still issue an unlimited employment contract in 2026?
No. Federal Decree-Law No. 33/2021 abolished unlimited-term employment contracts with effect from 2 February 2022. All private sector employment in the UAE must now use fixed-term contracts with a maximum three-year duration, renewable by mutual agreement. Any contract labelled “unlimited” that was not formally converted by the February 2023 deadline is treated by MOHRE as a three-year fixed-term contract. Issuing a new unlimited contract is not recognised by MOHRE’s systems — the Tasheel contract registration portal only accepts fixed-term entries. There is no grandfathering pathway remaining.
What are the WPS non-compliance penalties in the UAE?
MOHRE enforces WPS compliance automatically via electronic monitoring. A first-offence late salary (beyond 10 days of due date) triggers an immediate block on all new work permit applications for the company. A second offence within 12 months adds a financial penalty of AED 5,000 per affected employee plus a continued permit ban. A third offence escalates to the UAE labour court, potential criminal proceedings for embezzlement of wages, and possible operational suspension notices from MOHRE. Employees can file WPS complaints instantly via the MOHRE app (UAE Pass login), which generates an audit record and expedites enforcement action.
How is UAE end-of-service gratuity calculated for an employee who resigns after 7 years?
An employee who resigns after completing 5 or more years of continuous service is entitled to full ESG. For an employee with AED 12,000/month basic salary completing 7 years: daily basic = AED 12,000 ÷ 26 = AED 461.54. Years 1–5: 5 × 21 × AED 461.54 = AED 48,461.54. Years 6–7: 2 × 30 × AED 461.54 = AED 27,692.31. Total ESG = AED 76,153.85. The ESG must be paid within 14 days of the final working day. If the total ESG exceeds 2 years’ gross salary (basic + allowances), it is capped at that amount.
Does UAE Labour Law apply to employees working in free zones?
Federal Decree-Law No. 33/2021 applies to all UAE private sector employers including most free zones, with the specific exceptions of DIFC (which uses the DIFC Employment Law Amendment 2019) and ADGM (which uses its own Employment Regulations). Free zone authorities including JAFZA, DMCC, DAFZA, RAKEZ, Sharjah, and Fujairah free zones all enforce the Federal Labour Law and WPS within their jurisdictions. DIFC and ADGM employees have equivalent substantive protections (contract, gratuity, leave, WPS-equivalent) but under different regulatory bodies. Employees who move between a free zone and mainland entity must ensure their visa and labour card are transferred accordingly.
How does NAFIS reduce the cost of Emiratisation for private sector employers?
The NAFIS programme (careers.nafis.ae) provides monthly salary supplements directly to the Emirati employee’s bank account, effectively reducing the employer’s payroll cost. Supplement amounts: AED 5,000/month for bachelor’s degree graduates and AED 7,000/month for postgraduate holders, paid by the government for up to 5 years per employee. A company hiring a UAE national at AED 10,000/month pays only AED 3,000–5,000/month net of NAFIS — making Emirati hiring cost-competitive with expatriate staff at that salary level. NAFIS registration is also a prerequisite for the hire counting toward the company’s Emiratisation quota on the MOHRE system.