Overview

UAE employment law is the foundation of a healthy employer-employee relationship. With evolving labor rules and regulations, it’s crucial for employers to stay compliant. Unfortunately, many businesses especially small to mid-sized enterprises—make critical mistakes that can lead to penalties, lawsuits, or reputational damage. This article explores the top 5 mistakes employers make under UAE employment law and how to avoid them. Whether you’re new to HR in the UAE or a seasoned business owner, this guide will help you stay aligned with legal requirements while protecting your workforce and business.

1. Not Issuing a Valid Employment Contract

One of the most common mistakes is failing to issue a legally binding labour contract in the UAE. According to Federal Decree Law No. 33 of 2021, all employees must receive a written contract within 14 days of starting work.

Tip: Ensure all contracts are in line with MOHRE (Ministry of Human Resources and Emiratisation) templates and are filed digitally and physically.

2. Ignoring Probation Period Rules

Many employers misuse the probation period to avoid benefits or extend trial periods illegally. UAE employment law strictly caps probation at six months, with a minimum of 14-day notice for termination during this time.

Common Errors:

• Extending probation beyond 6 months

• Failing to provide formal evaluation

• Not paying dues upon early termination

3. Miscalculating Gratuity Pay

End-of-service benefits are a major part of employee compensation, yet many businesses miscalculate gratuity under UAE employment law, especially for resigning employees or those terminated under Article 44.

Gratuity Calculation (Basic Salary Only):

Errors in gratuity calculation can result in legal claims and fines. Always use the latest MOHRE-approved calculation method.

4. Unlawful Termination Practices

Wrongful termination is a serious violation of UAE employment law. Employers often dismiss employees without valid cause, proper notice, or final settlements—especially during restructuring or budget cuts.

Key Legal Guidelines:

• Provide 30-day notice (or pay in lieu)

• Offer clear written reasoning

• Settle all dues within 14 days of contract termination

Unjustified termination can result in a compensation claim of up to 3 months’ salary, according to MOHRE.

5. Failing to Track Annual Leave Accrual

Employees are entitled to 30 calendar days of paid annual leave after completing one year of service. Employers who don’t track or pay out leave balances are violating UAE employment law.

Mistakes Include:

• Not granting full leave

• Denying carry-forward without notice

• Failing to pay unused leave upon resignation or termination

This not only damages employee trust but also leads to penalties and labor complaints.

Conclusion

Staying compliant with UAE employment law is not just about avoiding penalties it’s about building a respectful, transparent, and productive workplace. From contracts to terminations, every HR decision should align with the legal framework. By avoiding these five common mistakes, employers in the UAE can foster trust, reduce risk, and ensure smooth operations. Always consult legal experts or HRMS platforms like MaxERP to help you stay updated and compliant.

FAQs

Q1: Is a written contract mandatory in the UAE?
Yes, UAE employment law requires all employers to issue a formal contract within 14 days of joining.

Q2: Can I extend an employee’s probation period beyond 6 months?
No. The maximum probation period allowed under UAE law is six months.

Q3: What happens if I terminate an employee without notice?
You may have to compensate the employee up to three months’ salary and face legal action.

Q4: How is gratuity calculated in the UAE?
Gratuity is based on basic salary and years of service 21 days for up to 5 years, and 30 days after that.

Q5: Can I forfeit unused annual leave?
Not without a clear policy and employee consent. Unused leave must be paid out if the employee resigns or is terminated.