Learn about the new classification system for private sector companies from June 1st

Staying up-to-date with the latest news related to laws and regulations is key to ensuring full compliance and avoiding penalties. And on this occasion, the UAE Cabinet has recently announced a new classification system that you should be aware of. This system applies to private sector companies, which will be classified into different categories depending on certain factors and conditions.

In this article, you will learn everything you must know about the new classification system for UAE companies and businesses. We will explain what you need to know about the categories that will be used to classify private sector companies. Furthermore, you will also discover every detail about each category of this new system that came into force on June 1st.

  1. What is the new classification system for UAE companies?
  2. What is the purpose of this new UAE classification system?
  3. How many categories does the new system establish to classify companies?
  4. What is the first category and what companies belong to it?
  5. What should you know about the second category of this new classification system?
  6. How many types of companies belong to the third category of this new system?
  7. Are there any fees related to the classification categories of the new UAE system?
  8. How can Connect Resources help your company comply with this new regulation in the UAE?

1. What is the new classification system for UAE companies?

Recently, the Ministry of Human Resources and Emiratisation, also known as MOHRE, implemented a new classification system in the United Arab Emirates. And it will be a useful tool to classify companies that operate in the private sector based on particular elements. More precisely, it will classify companies according to their compliance with directives or their adherence to UAE laws and regulations.

You should know that this system came into force on June 1st, according to Cabinet Resolution No. 18 of 2022. Therefore, if your company operates in the private sector, you must be aware of the conditions that this system states. Otherwise, you will not be able to stay compliant with the laws, which leads to fines and other severe penalties.

Below, you will be able to find more relevant information related to the specific purposes of the new classification system. Plus, we will also provide you with information about each of the categories that this system includes to classify companies. This way, you will understand how this new system works in the UAE and which category your company belongs to.

2. What is the purpose of this new UAE classification system?

The new classification system that the UAE Cabinet recently announced aims to address the needs of lots of business sectors. Besides, it also has the purpose of protecting the rights of employees and skilled personnel who work within these sectors. And enhancing opportunities for startups, entrepreneurship, and small and medium-sized enterprises known as SMEs is another purpose of this system.

On the other hand, with this new classification system, it is also possible to motivate companies through a comprehensive framework. And this framework will empower workers and employees, as well as reward all companies and establishments at the same time. 

According to Dr Abdulrahman Al Awar, the ministry will continually support UAE’s efforts in achieving global leadership in business. In the meantime, the ministry will also keep supporting key national objectives, while their main focus is promoting Emiratisation programs. The ministry also focuses on empowering UAE talents through systems like these.

In the same way, Dr Al Awar made an important emphasis on the new classification system for companies and its pertinent resolutions. As we mentioned before, this system aims to meet company owners’ demands and protect employees’ rights. And, at the same time, it aims to encourage innovation and promote the SME sector.

3. How many categories does the new system establish to classify companies?

Through this new system, it will be possible to classify companies operating within the private sector into three main categories. And classifying companies will mostly depend on the extent of their compliance with the laws and the Wage Protection System. And also, it will depend on the companies’ compliance with workers’ rights protection and the policy of promoting cultural/demographic diversity.

In other words, the classification system offers rewarding incentives to companies that commit to certain laws and policies. These policies are about promoting both cultural and demographic diversity in line with the UAE society’s values. And, of course, these values are based on elements like tolerance and equal opportunities for everyone.

Additionally, the Ministry of Human Resources and Emiratisation also mentioned that the new classification system is an automated and interactive system that transparently enables a classification change of companies. But changing a company’s classification will depend on the procedures that it carries out or the transactions undertaken.

As we previously mentioned, the system will classify companies into three categories, which are first, second, and third. In order to classify your company, it is imperative to meet the requirements and conditions that these categories specify. And below, you will be able to find detailed information about each category and how companies are classified.

4. What is the first category and what companies belong to it?

The first category includes private sector companies that meet at least one criterion in the new UAE company classification system. And the criteria are made up of several conditions and requirements that companies must meet, such as the following:

  • Raising the company’s Emiratisation rate, no less than three times above the target.
  • Cooperating with the “Nafis” program to train a minimum of 500 citizens every year. This is a federal program that aims to increase the competitiveness of Emirati human resources. Moreover, this program seeks to empower them to occupy jobs in the private sector.
  • Being a venture owned by a young citizen, according to standards previously approved.
  • Another criterion that the first category states is being one of the training and employment centres. And, as a training or employment centre, it is essential to support the implementation of the workforce planning policy. In other words, it is a must to promote cultural diversity in the country.
  • And the last criterion that companies must meet to classify in the first category is being active in the targeted sectors. Furthermore, it will be mandatory to be active in the activities that the Council of Ministers determines based on the ministry’s decision.

The Emiratisation rate is two percent per year from high-skilled jobs in companies/establishments that employ 50 or more workers. As a result, achieving the 10 percent target is not possible until 2026. These were the results of an analysis made by the ministry. So, companies that do not meet at least one of the previously mentioned criteria will not be classified in this first category. Instead, they will be classified in the second category automatically.

5. What should you know about the second category of this new classification system?

Then, you will be able to find the second category of this new classification system that the UAE Cabinet announced. As we mentioned before, this second category classifies companies that do not meet at least one criterion of the first category. More precisely, if they do not meet these criteria while committing to the law and policy of promoting cultural/demographic diversity.

To summarize, the classification of companies in this category will completely depend on the extent of their commitment to the laws. The extent of their commitment to the law and Wage Protection System (WPS) and workers’ rights protection will also be considered. Furthermore, their compliance with the policy of promoting cultural and demographic diversity in the country will have an important role too.

6. How many types of companies belong to the third category of this new system?

And lastly, there is the third category of the new classification system in the UAE that you must know about. Those companies that are found violating the Federal Law No. 33 of 2021 will be classified in this last category. In other words, companies that violate the law of labour relations and executive regulations will be in the third category.

More precisely, these are the conditions that make companies be classified in the third category:

  • Violating the law of labour relations and executive regulations, as well as the resolutions regulating the labour market. Standards for protecting labour rights are also included.
  • Lacking the commitment to complying with the policy of promoting cultural and demographic diversity in the labour market.
  • If companies commit other violations stipulated in Ministerial Resolution No. 209 of 2022, they will be classified in the third category. These violations include human trafficking, recruiting or using workers without getting work permits, providing incorrect information/data/documents to the ministry, etc. Violated obligations on workers’ wages, housing and safety standards, resorted to fake Emiratisation practices, and committed other significant violations are also included.

Therefore, if you do not want your company to be a third-category entity, make sure to comply with all regulations.

7. Are there any fees related to the classification categories of the new UAE system?

Besides learning about the existing categories related to the new classification system, you should also know about the fees involved. This way, you will be up to date with all the details regarding this important announcement made by the Cabinet. The implementation of the classification system will include fees for services tied to the choices that employers make.

Apart from that, the classification will also involve updates on service fees for several elements. For instance, it will include service fees for work permits and transfer fees in line with the classification of UAE companies. Now then, we shall take a brief look at the fees that the UAE Cabinet announced on this occasion:

  • For companies that belong to the first category of the classification system, fees will not exceed AED 250 for 2 years.
  • In the meantime, categories that belong to the second category will be charged AED 1,200 for 2 years.
  • And lastly, companies in the third category will not benefit from any fee rebates. The fees for issuing/renewing work permits will be AED 3,450 for 2 years.

On the other hand, the employment of UAE or GCC citizens will be exempt from the previously mentioned fees.

8. How can Connect Resources help your company comply with this new regulation in the UAE?

The best way to ensure compliance is by staying up to date with the latest news regarding the UAE regulations. And by having Connect Resources as your business ally, you will get all the information you need about UAE laws. Plus, our team will provide you with many services to make sure your business stays compliant with the UAE legislation.

On the other hand, if you want the experts to take care of your HR responsibilities, request our HR outsourcing services. With the outsourcing solutions that we offer, your company will efficiently carry out HR processes while staying compliant with regulations. Besides, our services will provide your business with many other benefits that will help you achieve your goals and reach success.

Would you like to receive more information about the latest updates on the UAE regulations? By contacting our specialists, you can get all the information you need regarding the UAE laws and regulations. All you will need to do is to call us at +971 43 316 688. Or you can also send an email at contact@connectresources.ae to get in touch with our experts and receive more information about the latest news from the UAE.

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