From January 2023, private sector firms will be subject to heavy fines for every Emirati national not employed in accordance with the relevant Emiratisation regime, following a recent decision by the UAE Cabinet. With six months left for businesses to adapt and respond, it's important to take stock now and understand where your workforce sits within the regime in order to plan ahead and mitigate potential risk.
What is Emiratisation?
In summary, Emiratisation is an initiative launched by the UAE Government that mandates the inclusion of Emiratis in the job sector, particularly in the private sector. Its aim is to increase the number of Emiratis in the UAE job market and their impact on the economy.
Orders of the UAE's Council of Ministers impose a quota system on private sector employers, requiring certain companies to recruit and retain a sufficient number of UAE nationals to ensure that they make up a specified percentage, as a minimum, of staff numbers. The current Emiratisation thresholds are:
- 2% for commercial entities (where the entity has over 50 employees);
- 4% for banks; and
- 5% for insurance companies (where the entity has over 50 employees).
What do the new rules say?
Companies who fail to meet the new Emiratisation rate will have to pay fines of AED 6,000 per month starting from January 2023, for every Emirati who has not been employed under the required threshold. These new rules have been approved as part of the UAE's NAFIS Programme, a federal programme aiming to increase the competitiveness of the Emirati workforce.
The UAE Cabinet's decision seeks to increase Emiratisation by 2% annually (in high-skilled roles in companies that employ 50 or more people), while seeking to reach an overall target of 10% by 2026.
As a result of this decision, the UAE's Ministry of Human Resources and Emiratisation (MOHRE) has introduced a three-tier system for the classification of companies according to their commitment to Emiratisation programmes. The tier system is as follows:
- Tier 1: Companies that raise their Emiratisation rate by 3% above the target and cooperate with the NAFIS Training Programme.
- Tier 2: Companies that meet the target and comply with UAE policies on cultural and demographic diversity.
- Tier 3: Companies that fail to meet the target and lack commitment to the UAE policies on cultural and demographic diversity.
The UAE Cabinet's decision introduces financial incentives for compliance, including: (i) a reduction in MOHRE service fees by 80% for private sector companies who achieve major recruitment and training of Emirati nationals; and (ii) a five-year Government-paid contribution on the company's behalf against the cost of pension plans for Emirati employees. The incentives that a company qualifies for will depend on which of the three MOHRE tiers they fall into.
What should your business be doing now?
Companies operating in the UAE should review their employee data to ensure they have up-to-date figures for the number of UAE nationals employed and that these fall within the required thresholds. It is also important to determine which "Tier" your business is currently in and to what extent you might increase recruitment among Emirati nationals.
Where companies find they might fall short of the required thresholds, then there is the opportunity to take action now to avoid potential risks and fines when the new rules take effect in January 2023. Business and HR strategy will need to be aligned to consider how best to diversify the workforce in support of Emiratisation and adapt current recruitment and retention strategy.
Interested in finding out more?
Please reach out to Tim Casben or Simon Elliott of our UAE-based Corporate team for further information or if you require any advice/assistance with these matters.