Employee Contract UAE: Learn More About It

The labor law in the UAE changed recently. Therefore, UAE Ministry of Labour Federal Law No. 8 of 1980 is repealed and replaced by these new regulations. The Federal Decree-Law No. 33 now oversees employee relations in the private sector. Consequently, if you have an employee contract UAE or intend to apply for one shortly, you must be alert of these new rules.

In this article, we will be talking about employement contract UAE. We will be going in detail about what is an employee contract UAE, unlimited and limited contract in UAE, and more. Let us observe:

  1. What is an employee contract UAE?
  2. Types of employement contract in the UAE
  3. How can Connect Resources help you?

1. What is an employee contract UAE?

employee contract UAE

A labor contract is a written agreement that both the employer and the employee must sign. Upon being signed by both parties, the employee contract UAE is legally binding. Due to their employment contracts, employees are bound by the nature and scope of their work. It frequently also includes work objectives, timeframes, and schedules.

An employment agreement binds both the worker and the employer equally. Any compensation and benefits that are owing must be paid by the employer in conformity with the terms of the agreement.

UAE labor contract law permits a variety of different employment contract types. It is important to understand the following contract categories:

Understanding how each of the contract forms could impact your capacity to work lawfully in the UAE is vital.

2. Types of employement contract in the UAE

There are two types of employment contracts that employers may offer to employees under the UAE Labour Law No. 8 of 1980 (as updated) (the “UAE Labour Law”), which is applicable to all employers in the UAE (with the exception of those relying in the Dubai International Financial Centre (“DIFC”): limited contract and unlimited contract.

There are several differences between the two kinds of contracts; including how statutory end-of-service gratuity entitlement is and what happens with termination during probation period. Here are the details about limited vs unlimited contract UAE.

2.1 What is limited contract in UAE?

A fixed-term contract with a limited term is typically correlated with the length of the renewable residency visa UAE (i.e. 2 or 3 years, according to the location of the worker). Unless either party terminates it earlier or both parties agree to a renewal, it will automatically expire at the end of the term.

When a company has to hire workers for a set of tasks and the duration of those tasks is known in advance, limited term agreements are appropriate.

Limited term agreements typically do not include a notice clause and simply finish when their terms do or on the day they are due. Unless either side terminates it earlier.

According to Articles 88 and 120 of the UAE Labor Law, summary termination by the employer is possible on the basis of any one of the 11 exhaustive grounds. Under the terms of Article 121 of the law, an employee may lawfully resign before the end of the contract. Therefore, limited contract resignation UAE 2021 was very common as most employees were sending non-renewal letters.

With the agreement of both parties, a limited term agreement may be extended. Alternatively, the parties may decide to change the contract’s term to a UAE unlimited contract at its conclusion.

2.1.1 What if the company wants to end the contract early?

According to UAE Labor Law, if an employer wants to end the contract before the end of the limited term, the employee is entitled to “early termination compensation” of at least three months’ worth of pay; including salary and limited contract gratuity (or the remainder of the contract’s term if there are fewer than three months left). This compensation can be provided easily with the support of a Professional Employer Organization.

On the other hand, employees can also terminate the contract. However, only if the employment contract specifies otherwise, the employee will pay the employer “early termination compensation” of half of three months’ worth of pay, according to the labor law. Including salary and gratuity for limited contract, or half of the pay for the remaining period if the contract has less than three months left to run. Employees can pay this through the Employer of Record that the company is hiring.

2.1.2 What if the limited contract has a notice period?

If a limited term agreement calls for notice, that notice must be given to the other side in addition to almost any early termination fees due.

2.1.3 When an employer ends a limited contract, how is the conclusion of service gratuity determined?

An employee is entitled to an end-of-service bonus that is determined using the following formula after one year or over of continuous service:

  • For the first 5 years of employment, the employee will get 21 calendar days of basic pay.
  • Basic salary for 30 days for every extra calendar year.
  • As long as the overall compensation does not surpass two years’ worth of pay.

When an employee is dismissed without cause and in accordance with the UAE Labour Law, they are not eligible for end-of-service bonuses.

2.1.4 Checklist for limited contract

A limited term contract of employment must, at a minimum, have the following information per UAE Labor Law:

  • Date on which it ends.
  • Day that work officially starts.
  • Type of work being done.
  • Place of labor.
  • Compensation’s dollar amount.
  • Time frame.

2.2 Unlimited contract UAE

employee contract UAE

According to UAE Labor Law, an unlimited duration contract is unrestricted and may be over for a number of reasons.

Unlimited term agreements are frequently viewed as being more flexible and user-friendly than restricted length contracts. Due of this, unlimited term contracts rather than restricted term contracts are more frequently used in the UAE. If the project’s duration is established in advance, it can be used for staff who are continious and are not working on projects.

2.2.1 How can employers and employees end unlimited contracts?

There are two primary ways for an employer to formally terminate an unlimited duration contract under UAE labor law:

Due to a “legitimate” (i.e., performance-related) excuse. The UAE Labour Law stipulates that there must be a 30-day minimum notice period. The parties may, however, include greater notice periods in the agreement.

For one of the 11 comprehensive grounds for severe misconduct listed in Articles 88 and 120 of the Labor Law, an employee may be terminated abruptly, without cause, and with no end-of-service bonus.

On the other hand, employees can also end this type of contract. Subsequently, the contractual notice period, which must be at least 30 calendar days long and at most more, must be in place by the employee to the employer in order to resign. Also, employees can leave resign after six months in this type of contract.

Alternately, the employee may leave their position without giving notice in accordance with Article 121 of the legislation.

Furthermore, the new labour law has new guidelines for when an unlimited contract ends.

2.2.2 How is the end-of-service tip determined in a contract with an unlimited term?

When the employer ends the contract:

Employees with one year or over of length of service are eligible to an end-of-service bonus, which is determined as follows:

  • For the first 5 years of employment, the employee will get 21 calendar days of basic pay.
  • Basic salary for 30 days for every extra calendar year.
  • As long as the overall compensation does not surpass 2 years of wages.

The UAE Labour Law’s regulations state that an employee who has been dismissed abruptly for serious misbehavior is not entitled to an end-of-service bonus.

When the employee ends the contract:

A sliding scale end-of-service gratuity will be awarded to an employee who terminates an unlimited term contract.

  • Reduction of two thirds for a one- to three-year service period.
  • Service period of 3 to 5 years: a reduction of one-third there is no decrease if the service time exceeds five years.

2.2.3 Checklist for unlimited contract

An unlimited contract of employment must, at a minimum, have the following information per UAE Labor Law:

  • Date on which it ended.
  • Day that work officially starts.
  • Type of work being done.
  • Place of labor.
  • Amount of remuneration.

2.3 Difference between limited and unlimited contract

Expats move to the UAE for a variety of reasons, including job advancement, higher compensation, better quality of life, and a tax-free environment. With 91% of the total population being expatriates, it has the highest percentage in the GCC region. When working in another nation, however, it will be advantageous to rely on a legal consultant. Ensure that you know all about limited and unlimited contract UAE.

The strict laws of the region are well-known. Therefore, you must be aware of and abide by the laws as an expat. It is crucial to comprehend the fundamental distinction between a UAE limited and unlimited contract because the majority of expatriates in the United Arab Emirates are looking for work under a job seeking visa or aspiring business owners.

There are less limited contracts in use nowadays. Because they not give the employee the chance to be released from contractual obligations. They are unable to choose another job as a result without risking repercussions. Which makes the distinction between an unlimited and limited contract in UAE very clear.

However, both management and employees have flexibility under an unlimited term contract. As long as the relevant contractual time is honored or payment is given in place of it. Maintaining the notice period and following the standard procedures will ensure a smooth transition.

3. How can Connect Resources help you?

The employee contract UAE regularly confound both employers and employees. While the second is known as an unlimited term, the first is known as a limited term. Sometimes, people and companies are unaware of the main distinction between limited and unlimited contracts until a situation happens and the contract is utilized. Nevertheless, we know now that unlimited contracts are better and this is why the limited contract resignation UAE 2020 happened and the limited contract resignation UAE 2022 is happening.

Therefore, if you want to look for employment and an employee contract UAE, Connect Resources is your best ally. Our team of experts can help employers and employees enter contracts that comply with the law.

Do you want to know more about employee contract UAE, UAE labour law resignation 2020, and limited contract 45 days salary? Keep reading our blog! If you have any doubts you can also contact us at contact@connectresources.ae or +971 43 316 688.

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