Employer of Record in the United Arab Emirates

When hiring foreign employees in the UAE, the basic principle to be observed is the so-called sponsorship system. This means that due to the close link between labour and immigration law, a residence permit can generally only be applied for through a local employment relationship. At the same time, the residence permit identifies the so-called sponsor, i.e. usually the employer, so that work can only be performed for this local employer and not for the actual foreign employer (Art. 16 Labour Act). This alone shows that the construct of the employer of record is unknown to the legal system of the UAE. 

Meanwhile, it should be noted that providing services by a company within the UAE is also only permitted on the basis of a trade licence, and therefore by an independent local company, so that the use of an employer of record by foreign companies also appears legally problematic for this reason.

Although the construct of an Employer of Records appears legally problematic due to the above-mentioned explanations, it is precisely these reasons that have lately led to increased demand from foreign companies for an Employer of Records in the UAE. In particular, the mandatory requirement of establishing a company in the UAE in order to provide services locally, as well as applying for and employing foreign employees through the established company, especially in the case of temporary projects, often proves to be (too) high a hurdle for foreign companies. For this reason, it has recently been observed that more and more companies in the UAE are unlawfully providing services as an employer of record, insofar as they employ foreign workers solely for the purpose of obtaining a residence permit, but without having the corresponding license or authorization to do so.

In principle, such employment, even though it is entered into solely for the purpose of obtaining a residence permit, creates an effective employment relationship that gives rise to rights and obligations for both parties. The resulting problem is also reflected in the fact that the employment contract is a so-called standard employment contract, i.e. an employment contract pre-formulated by the authority, which is mandatory and cannot be amended within the wording, so that, for example, a waiver of any salary or end of service benefits claims against the employer of record is excluded from the outset. Supplementary agreements, that complement the generally superficial and imprecise provisions of the standard employment contract in a legally secure and comprehensive manner, are common in the UAE and are also recognized by the courts. However, these are generally ineffective as soon as they waive mandatory law and the associated claims, such as the end of service benefit claims, even though the arise of such claims within the framework of the employer of record concept is probably not intended by the parties per se.

The employer of record concept differs from purely domestic employee leasing. In contrast to the employer of record, which involves the “cross-border employment” of a foreign employee, the purely domestic employee leasing is only permitted under strict conditions. The hiring company must have obtained a so-called manpower license, which entitles companies in the UAE to lease employees to other companies. However, such a license is reserved exclusively for UAE citizens, meaning that a company with manpower license, and therefore employee leasing, cannot be established and carried out by foreign individuals or companies. In case of a lack of the respective license, i.e. if an employee leasing or services are provided as an Employer of Record, the competent authority can impose financial penalties or directly withdraw the licence, which is equivalent to dissolving the company.​