What is Emiratisation?
The initiative by the Government of the UAE to increase the number of UAE nationals employed in the private and public sectors is called Emiratisation.
The Emiratisation program is an important part of the UAE national agenda and has already been active for more than 10 years. While the results of the implementation of the program in the public sector are satisfying, it seems that the private sector has been lagging significantly behind in implementing these initiatives.
Therefore, the Government introduced new Emiratisation laws, which will affect the private sector and will require employers to implement significant changes when it comes to their recruitment policy.
In particular, the following key legislations have recently been introduced:
- Ministerial Resolution No. 279 of 2022 – Emiratisation in the private sector (2% Emiratisation Law);
- Cabinet Decision No. 18 of 2022 (Classification Law);
- Set of new rules beneficial under the NAFIS program.
NAFIS
As one of the significant undertakings of the Government to implement the Emiratisation program, it is important to mention the NAFIS program, which was launched in September 2021.
NAFIS is part of a comprehensive governmental program at the federal level, which is supposed to create a partnership between the private and public sectors where the private sector should create equal job opportunities for Emirati nationals. One of the main purposes of the NAFIS program is to support Emirati nationals when it comes to education and developing their professional careers, and the stated aim of the program is to “increase the competitiveness of Emirati human resources and empower them to occupy jobs in the private sector”.
At the very outset, it is relevant to note that participation in the NAFIS program is completely based on a voluntary scheme. Therefore, there are no penalties applicable to a private sector company for not registering.
As a part of the newly introduced schemes concerning the Emiratisation law, the Government introduced a set of new rules beneficial under the NAFIS program. In this regard, it is important to mention that NAFIS is beneficial not only for employees but also for employers.
Accordingly, NAFIS is offering several programs, some of which are as follows:
- ‘Emirati salary support scheme’ for UAE nationals who are employed in the private sector, which ranges from AED 3,000 to AED 5,000 monthly;
- ‘Pension program’ which offers reduced employer pension contributions;
- ‘Child allowance scheme’ as a part of child support of a minimum of AED 800 monthly per child;
- ‘Unemployment benefit’ as financial support for UAE employees that have lost their jobs;
- ‘Vocational counselling program’ with career counselling;
- ‘Apprentice program’;
- ‘National healthcare program’;
- ‘Talent program’
- ‘Recruitment targets’.
2% Emiratisation Law: Summary and Requirements
As a part of newly introduced legislations concerning Emiratisation, the Government issued the Ministerial Resolution No. 279 of 2022, i.e. the 2% Emiratisation law, which applies to the private sector and, more specifically, to companies registered across the mainland UAE. Therefore, these laws are not applicable to companies based in freezones, including ADGM and DIFC.
As per the requirements of the 2% Emiratisation law, which is effective from January 2023, companies that have more than 50 employees will be obliged to recruit at least 2% UAE nationals per year, thereby introducing the concept of the Emiratisation rate.
The Emiratisation rate is based on the number of skilled workers in the company, and under the new law, the requirement is for one UAE national to be employed for every 50 skilled workers in a private sector company.
Therefore, in order to understand what the Emiratisation rate is and how to apply it, we need to know what would constitute “skilled workers”. The Ministry of Human Resources and Emiratisation (“MOHRE”) has defined “skilled workers” as an employee who fulfils any of the following qualifications:
- To have a certificate higher than the secondary or equivalent to secondary;
- To have a worker certificate that has to be attested by a competent authority;
- To have a salary which is no less than AED 4,000 per month;
- To be under one of the following categories:
Legislators, business executives and managers;
Writing professionals;
Professionals in technical, scientific and human fields;
Technicians in technical, scientific and humanitarian fields;
Service and sales occupations.
The main goal of the introduction of the Emiratisation rate is to ensure that by 2026, 10% of the workforce in the private sector are Emirati nationals.
Furthermore, under the new 2% Emiratisation law, the Emiratisation rate is to be calculated as follows:
- 0-50 skilled workers – minimum to have hired one UAE national employee;
- 51-100 skilled workers – minimum to have hired two UAE nationality employees;
- 101-150 skilled workers – minimum to have hired three UAE nationality employees;
- More than 151 skilled workers – one UAE nationality for every 50 workers or less than 50.
Penalties
The new 2% Emiratisation law provides hefty penalties for non-compliance, and authorities have been pretty clear that they have the intention to pursue companies which are non-compliant.
As this law is effective from January 2023, therefore fines for non-compliance will start to be issued from January 2023 on a monthly basis. For every Emirati national employee that is not hired in accordance with the law, companies are going to be fined a minimum of AED 6,000 monthly, and fines will be increased progressively by AED 1,000 on an annual basis. A failure to pay the fines may lead to a suspension when it comes to the company’s ability to apply for or renew work permits.
Further, when it comes to non-compliance quotas for two consecutive years, as a consequence, the company will be demoted to the third category under the Classification law (see below).
Classification law and new classification system for the private sector
In accordance with Cabinet Resolution No. 18 of 2022 and its pertinent ministerial resolutions, MOHRE announced a new classification system for companies in the private sector effective 01 June 2022.
As per the MOHRE press release: “The purpose of the new classification system is to protect the rights of skilled employees working within the sector, address the needs of various business sectors and increase the opportunities for start-ups, entrepreneurship, and small and medium enterprises. It also motivates companies and establishments through a comprehensive framework that empowers workers and rewards companies simultaneously.”
When it comes to the classification system, companies are classified into three main categories under Classification law: first, second and third. It is important to understand that there are certain benefits for companies that are classified in higher categories because they are hiring more Emirati nationalities; hence the classification of a particular company is going to depend on different factors.
For the first category, companies will have to be in full compliance with the following:
- UAE Labour Law, and more specifically Decree Law No. 33 of 2021 and its executive implementing regulations;
- The wage protection system; and
- Labour-related resolutions and decisions.
In accordance with the above, to be classified as a first-category company, the company needs to satisfy at least one of the additional criteria, including but not limited to:
- To recruit Emirati national employees at a rate at least three times higher than the targeted Emiratisation quota.
- To collaborate with NAFIS and as a part of their collaboration to hire and train a minimum of 500 Emirati nationals yearly;
- To be a small or medium establishment which is run by young Emirati nationals.
For the second category, companies will have to be in full compliance with the UAE Labour Law together with its executive regulations with additional resolutions and decisions and must adhere to the UAE policy on promoting demographic and cultural diversity.
In the third category will be classified companies that are not in full compliance with the UAE Labour Law and its executive regulations together with additional resolutions and decisions, and companies that violate the skilled manpower policy, which entails promoting demographic and cultural diversity.
The classification of companies into the above categories is important since the scheme will work on an incentive basis. For example, fees payable for applying for work permits will depend on the category in which the company is placed, i.e. fees for work permit applications will range from AED 250 for the first category classified employers to AED 3,450 for the third category classified companies.
In addition to the above, there is also a certain assumption that being classified as a third-category company may affect the company’s reputation as it will reflect that the company was not compliant when it came to fulfilling its legal obligations.
Lastly, under the classification law, companies are requested to pay a bank guarantee in the amount of AED 3,000 for every employee or to ensure every employee is in accordance with the MOHRE-approved insurance structure.
Conclusion
As one of the main Governmental instruments for implementing the new Emiratisation system is through a variety of incentives for the education of UAE nationals; therefore, in time, we can expect that the level of educated and skilled UAE professionals will also increase in keeping with these reforms.
The steps highlighted above are in furtherance of UAE’s vision for the next 50 years. These measures enhance the sustainability of growth for private sector companies, investors and workers, reinforce transparency and consolidate the business environment in the UAE, which has topped many global indicators of competitiveness.
Therefore, it is clear that implementing the new system is aimed at policies that boost the labour market’s efficiency and stability whilst developing a knowledge economy based on experience exchange and capacity building.
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