Over the past few decades, the UAE has retained its top ranking as the regional leader in talent competitiveness in the Arab land. In the IMD World Talent Report 2024, the UAE has been ranked 17th, and this achievement marks the country’s appeal as an increasingly attractive destination for global talent to employers worldwide. So, if you’re looking to hire top talent in the UAE, you can expect some of the world’s best professionals in your industry.
However, companies must navigate a complex legal framework for hiring employees in the UAE. Another challenge is that the framework varies for each of the seven Emirates in the country, adding more difficulties for employers. Employment law violations result in severe legal risks affecting your company’s reputation, operations, finances, etc. So, effective legal risk management is critical.
This is where an Employer of Record (EOR) service helps.
In this blog, we will explore the indispensable role of EOR in proactively managing legal risks for companies. They are also responsible for communicating legal risk and related issues so that the client companies are also aware of them.
Understanding Legal Risk in Global Employment
Although your EOR is there for you, understanding legal risks involved in hiring global workforces in the UAE is still important. Keep reading to know:
What is Legal Risk
Legal risk encompasses substantial financial losses, reputational damage, and operational disruptions resulting from regulatory compliance issues, contractual disputes, and other legal vulnerabilities.
Types of legal risk when hiring employees in the UAE
Legal risks involved when hiring global talent in the UAE encompass various aspects of employment, from employee contract management to visa requirements and employee benefits. Let us take a look at the types of legal risks companies may struggle in the country.
Payroll Errors and Incompliance
Employers must follow payroll regulations to ensure fair compensation and prevent wage-related disputes. These regulations include timely wage payments, end-of-service benefits, and allowances. In UAE, employers must subscribe to the Wages Protection System (WPS) to pay employee salaries through it. Companies should inform WPS about deductions in advance, and new employees must be paid within 30 days. Failure to adhere can result in heavy penalties or restrictions on business operations.
Businesses in the UAE also need to mention payments related to performance or other criteria in the employment contract. Moreover, businesses must comply with end-of-service benefits for employees who have worked for at least one year in the company. In addition, workers in the UAE are entitled to 2 days of paid leave per month on completion of 6 months in service and 30 days of fully paid leave if they have completed one year of service.
If a company fires an employee before they have used their annual leave, the employer should give a reimbursement of the remaining sum. There is a provision for 90 days of sick leave after completing the probation period. The salary for sick leave is paid as follows:
- Full pay for the first 15 days
- Half pay for the next 30 days
- No pay for the remaining 45 days.
Failing to pay sick leave, employers can be exposed to several legal risks.
EOR handles the entire payroll processing for your company.
An Employer of Record service helps you eliminate the hassle of handling the complexities of payroll processing. Highly skilled and experienced EOR in the UAE analyse legal risks associated with employee benefits and salaries to create a customised solution as per WPS rules and UAE labour laws.
Your EOR partner ensures that all aspects of payroll comply with local laws, including regulations for working hours, overtime, annual leaves, sick leaves, end-of-service benefits, and national holidays. They maintain accurate and up-to-date records of all payroll transactions. For expatriates, they also manage documentation for work permits and visas. Partnering with trusted EOR services in Dubai will significantly simplify your business’s operations and assist you in controlling and monitoring your costs through effective payroll tools and risk management strategy.
Inaccurate Employment Contracts and Worker Classification
As per new labour laws in the UAE, employers and employees must sign an employement contract. The contract must be submitted to MOHRE (Ministry of Human Resources & Emiratisation) within 14 days of the employee’s arrival or visa status change. MOHRE approves the contract to be legally valid. In addition, the contract outlines employment terms, including job roles, responsibilities, benefits, length of contract, salary, etc. The agreement must be drafted in Arabic and English (or any other applicable language).
Worker classification is another serious mistake that can result in significant legal risks. Misclassifying employees brings notable penalties and various fines from the government, retroactively paying back missed benefits and even expensive legal proceedings. It also reflects the company’s poor perspective towards fair employment rights. Courts may see it as malpractice to get around legal protections and avoid necessary costs.
Drafting legally compliant employment contracts
The EOR drafts MOHRE-compliant employment contracts that adhere to UAE labour laws and have no discrepancies. Their job extends beyond preparing and communicating employment contracts to monitoring contracts and ensuring accurate worker classification.
EORs also advise organisations on worker classification in a secure and scalable manner, preventing misclassifications that can result in legal risks. They stay abreast of changing rules for employment contracts and employee misclassification.
Failure to Provide Adequate Employee Benefits
The UAE law governing employment in the country mandates various employee benefits that every employer – local or international – must provide. These include mandatory benefits such as end-of-service gratuity, leave entitlements, overtime pay, and health insurance. Additional benefits include housing allowances, bonuses, or travel tickets, depending on the employment contract. Businesses must fulfil this legal and financial responsibility while complying with UAE labour laws to avoid penalties and ensure employee satisfaction.
Failure to provide proper employee benefits as agreed in the employment contract can add a substantial financial burden to your business or cause reputation damage, poor employee retention, and difficulty hiring new, skilled employees.
EORs handle employee benefit packages.
Your EOR partner will create employee benefit packages that comply with local regulations and meet employee expectations. They use their expertise and knowledge of the local market, allowing client companies to provide comprehensive and competitive benefits packages. This localization ensures employees feel valued and fairly treated, resulting in job satisfaction and retention.
While structuring employee benefit packages, EORs also focus on the needs and budget of companies. This is particularly beneficial for small and medium-sized enterprises (SMEs) with limited budgets and resources to manage employee benefits. So, by partnering with a trusted EOR, companies can focus on their core business activities while experts handle the complexities of benefits management.
Unfair Termination and Dismissal
The UAE labour law specifies proper reasoning-based termination for employees. Employers must follow proper procedures in the termination process to avoid potential legal disputes. For example, an employee could be terminated without notice for various reasons, such as false identity, forged documents, failure to perform basic duties as per the employment contract, being found drunk or under the influence of prohibited drugs during working hours, etc. Otherwise, employers must mandatorily provide a written notice period notification specifying its duration, which is typically between 30 and 90 days.
Dismissal of employees without a fair investigation, without notice, or for discriminatory reasons may be considered unfair. Unfair termination may lead to significant penalties, such as paying compensation of up to one year’s wages, depending on the severity of the dismissal and its impact on the employee.
EOR protects from unfair dismissal.
EORs handle the entire complex offboarding process, whether by termination or resignation while ensuring no legal threats to the employer. They carefully review all circumstances and ensure a lawful termination. They act according to the region-specific rules while handling contract termination and communication with the employee.
It is also worth noting that termination entails a huge administrative burden, including financial calculations and documentation, which can distract HRs from their core responsibilities. An EOR alleviates the burden involved in the termination process and handles everything expertly as per laws.
Mishandling Employee Data and Privacy
The UAE enforces strict laws for handling employee data. The Data Privacy Law, complementing Emirate-level regulations, applies to all individuals living or working in the country, and it mandates that employee data must be purposeful, transparent, and limited to necessary use. Employers must secure employees’ explicit, unambiguous consent before processing personal data, except in certain circumstances.
Employers must also preserve the privacy and confidentiality of employee data and maintain complete employee records. Mishandling employee or customer data incurs hefty fines or criminal liabilities for employers.
Protect employee data and privacy with EOR
Acting as a legal employer for your employees in the UAE, the EOR takes care of all related data. They adhere to local data protection laws, mitigating the legal risks of data breaches. They provide clear privacy policies to employees, detailing the purpose and potential uses of data collected, how and from which entities and which data will be shared, security measures, etc.
This is how EOR helps client companies avoid imprisonment, expensive lawsuits, and fines that can range from AED 50,000 to AED 5 million.
Other Ways Employer of Record (EOR) Helps Manage Legal Risks
Employer of Record professionals are experts in analysing legal risks and helping businesses navigate complex regulatory environments in the UAE. Here are other ways in which EOR helps you with legal risk management:
Health and safety standards
Employers should brief employees about risks involved in the work beforehand to prevent any sudden accidents. Violating workplace safety regulations in the UAE can lead to heavy fines, depending on the severity of the non-compliance. However, with EOR services, you don’t need to worry about the legal risks associated with employee health and safety.
Specialised EOR prioritises health and safety regulations to create a positive workplace for employees. They perform regular risk assessments, develop safety training programs, and focus on local health coverage to benefit employees. Moreover, they keep themselves updated on any changes in health and safety regulations to ensure full compliance.
If an employee suffers a work-related injury, EOR handles the entire reporting process to inform the relevant authorities on time. They ensure that workers are compensated as per UAE labour law. This helps businesses reduce legal risks and reputational damage while creating a healthier and safer workplace for employees.
Discrimination and harassement
In UAE, discriminating against employees based on race, colour, gender, religion, or nationality is illegal and punishable. Local labour law prohibits any form of workplace harassment, including sexual harassment, verbal violence, physical violence, and psychological violence. If you violate the law, your company can be fined up to AED AED 100,000, or you can face imprisonment.
An EOR is an expert in local employment regulations that prohibit discrimination and harassment in the workplace. They provide guidance on best recruitment practices, ensure equal treatment, and create clear anti-discrimination and anti-harassment policies.
Moreover, EOR manages employee complaints of harassment or discrimination and handles investigations fairly and in compliance with UAE law. This enables businesses to focus on core business operations while ensuring they maintain a legally compliant and safe work environment for all employees.
Work With EOR to Avoid Legal Risks Hiring in the UAE
Managing compliance with local labour laws in the UAE is critical for businesses expanding globally. As you see, an EOR plays a crucial role in effective legal risk management when growing your team in the UAE.
Connect Resources helps you minimise your legal risk evaluation and mitigation efforts. Our in-house experts fully protect your business in the UAE from cross-border payroll and employment compliance risks by helping with employment contracts, on-time payments, and compliance assurance so you can focus on core business operations.
If you are looking for an EOR transfer, we have got you covered with our expert and seamless services.
