How does the new employee classification system work in the UAE?

In 2005, the Ministry of Labor and Social Affairs (now the Ministry of Human Resources and Emiratisation — MOHRE) introduced a company classification system for the purpose of evaluating employer compliance with standards and regulations set by the Ministry.

Depending on their commitment to Emiratisation, cultural diversity and records of violations, companies were grouped into three categories: 1, 2 and 3, with 1 being the highest in the rank and 3 being the lowest category in the rank.

In general, the higher the category, the greater the incentives offered to the employer by MOHRE. Therefore, those in category 1 could benefit from lower governmental fees and were given priority in processing their labour-related applications, whereas companies classified as 2 and 3 had to pay higher recruitment fees and would face longer turnaround for labour-related applications. Furthermore, financial security, in the form of a bank guarantee, was compulsory for every employee recruited by a company in category 2 and 3.

Bank guarantees were introduced to the recruitment process in 2001, making it mandatory for employers to deposit a fixed amount of Dhs3,000 ($817) for each employee under their sponsorship as financial security against potential violation of worker’s rights. Exemptions from paying bank guarantees at the time applied to companies operating in specific sectors such as oil and gas, insurance, tourism, those with an industrial license issued by the Ministry of Finance, and industry (now the Ministry of Economy), and companies in category 1.

A discounted fee of Dhs1,000 ($272) was offered to companies in category 2 with a headcount exceeding 500 workers.

A few years later, in 2010, authorities amended the classification system by adding three sub-categories — A, B and C — to the second level of classification, which resulted in the employers being identified as 1, 2-A, 2-B, 2-C or 3. The move was dictated by the fact that the majority of employers would fall into the second level of classification, and further differentiation was necessary.

At the same time, abiding to a timely payment of salaries and providing labour accommodation to certain employees became additional key factors in the Ministry’s evaluation process.

Recent changes

The end of 2017 will see further changes to the classification of companies in the mainland as an additional sub-category D has been introduced and the MOHRE has announced that more attention will be given towards the recognition of employee qualifications. This is expected to play a significant role in the assessment of companies operating in the UAE mainland and the way the benefits, including exemption from bank guarantees, are applied.

According to the new law, which was expected to come into force at the end of November, companies that employ skilled workers will be offered lower governmental fees for the issuance of new work permits and for the renewal of work permits for existing employees.

Companies classified as 2-B, for example, will pay only Dhs1,000 for a work permit for a worker with qualifications, compared to Dhs2,200 ($600) for unskilled workers. Currently, Dhs1,500 ($408) must be paid per employee regardless of their qualifications.

Those in the new sub-category D will pay the highest fees for a work permit in the second category — Dhs2,000 ($545) or Dhs3,200 ($871) depending on qualifications — while companies classified as 3 will pay a standard fee of Dhs5,000 ($1,361) regardless of worker qualifications.

The MOHRE recognises five professional levels of employees with levels 1 and 2 representing the most skilled workers with a minimum of a university degree certificate, level 3 requiring a minimum of a high school diploma and level 4 and 5 representing the least skilled workers with no degree requirements.

Moreover, the exemption from the obligatory bank guarantees will be extended from companies in category 1 to categories 2 and 3 as long as workers with qualifications are hired. Bank guarantees will continue to be mandatory for the recruitment of unskilled candidates and will be waived for category 1 regardless of employee qualifications.

Favouring companies that prioritise skilled workers over candidates without qualifications is a large step closer to creating a knowledge-based economy that relies on the best local and foreign talent. However, while the discounted governmental fees will reduce the overall costs of recruitment, companies in the UAE should also anticipate stricter implementation of various Emiratisation rules.

Increasing the number of Emiratis working in the private sector remains one of the key elements of the UAE’s National Agenda. This was further reiterated during the recent UAE government Annual Meeting in Abu Dhabi, where a number of initiatives were launched to support what is referred to as the ’30 national pillars’. Among the initiatives that aim at achieving goals of the national agenda, a qualitative Emiratisation programme was announced.

While still very little light has been shed on this programme, it is expected that it will promote employment of highly-skilled Emiratis in important positions within the private sector. This strategy will not only contribute to the overall development of local expertise, but it will also impact the shape of the private sector in the UAE by increasing workforce competitiveness.

Furthermore, private sector companies that offer flexible work conditions and training opportunities will be able to encourage top UAE talent to shift from the public sector.

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