Types of Employment Contract in UAE

Dalton Lewis

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    The UAE Employment Contract is an agreement between an employer and an employee that contains fundamental working terms such as the employee’s designation, the commencement date of employment, the type of the contract, remuneration, and the contract’s duration (fixed or unlimited term). The employment contract should be drafted in two versions, one for the employer and one for the employee, and both should be signed.

    There are two forms of employment contracts, according to UAE labour legislation No.8 of 1980:

    1. Limited Contract 
    2. Unlimited Contract
    LIMITED CONTRACTUNLIMITED CONTRACT
    A limited contract, often known as a fixed-term contract, specifies the start and end dates of employment or specifies duration of employment.An unlimited contract also known as open ended contract specifies the start date only with no certain period of time quoted.
    When does a limited contract come to an end?

    Any of the following situations will result in the termination of an employment contract:

    • In the case of limited contracts, after the designated term expires, except such contract is explicitly or implicitly renewed.
    • If an employee passes away or becomes fully unable to work as confirmed by a medical certificate.
    • Both parties agree to end the contract, as long as the employee’s acceptance is in written format.
    When does an unlimited contract come to an end?

    Any of the following situations will result in the termination of an employment contract:

    • In the case of unlimited contracts, both the parties discretion provided proper notice is given and the reasons for termination are not arbitrary.
    • If an employee passes away or becomes fully unable to work as confirmed by a medical certificate.
    • Both parties agree to end the contract, as long as the employee’s acceptance is in written format.
    When a contract is cancelled by the employer, how is compensation handled?

    If an employer terminates an employee for a cause other than those listed in Article 120 of the UAE Labor Law, the employer must pay the employee three months’ remuneration or remuneration for the remainder of the contract time whichever is less, in addition to their normal End of Service Benefits (EOSB) privilege.

    When a contract is cancelled by the employer, how is compensation handled?

    If an employer terminates an employee under an unlimited contract for a cause other than those listed in Article 120 of the UAE Labor Law, the employee will be entitled for a notice period or compensation in substitution of notice period in compliance with the contract of employment in addition to their End of Service Benefits (EOSB) rights.

    When a contract is cancelled by the employee, how is compensation handled?

    If an employee wants to end the limited contract for reasons except that listed in Article 121 of the UAE Labor Law, the employee must pay the employer as compensation a sum equal to half a month’s remuneration for three (3) months or the remainder of the contract duration, whichever is less.

    When a contract is cancelled by the employee, how is compensation handled?

    If an employee wants to end the unlimited contract for reasons except that listed in Article 121 of the UAE labor law, the employee must pay the employer compensation in line with the contract of employment or payment in place of notice period based on final remuneration unless the employee quit in accordance with UAE Labor Law Article 121.

    Is there a notice period for cancelling a limited contract?

    A limited contract must include a notice period of at least one month and up to three months.

    Is there a notice period for cancelling an unlimited contract?

    An unlimited contract can be cancelled at any time by either the employer or the employee if the contractual written notice period is met, which is normally not less than 30 calendar days.

    Calculation of Gratuity at the End of Service

    For Resignation:

    When the service of an employee is less than 5 years, there is no eligibility.

    If his/her service is more than 5 years, then the eligibility factor is considered,

    • Till the end of the fifth year, each year of service is worth 21 days of salary.
    • 30 days of salary for each subsequent year after the fifth year is completed.

    In case of completed contract, Employee is eligible for full Gratuity.

    Calculation of Gratuity at the End of Service

    For Resignation:

    If service period is less than one year, No gratuity. When the service time is more than one (1) year but less than three (3) years, he/she is considered eligible for one-third (1/3) of the end of service (1/3 *21).

    When the service time is more than three (3) years but less than five (5), he/she is considered eligible for two-third (2/3) of the end of service (2/3*21).

    If his/her service is more than 5 years.

    • Till the end of the fifth year, each year of service is worth 21 days of salary.
    • 30 days’ salary for each subsequent year after the fifth year is completed and should be allocated for any uncompleted years.
    For Termination:

    • When the employee has completed one (1) year of service, then he/she will get 21 days of salary for each year of service. If service period is less than one year, No Gratuity.

    When the service is more than 5 years, eligibility factor is as follows:

    • 21 days of salary for each year of service until the 5th year is completed. After the fifth year, you will receive 30 days of salary for each additional year which should be allocated for any years that aren’t completed.
    For Termination:

    • When the employee has completed one (1) year of service, then he/she will get 21 days of salary for each year of service. If service period is less than one year, No Gratuity.

    When the service is more than 5 years, eligibility factor is as follows:

    • 21 days of salary for each year of service until the 5th year is completed. After the fifth year, Employee will receive 30 days of salary for each additional year which should be allocated for any years that aren’t completed.

     

    When it comes to hiring employees in the UAE, employment contracts are among the most critical documents to have.  Employment contracts vary, and they are based on a two-party agreement. Understanding the many types of employment available in the UAE can help you avoid issues down the road. From the perspective of an employee or employer, it is their obligation to develop knowledge and insight into this subject and to face the problems that come your way with confidence.

    UAE Payroll Process

    The process of payroll is a little complicated and time-consuming; hence it is always recommended to outsource your company’s payroll function. Outsourcing payroll will ensure the assistance of a team of trained payroll professionals and it frees up the time of the organization, helping them focus on other projects that add value to their business. One should be extra vigilant while selecting their payroll provider, as payroll data is highly sensitive, and one should opt for a provider that can ensure high levels of data security.

    As a leading payroll outsourcing company, HLB HAMT can help solve your payroll complexities through customized strategies. We take care of our clients’ entire payroll cycle that includes preparation of payroll reports, processing salary payment with WPS compliance, accrual management including Gratuity, pension funds, an online portal for accessing pay slips, and many more. Our leadership team spends the necessary hours in every project, ensuring our clients get refined consulting services to take your business forward.

    To know more about our payroll process, click here.

    Disclaimer

    Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all-inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subject to change and is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

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