UAE Emiratisation Guidelines and Penalties for Non-Compliance

 

The UAE has heavily penalized 1,202 companies for fake Emiratization practices, imposing fines up to AED 100,000 per violation and revoking benefits from the Nafis program. Understand the Emiratization policies and the UAE’s commitment to deterring fraudulent practices. 

Emiratisation is a strategic initiative by the UAE government aimed at increasing the employment of Emirati nationals in the private sector. The guidelines are designed to ensure that companies contribute to the national agenda of boosting local workforce participation and reducing reliance on expatriate labor. Non-compliance with these guidelines is met with stringent penalties, reflecting the government’s commitment to enforcing these regulations. This article examines the legal and business implications for companies that fail to comply with UAE Emiratisation guidelines, particularly those that attempt to circumvent these rules. 

This blog is a part of UAE Compliance Advisory

In the News 

The UAE has imposed strict penalties on companies for fake Emiratisation and non-compliance. During April-May 2024, the Ministry of Human Resources and Emiratisation (MoHRE) fined 1,202 companies for falsifying Emirati employment records. These fines ranged from AED 20,000 to AED 100,000 per violation. Offending companies were also referred to the Public Prosecution for further legal action.

Additionally, these companies lost benefits from the Nafis program, which supports Emirati employment in the private sector. The UAE government also demanded the return of any financial incentives previously given to these companies. This demonstrates the UAE’s serious stance on enforcing Emiratisation rules and deterring fraudulent practices. 

Legal Framework and Compliance Requirements 

As of May 2024, the UAE’s Ministry of Human Resources and Emiratisation (MoHRE) has implemented stringent measures to ensure compliance with Emiratization targets. UAE’s Emiratization program requires private sector companies in the Mainland with 50 or more employees to ensure that at least 6% of their workforce consists of Emirati nationals in 2025. Companies with 20-49 employees must now hire at least one UAE national in 2024 and another in 2025. This rule applies to over 12,000 private companies across 14 key economic sectors, including finance, healthcare, and information technology. Firms failing to meet these targets face significant fines, with penalties set at AED 96,000 for each unfilled position starting January 2025 and increasing to AED 108,000 in 2026 for subsequent non-compliance. 

Emiratisation is mandated by several federal laws and regulations, which require private sector companies to achieve specific quotas of Emirati employees. These laws are part of the broader National Agenda 2021, which aims to strengthen the national identity and enhance the competitiveness of the Emirati workforce. 

The Legal Framework for Emiratisation in Private Sector 

Emiratisation is the process of employing Emiratis into the UAE’s workforce. It focuses on increasing the number of UAE nationals employed. The UAE cabinet passed a series of Resolutions to enhance the Emiratisation process in order to attain the desired Emiratisation percentage by 2026. 

The following resolutions, collectively referred to as the “Resolutions”, were passed by the UAE Cabinet to support Emiratisation in the private sector companies: 

  • Ministerial Resolution No. 279 of 2022 on Monitoring Mechanisms of Emiratisation Rates in the Private Sector & Contributions Imposed on Non-Compliant Establishments 
  • Ministerial Resolution No. 258 of 2022 on Reorganization of Tatween Partner Club 
  • Ministerial Resolution No. 251 of 2022 regarding the Incentives For Small And Medium Enterprises Members of Youth Entrepreneurship Support Institutions 
  • Cabinet Resolution No.18 of 2022 Concerning Classification of Private Sector Establishments Governed By The Provisions of Labor Relations Regulation Law 

The Resolutions emphasize monitoring the percentage of Emiratisation in private sector, imposition of fines on non-compliant establishments and giving incentives to the companies that comply with the Resolutions.   

All the private sector establishments registered with the Ministry of Human Resources and Emiratisation (MoHRE) shall commit to the Resolutions to introduce and increase the Emirati talents in their high skilled manpower. 

Highlights of the Resolutions 

  • All the companies with 50 or more workers must increase the number of Emirati employees from high skilled jobs, by 2% every year till the target of 10% is achieved by 2026. 
  • The ratio of the Emirati employees to the foreign nationals shall be calculated on the basis of the skilled professionals and not on the total number of employees from the lower level. 
  • The proportion of Emiratisation shall be calculated based on the number of work permits for UAE citizens registered in the ministry’s authorized system in line with the Resolutions’ requirements. Based on their adherence to the new Resolutions, the companies registered with the MoHRE will be categorized. 
  • The companies which fail to abide by the Resolutions will face a fine of not less than AED 6000 on a monthly basis, for each Emirati not employed with the company, starting from January 2023. This fine shall be increased by AED 1000 every year. 
  • All establishments within the ambit of the Resolutions shall be subject to periodic follow up, control and evaluation by the relevant departments of the Ministry, to ensure compliance with the Resolutions. 
  • Incentives will be provided for the companies which are successful in achieving the desired Emiratisation ratio.    

Classification of Private Companies 

By the Resolution No 18 of 2022, the UAE ministry introduced a three-category classification system of companies, depending on the ratio of Emiratisation criteria fulfilled by the companies.  

Category 1

Companies that comply fully with Emiratisation polices and increases their Emirati employees by 3% above the target. Provided the additional citizens employed shall not be less than 30 in accordance with the three times targeted rate. Also, the company must cooperate with the Emirati Cadre Competitiveness Council (NAFIS) in hiring and training minimum of 500 citizens per year. 

Category 2

The companies that comply with the general standards of the Resolutions by promoting cultural and democratic diversities or operating within the targeted sectors and activities determined by the council of ministers in this regard. 

Category 3

Companies which fail to commit to the standards of labor rights, polices, laws and decisions on regulating labor market will come under this category. The companies that do not participate in promoting cultural and democratic diversity in the UAE workforce and failing to achieve the Emiratisation ratio will also come under this category. 

Required Employee Ratio  

The required ratio is such that for every 50 skilled workers employed by the company, at least 1 (one) UAE citizen must be appointed and employed. Therefore, if a company has 100 skilled workers, at least 2 UAE citizens must be employed, and if the company has 150 skilled workers, at least 3 UAE citizens must be employed.  

Penalties to the Non-compliant Establishments 

The UAE government imposes severe penalties on companies that fail to meet Emiratisation targets. These penalties include: 

Monetary Fines

Companies can face substantial fines for each Emirati they fail to hire. These fines can accumulate rapidly, significantly impacting the company’s financial health.

Business Restrictions

Non-compliant companies may face restrictions on their business activities, including limitations on obtaining new work permits and government contracts.

Reputational Damage

Non-compliance can lead to reputational harm, affecting the company’s relationships with stakeholders, including clients, investors, and the government.

The establishments which fail to comply with the Emiratisation ratio will be imposed with a fine of AED 6000 every month for each number of UAE citizen who has not been employed in accordance with the Resolutions. The fine shall be increased progressively by AED 1000 each year.  

An establishment shall be considered in breach of the Resolutions, if the required number of citizens of UAE to be employed are not maintained until the following year. The fines shall be payable at the beginning of the following year, from the first violation, and shall be payable annually and in one payment. An establishment shall be under an obligation to pay fines if the stipulated Emiratisation percentages and the required number of employed citizens are not re-achieved within 2 (two) months from a default or decline. 

If the Establishment /company fails to pay the fine, then it shall be dealt in the following manner by the MoHRE: 

Deadline  Action 
On the deadline for paying the fine  The establishment will be subject to e-follow-up to make sure the fine is being paid. 
The day following the deadline  The establishment’s work permit issuance and renewal may be suspended by MOHRE, and the employer will be informed of the reasons for such suspension. 
The third, tenth, and the seventeenth day after deadline  The non-compliant establishment will get notices and reminders from MOHRE encouraging it to hire Emiratis and pay the fine. 
Two months after the due date  MoHRE shall continue with the suspension of the issuance and renewal of work permits for the non-compliant establishment, it shall also suspend issuing and renewing work permits for all sole establishments or companies owned exclusively by the owner of the non-complying establishment. 
If the establishment fails to abide by the required Emiratisation rates for two consecutive years  According to the relevant classification criteria that have been accepted by the Ministry, the establishment shall be reclassified and demoted to Category 3. 
If the establishment commits any fraud or provides incorrect data, documents or information  Fines stipulated in Cabinet Resolution No. (21) of 2020 and its amendments shall be imposed. 

Incentives for Complying with Emiratization Polices  

The UAE government has introduced several incentives to encourage companies to comply with Emiratization guidelines, making compliance both a financially and strategically advantageous decision for businesses operating in the UAE. Key incentives include: 

  • Significant reduction in fees for work permits and other government services, which can lead to substantial cost savings, especially for larger companies. 
  • Priority when bidding for government contracts, offering them a competitive advantage and additional revenue opportunities 
  • Enhanced support services from the MOHRE, such as personalized assistance and access to job fairs and recruitment events 
  • Public recognition  
  • Increased visa quotas for expatriate employees  
  • Potential flexibility in labor regulations 
  • Financial grants and subsidies to cover part of the training expenses for Emirati employees 

Under the Regulation No.251 of 2022, the companies that come under the category 1 and category 2 are provided with incentives. Such companies will enjoy a discount in service fee relating to work permits and transfer fee. For category 1 companies, the fee will not exceed AED 250 for over two years and for the category 2 companies, the fee will be AED 1200 for over two years. Subsidized five-year government paid contribution, on the companies’ behalf on the cost of pension plans for the employed Emiratis, shall also be granted to the complying establishments, as a part of the incentives.  

Protection of Labor Rights 

Pursuant to Article 8 of the Cabinet Resolution No 18 of 2022, it has been made mandatory under the Ministerial Resolution No.318 Of 2022 concerning Bank Guarantees and Employees Protection Insurance Scheme (“the Ministerial Resolution”), that all the establishments shall protect its employees by any of the following means: 

  1. Employee Insurance in accordance with the guide issued by the Undersecretary for Human Resources Affairs in this regard; 
  2. Bank Guarantee of not less that AED 3000 per employee, which shall remain valid for one year and with automatic renewal, without any restrictions. 

The Ministerial Resolution continues to list down the instances and cases in which the employee insurance and the bank guarantee shall be utilized by the Ministry. 

The insurance may be utilized by the Ministry for the purposes of expenses for repatriation of an employee to his country of origin, to deliver the employee’s entitlements by virtue of a court order, or pursuant to a claim raised by concerned authorities in the country to reimburse the repatriation expenses incurred. In all cases, it shall be the duty of the employer to reimburse the sums paid or complete the sum of the bank guarantee. 

The bank guarantee may be reclaimed by the employer (if initially provided for and on behalf of the employee) in the following cases, inter alia being cancellation of the employee’s work permit and upon submission of evidence of his departure to his home country, death of the employee and submission of evidence of the body’s repatriation, or if the employee transfers to a new employer.  

If the employer is a party to a collective labor dispute, then until the employee’s entitlements are settled or until the evidence of due fines against the establishment is proven, the Ministry has the right to refuse to reimburse the bank guarantee to the employer. 

Attempts to Bypass UAE Emiratisation Guidelines 

Several companies have attempted to bypass Emiratisation requirements through various tactics, such as: 

Phantom Hiring

Registering Emirati nationals as employees without actually engaging them in meaningful work.

Subcontracting

Outsourcing work to other companies or freelancers to avoid hiring Emiratis directly.

Misreporting

Providing false information about the number of Emirati employees in official reports.

These strategies have been met with increased scrutiny and enhanced enforcement measures by the authorities. 

Enforcement and Legal Actions 

The UAE government is employing advanced monitoring and auditing techniques to detect non-compliance. Recent actions include: 

Audits and Inspections

Conducting regular audits and workplace inspections to verify the actual employment of Emirati nationals.

Legal Prosecution

Prosecuting companies found guilty of manipulating Emiratisation data or engaging in deceptive practices.

Public Disclosure

Publishing the names of non-compliant companies to deter others from similar behavior.

Business Implications 

For companies operating in the UAE, adherence to Emiratisation guidelines is not merely a legal obligation, but a strategic imperative. Non-compliance can lead to: 

Increase Operational Costs

Fines and business restrictions can significantly increase operational costs and reduce profitability.

Lose Competitive Advantage

Non-compliant companies may lose access to government contracts and incentives, diminishing their competitive position in the market.

Lower Employee Morale

Legal issues and penalties can affect employee morale and retention, particularly among expatriates who may feel insecure about their employment stability.

Recommendations for Compliance 

To mitigate risks and ensure compliance, companies should: 

Develop Robust Hiring Policies

Implement policies that prioritize the recruitment and development of Emirati talent.

Invest in Training and Development

Provide training programs to enhance the skills of Emirati employees and integrate them effectively into the workforce.

Regular Compliance Audits

Conduct internal audits to ensure adherence to Emiratisation guidelines and rectify any discrepancies promptly.

Engage with Authorities

Maintain open communication with regulatory bodies to stay updated on any changes in the guidelines and demonstrate commitment to compliance.

Emiratisation is a critical component of the UAE’s strategic vision for sustainable economic growth and social development. Companies that fail to comply with these guidelines face significant legal and business consequences. By understanding the legal framework, recognizing the penalties, and implementing proactive measures, businesses can not only avoid sanctions but also contribute positively to the national agenda. For legal consultancies, it is essential to guide clients through the complexities of Emiratisation compliance and help them align their operations with national objectives. 

Disclaimer

The opinions expressed in this blog are those of the respective authors. ATB Legal does not endorse these opinions. While we make every effort to ensure the factual accuracy of the information provided in our blogs, inaccuracies may occur due to changes in the legislative landscape or human errors. It is important to note that ATB Legal does not assume any responsibility for actions taken based on the information presented in these blogs. We strongly recommend verifying information from official sources and consulting with professional advisors to ensure its accuracy and relevance to your specific circumstances.

About ATB Legal

ATB Legal is a full-service legal consultancy in the UAE providing services in dispute resolution (DIFC Courts, ADGM Courts, mainland litigation management and Arbitrations), corporate and commercial matters, IP, business set up and UAE taxation. We also have a personal law department providing advice on marriage, divorce and wills & estate planning for expats.

Please feel free to reach out to us at office@atblegal.com for a non-obligatory initial consultation.

Leave a Reply

Your email address will not be published. Required fields are marked *

1 + 12 =

Copyright, Privacy Policy, Sitemap, Disclaimer