You need someone in the UAE by next quarter. Your lawyer just said entity setup takes 6 months minimum. The math doesn't work.
Here's the uncomfortable truth: the UAE's business setup process, while streamlined compared to regional neighbors, still requires significant time and capital investment. You're looking at AED 50,000-150,000 ($13,600-40,800) upfront for a mainland company setup, plus 3-4 months minimum processing time. That's before you even think about Emirates ID processing, labor card applications, or dealing with the Ministry of Human Resources requirements.
Option 1: Set up your own entity
- Cost: AED 50,000-150,000+ upfront, AED 25,000-50,000 annual renewals
- Timeline: 3-4 months minimum (mainland), 6-8 weeks (free zone)
- Complexity: Trade license, labor quota, Emirates ID sponsorship, MOHRE registration
- Makes sense when: Hiring 15+ people long-term, permanent regional headquarters
Option 2: Hire contractors
- Cost: None upfront, but significant control limitations
- Timeline: Immediate
- Risks: UAE Labor Law violations (AED 50,000+ fines), deemed employment issues
- Makes sense when: Project-based work under 6 months, specialized consulting
- Note: Hire with Columbus handles compliant contractor agreements too
Option 3: Use an employer of record (Recommended for most)
- Cost: $179/month per employee
- Timeline: 2-3 days to hire
- Complexity: Zero - we handle visa sponsorship, labor cards, everything
- Makes sense when: 1-20 employees, testing Middle East markets, distributed teams
If you're hiring 1-5 people, entity setup costs more than 5+ years of EOR fees ($179/month = $2,148/year per employee). The UAE requires visa sponsorship for all employees, labor card processing, and ongoing MOHRE compliance. All of this gets handled for you with an EOR. You get immediate market entry, full legal compliance, and can scale without the typical UAE business setup headaches.
Ready to hire in the UAE without the delays? Get started with Hire with Columbus.
What employment types can you use?
You've got three ways to bring someone onboard in the UAE. Here's how the costs and risks compare.
How can you hire in the UAE?
The UAE makes it pretty clear: you need a legal presence to employ people. But "legal presence" doesn't have to mean setting up your own company and dealing with years of compliance headaches.
| Hiring Method | Upfront Cost | Timeline | Best For | Key Considerations |
|---|---|---|---|---|
| Set up your own entity | AED 50,000-150,000 ($13,600-$40,800) | 4-6 months | 20+ employees, permanent presence | Full UAE corporate registration, ongoing compliance, accounting fees |
| Hire contractors | Minimal setup | Start immediately | Short projects (<6 months) | Misclassification risks, limited control, can't treat like employees |
| Use an EOR (Recommended) | $179/month per employee | 2-3 days | 1-50 employees, market testing | We handle all legal compliance and employment requirements |
Setting up your own entity means working through the UAE's company formation process. You'll need local sponsorship (unless you're in a free zone), trade license registration, and ongoing compliance with Ministry of Human Resources requirements. The math works if you're planning 20+ employees long-term, but most companies underestimate the ongoing costs.
Hiring contractors seems simple until the Ministry of Human Resources decides your "contractor" looks suspiciously like an employee. UAE labor law is strict about this. If someone works set hours, uses your equipment, or takes direction like an employee, they probably are one. Misclassification penalties can hit AED 50,000 per violation.
Using an EOR like Hire with Columbus means we become the legal employer in the UAE while you manage the day-to-day work. Your employee gets a proper UAE employment contract, visa sponsorship, and all required benefits. You get someone working in 2-3 days instead of months.
Let's look at the real math: 5 employees through an EOR costs $895/month. Setting up an entity runs AED 100,000+ upfront, plus ongoing costs that easily hit AED 15,000 monthly for compliance, accounting, and HR infrastructure.
Employment contract types in the UAE
Once you've sorted out how you'll legally employ someone, you need to pick the right contract type. The UAE recognizes three main employment contracts, and getting this wrong can cost you serious money in end-of-service benefits.
Unlimited term contracts are your standard permanent employment setup. No end date, and the employee builds up end-of-service gratuity based on their tenure. Use this for core team members you want to keep long-term. The gratuity calculation gets expensive (21 days of salary for each year after the first five years), but it's the most flexible option.
Limited term contracts have a specific end date, maximum two years (renewable once). They automatically terminate when they expire, which sounds convenient until you realize the employee still gets full gratuity if they complete the term. Plus, if you keep renewing or treating it like a permanent role, it converts to unlimited term anyway.
Part-time contracts work for less than 8 hours daily, with pro-rated benefits and gratuity. The UAE finally formalized part-time employment rules in 2023, so this is actually viable now. Just remember that part-time employees get the same visa sponsorship requirements as full-time staff.
The tricky bit? UAE labor law heavily favors employees in contract disputes. If you terminate an unlimited contract without cause, you're looking at notice pay, gratuity, and potentially additional compensation. Limited contracts that you terminate early often cost more than just letting them run out.
Probation periods can run up to 6 months for any contract type, but you need to specify this upfront. During probation, either side can terminate with 14 days' notice and no gratuity obligations. After probation, you're locked into the full termination requirements.
When you're working with Hire with Columbus, we handle all the contract structuring based on your specific needs. We'll set up unlimited term contracts for your permanent hires, manage the probation periods properly, and make sure you're not accidentally creating expensive obligations down the road.
The visa sponsorship piece is essential too. Every employee needs a residence visa, and that requires the employer to be properly licensed in the UAE. We handle all of that through our established UAE entity, so your employee gets their visa processed quickly and correctly.
How does payroll and taxation work?
Here's some good news: the UAE has zero personal income tax. Your employees keep their full salary, which makes compensation conversations much easier. But before you celebrate, employer costs still add up through other contributions and requirements.
The real cost comes from mandatory benefits, end-of-service gratuity provisions, and visa-related expenses. You're looking at roughly 15-25% above base salary once you factor in all employer obligations.
Tax structure breakdown
The UAE's tax setup is refreshingly simple compared to most countries:
| Tax Type | Rate | Who Pays |
|---|---|---|
| Personal Income Tax | 0% | N/A |
| Corporate Income Tax | 9% (profits >AED 375,000) | Employer |
| VAT | 5% | Business transactions |
| Emiratisation Levy | 2% of monthly salary | Employer (expat employees only) |
The Emiratisation Levy is the main direct payroll cost you'll face. It's designed to encourage hiring UAE nationals, so you pay 2% of each expat employee's monthly salary to the government.
Social security and mandatory contributions
The UAE doesn't have a traditional social security system like European countries. Instead, you're dealing with end-of-service benefits and mandatory insurance:
For UAE nationals:
- Social Security: 12.5% employer + 5% employee contribution
- Pension Fund: Additional 15% employer + 5% employee
For expat employees:
- No social security contributions required
- Mandatory health insurance (varies by emirate)
- End-of-service gratuity (calculated based on tenure)
Emiratisation Levy:
- 2% of monthly salary for each expat employee
- Paid monthly to the Ministry of Human Resources
Payment schedule and timing
UAE employees expect monthly salary payments, typically at the end of each month. The Wage Protection System (WPS) requires all payments to go through approved banks, and you've got strict deadlines to meet.
Payment must be made by the 10th of the following month. Miss this deadline and you're looking at fines starting at AED 5,000 per employee, plus potential visa complications.
Most companies pay on the last working day of each month. There's no 13th-month bonus requirement, but many employers offer annual bonuses during Ramadan or at year-end to stay competitive.
Total employment cost example
Let's break down what a AED 180,000 annual salary actually costs you:
| Cost Component | Amount (AED) | Percentage |
|---|---|---|
| Base Salary | 180,000 | 100% |
| Emiratisation Levy (2%) | 3,600 | 2% |
| Health Insurance | 3,000-5,000 | 1.7-2.8% |
| End-of-service provision | 9,000 | 5% |
| Visa and permit costs | 4,000 | 2.2% |
| Total Annual Cost | 199,600-201,600 | 110.9-112% |
That AED 180,000 employee actually costs you around AED 200,000 per year. The end-of-service gratuity provision is the biggest hidden cost. You need to set aside money for when employees eventually leave.
Payroll cycle and compliance deadlines
The UAE runs on a monthly payroll cycle with specific reporting requirements:
Monthly deadlines:
- Salary payment: By 10th of following month
- WPS reporting: Within 10 days of payment
- VAT filing: 28th of following month (if applicable)
Annual requirements:
- Corporate tax filing: Within 9 months of financial year-end
- Emiratisation reporting: Quarterly submissions
- Labor contract renewals: Before visa expiry
Miss the WPS deadline and you'll face immediate penalties. The system automatically flags late payments, and repeated violations can lead to work permit suspensions.
Common payroll mistakes
The biggest mistake? Not budgeting for end-of-service gratuity. This isn't just a final payment. You should be setting aside 5% of salary monthly to cover this liability.
Another costly error is miscalculating the Emiratisation Levy. It's based on basic salary only, not total compensation, but many companies include allowances and end up overpaying.
Visa-related payroll mistakes are expensive too. If an employee's visa expires and you keep paying them, you're technically employing someone illegally. The fines start at AED 50,000 per employee.
Setting up payroll in the UAE yourself:
- Local accounting firm: AED 3,000-5,000/month
- Payroll software: AED 500-1,000/month
- Compliance risk: Fines up to AED 100,000 for violations
- HR expertise needed: AED 180,000+ salary
With Hire with Columbus: $179/month per employee (USD), fully compliant, zero risk. We handle WPS submissions, calculate gratuity provisions, and manage all visa-related payroll requirements automatically.
Okay, that's a lot of legal jargon.
Here's the thing: you don't actually need to remember any of this. That's literally what we're here for. We'll handle the compliance while you focus on building your team in the United Arab Emirates.
No lawyers required. Promise.
What benefits and leave are required?
You'll pay salary 13 times a year in the UAE, not 12 – there's a mandatory end-of-service gratuity that adds up fast. Beyond that, three benefits are non-negotiable: health insurance, end-of-service gratuity, and annual leave. Miss any of these and you're looking at fines starting at AED 5,000 per violation.
Here's what you owe every employee, and what happens when you don't deliver.
Annual vacation
Every employee gets 30 calendar days of paid annual leave after completing one year of service. During their first year, they earn 2.5 days per month worked.
You can't make employees forfeit unused vacation – they either take it or you pay it out at termination. No "use it or lose it" policies here. Employees can carry over unused days, but you'll need to track this carefully for payroll calculations.
Vacation scheduling rules:
- Employees can take vacation after completing 6 months of service
- You can split vacation into multiple periods, but one period must be at least 14 consecutive days
- You control the timing (with employee input), but can't unreasonably deny requests
- Payment is due at regular salary rates
Sick leave
Employees get 90 days of sick leave per year, but the payment structure gets complicated. First 15 days are unpaid, next 30 days at half pay, final 45 days at full pay.
Wait, that's backwards from most countries. The UAE front-loads the pain.
Sick leave breakdown:
- Days 1-15: No pay
- Days 16-45: Half salary
- Days 46-90: Full salary
You'll need a medical certificate for absences over 3 consecutive days. For longer illnesses, employees need certification from a government health authority or approved medical center.
Parental leave
Maternity leave is 60 calendar days at full pay, starting from the birth date. Mothers can take this leave earlier if medically necessary, but the total stays at 60 days.
Fathers get 5 working days of paid paternity leave. Not generous, but it's mandatory.
Key maternity leave rules:
- Must be taken consecutively (no splitting)
- Starts automatically on birth date unless employee chooses earlier
- Employee must provide 45 days' written notice when possible
- Job protection applies – you can't terminate during leave
Public holidays 2025
The UAE has 11-12 public holidays annually, with some dates varying based on lunar calendar observations. When employees work on public holidays, you pay double salary.
| Date | Holiday | Type |
|---|---|---|
| January 1 | New Year's Day | Fixed |
| March 29* | Eid Al Fitr (Day 1) | Lunar |
| March 30* | Eid Al Fitr (Day 2) | Lunar |
| March 31* | Eid Al Fitr (Day 3) | Lunar |
| June 6* | Eid Al Adha (Day 1) | Lunar |
| June 7* | Eid Al Adha (Day 2) | Lunar |
| June 8* | Eid Al Adha (Day 3) | Lunar |
| June 27* | Islamic New Year | Lunar |
| September 5* | Prophet's Birthday | Lunar |
| December 1 | Commemoration Day | Fixed |
| December 2-3 | UAE National Day | Fixed |
*Dates marked with asterisks are approximate and depend on moon sighting
Mandatory benefits
Health insurance is required for all employees and their families. You must provide coverage that meets UAE health authority standards, typically costing AED 1,500-5,000 per employee annually depending on coverage level.
End-of-service gratuity replaces a pension system. You pay:
- 21 days' salary for each year of service (first 5 years)
- 30 days' salary for each year after 5 years
- Calculated on basic salary only (no allowances)
This creates a significant liability – an employee earning AED 10,000 monthly for 5 years costs you AED 52,500 in gratuity alone.
Visa and Emirates ID costs are employer responsibilities, running about AED 3,000-5,000 per employee for initial setup and renewals.
Optional competitive benefits
Most employers add these to attract talent:
- Housing allowance (20-40% of basic salary)
- Transportation allowance or company car
- Annual flight tickets to home country
- Private school fees for children
- Life insurance coverage
- Gym memberships or wellness programs
The housing and transport allowances aren't just nice-to-haves – they're expected in most professional roles.
Common benefit mistakes
Miscalculating gratuity liability is the big one. Many companies don't properly accrue for this expense and get hit with surprise costs at termination. Set aside roughly 8-10% of annual salary to cover gratuity obligations.
Inadequate health insurance leads to employee complaints and potential visa issues. Don't cheap out on coverage – unhappy employees will leave, and replacement costs exceed insurance savings.
Missing visa renewal deadlines results in fines of AED 25 per day per employee, plus potential work permit issues.
Administering these benefits correctly requires local HR expertise (AED 180,000+ annual salary), benefits administration systems (AED 2,000+/month), and constant legal updates to avoid penalties.
Hire with Columbus handles all UAE benefit administration, compliance tracking, and gratuity calculations for $179/month per employee. We maintain the health insurance relationships, track all leave balances, and ensure you never miss a visa renewal deadline.
What are the compliance requirements?
Employment contracts in the UAE must be signed within 30 days of start date or you face AED 5,000 fines per violation. Miss this deadline and you're looking at penalties plus potential back payments if the employee claims different terms than what you verbally agreed to.
The good news? UAE employment law got clearer with recent reforms, but there are still plenty of ways to mess up if you don't know the requirements.
Employment contract requirements
All employment contracts must be written in Arabic and English if the employee doesn't read Arabic. You can't rely on verbal agreements - they're not legally recognized and leave you exposed to disputes about terms, salary, or job duties.
Every contract needs these mandatory clauses or it can be deemed invalid:
- Job title and detailed description of duties
- Salary breakdown (basic salary must be at least 50% of total)
- Working hours and days
- Annual leave entitlement (minimum 30 days)
- Probation period (if applicable)
- Notice periods for termination
- End of service gratuity calculation
Contracts must be registered with the Ministry of Human Resources and Emiratisation (MOHRE) within 30 days. Skip this step and face AED 5,000 fines plus your employee can claim the contract is void.
Probation periods
Standard probation is 6 months maximum for all positions. You can't extend it or restart it if someone changes roles internally - that's considered a new probation and isn't allowed.
During probation, either party can terminate with just 14 days' notice. No severance pay required, but you still owe any unused vacation days and end-of-service gratuity (prorated).
After probation ends, full employment protections kick in and termination becomes much more complex and expensive.
Working time regulations
Maximum 48 hours per week (8 hours per day, 6 days) for most industries. During Ramadan, it drops to 36 hours for Muslim employees.
Overtime pays 125% of regular hourly rate for the first two hours, then 150% after that. Weekend work (if it's their designated rest day) pays 150% automatically.
You must give employees:
- 1 hour lunch break for shifts over 5 hours
- 24 consecutive hours off per week
- 8 hours rest between shifts
Keep detailed time records - labor inspectors check these during audits and missing documentation results in AED 10,000 fines.
Notice periods
Notice periods depend on how long someone's worked for you and who's initiating the termination:
| Years of Service | Employee Notice | Employer Notice |
|---|---|---|
| Probation period | 14 days | 14 days |
| Under 5 years | 30 days | 30 days |
| 5+ years | 90 days | 90 days |
You can pay in lieu of notice, but the employee still has the right to work through their notice period if they choose.
Termination process
You can only terminate for cause (misconduct, poor performance after warnings, redundancy) or mutual agreement. "At-will" employment doesn't exist here.
For misconduct, you need:
- Written warnings with improvement plans
- Investigation records if it's serious misconduct
- Employee's written response to allegations
- Final termination letter stating specific reasons
Redundancy requires 30 days advance notice to MOHRE and proof that the role is genuinely eliminated, not just being given to someone else.
Get the process wrong and you'll face wrongful termination claims that typically cost 3-12 months salary in compensation.
Severance pay requirements
End of service gratuity is mandatory for all employees, even if they resign:
| Years of Service | Gratuity Calculation |
|---|---|
| Under 1 year | No gratuity |
| 1-5 years | 21 days basic salary per year |
| 5+ years | 30 days basic salary per year (years 1-5) + 30 days per year (years 6+) |
This is based on basic salary only, not total compensation. If you terminate without cause, they get full gratuity. If they resign after 5+ years, they get full gratuity. If they resign before 5 years, they get partial gratuity.
You must pay within 14 days of their last working day or face additional penalties.
Data protection requirements
UAE follows its own data protection law (not GDPR), but it's similarly strict about employee data handling.
You need written consent to collect, process, or transfer employee data outside the UAE. This includes payroll processing, background checks, or storing HR records with international vendors.
Employees have the right to access, correct, or delete their personal data. Data breaches must be reported to authorities within 72 hours.
Violations can result in fines up to AED 3 million for serious breaches involving sensitive employee information.
Common compliance mistakes
Invalid employment contracts cost you more than just fines - they expose you to claims for different terms than what you intended:
- Missing Arabic translation: Contract void + AED 5,000 fine
- Wrong salary breakdown: Back payments if basic salary under 50%
- No MOHRE registration: AED 5,000 fine + contract validity issues
- Improper termination: 3-12 months salary compensation + legal fees
The biggest mistake? Treating UAE employment like other countries. The rules are specific and penalties add up fast.
Penalties for violations
Here's what common compliance failures actually cost you:
- Unregistered employment contract: AED 5,000 per employee
- Missing mandatory contract clauses: Contract deemed invalid, potential back payments
- Wrong termination process: AED 20,000 fine + 3-12 months salary compensation
- Overtime violations: AED 5,000 per violation + back payments with interest
- Missing time records: AED 10,000 fine during labor inspection
- Late gratuity payment: Additional 10% penalty on amount owed
- Data protection breach: Up to AED 3 million depending on severity
Common compliance failures in UAE:
- Invalid employment contract: AED 5,000 fine + contract void
- Wrong termination process: AED 20,000 fine + severance + legal fees + potential compensation order
- Missing mandatory clauses: Contract deemed invalid, back payments owed
- Improper dismissal: 3-12 months salary compensation + reinstatement possible
Hire with Columbus ensures every contract and termination follows UAE law exactly. We handle MOHRE registration, maintain compliant time records, and manage the entire termination process so you avoid these costly mistakes entirely.
What has changed recently?
The UAE's hiring rules got a major overhaul in 2025, and these changes will directly impact how you hire and manage employees there.
The biggest shift? The UAE introduced a flexible work framework in January 2025. You can now offer permanent remote work, hybrid schedules, and compressed work weeks without jumping through government approval hoops. Just include these arrangements in employment contracts and register them with the Ministry of Human Resources and Emiratisation (MOHRE).
New visa categories for international talent
Three new visa types launched in March 2025 make hiring international employees way less painful:
- Digital Nomad Visa: 2-year renewable visas for remote workers earning at least $5,000 monthly
- Freelancer Plus Visa: 3-year visas for independent contractors in tech, creative, and consulting fields
- Skills-Based Entry Visa: Fast-track visas for professionals in 47 priority sectors, processing in just 5 days
You can now hire international talent in 1-2 weeks instead of the old 2-3 month wait times. That's a game changer if you need to move fast.
Mandatory mental health benefits
Starting July 2025, all UAE employers must include mental health coverage in their health insurance plans. No exceptions.
This covers annual mental health assessments, at least 12 therapy sessions per year, and 3 additional paid mental health days. Health insurance premiums will jump 8-12% to cover these requirements. Most insurers are tacking on an extra AED 200-400 per employee annually.
Updated salary protection system
The UAE completely revamped its Wage Protection System (WPS) in September 2025. All salary payments must go through approved digital banking channels, and employees get instant notifications for every transaction.
Pay someone late? You'll get hit with automatic penalties of 1% of the delayed amount per day. The upside is that the new system actually integrates with most global payroll platforms. Hire with Columbus automatically handles WPS compliance for all our UAE employees at $179/month per employee.
Emiratisation quota changes
The UAE bumped up its Emiratisation requirements in 2025, though the impact depends on your industry:
| Industry | 2025 Quota | Previous Quota | Deadline |
|---|---|---|---|
| Banking | 5% annually | 4% annually | December 2025 |
| Insurance | 3% annually | 2% annually | June 2026 |
| Telecommunications | 4% annually | 3% annually | March 2026 |
| Retail | 1% annually | 0.5% annually | December 2025 |
Miss your quota and you'll pay AED 6,000 per required Emirati position (up from AED 4,000 in 2024). The good news? These quotas only kick in if you have more than 50 employees in the UAE. Plus, certain visa categories like the new Digital Nomad Visa don't count toward your total headcount.
Pregnancy and parental leave expansion
Parental leave got a major boost in April 2025:
- Maternity leave jumped from 60 to 90 calendar days (fully paid)
- Paternity leave introduced: 10 working days (fully paid)
- Adoption leave: 45 calendar days for the primary caregiver
- Flexible return options: Part-time work for up to 6 months after maternity leave
These benefits apply to everyone, regardless of nationality or how long they've worked for you. Expect your annual leave costs to increase by roughly 2-3% of total payroll.