According to Cabinet Resolution No. 18 of 2022 and its corresponding ministerial resolutions, the new categorization system for private sector firms took effect from June 1, 2022. The new system responds to the demands of diverse business sectors, safeguards the rights of employees and skilled persons employed in the field, and expands prospects for entrepreneurship, startups, and small and medium-sized businesses (SMEs). It also drives companies and institutions by providing a complete framework that empowers employees and rewards businesses.
Classification of Companies in three Categories
Companies are divided into three groups under the system: first, second, and third.
Companies are categorized based on their:
- Adherence to laws and regulations that control the business environment,
- Labour rights protection,
- Wage protection system commitment, and
- Align with the UAE's strategy to encourage cultural and demographic diversity.
First Category of Company
The first category of Company will include enterprises and institutions that pledge to abide by labour market rules and judgments while meeting all other general requirements. They must also meet at least one of the following criteria:
- increasing their Emiratization rate by at least three times the target,
- collaborating with the 'Nafis' program to train at least 500 citizens annually,
- being a venture owned by a young citizen that meets approved standards, or
- being one of the training and employment centers that support the Workforce Planning Policy by promoting cultural diversity in the UAE.
Second Category of Company
Companies operating within the targeted sectors and activities determined by the Council of Ministers based on the Minister of Human Resources and Emiratization’s proposal will fall into the second category. It will include companies that commit to general standards, laws, and regulations and the UAE's policy on promoting cultural and demographic diversity. Companies that do not match any of these requirements while adhering to the rules and the UAE's policy on encouraging cultural and demographic diversity will automatically be placed in the second category.
The Third category of the Company
Companies that do not follow the rules, regulations, or decisions governing the labour market or standards that safeguard workers' rights, or companies that do not agree with the UAE's goal of encouraging cultural and demographic diversity in the labour market, will fall into the third category.
Improved long-term growth and the attractiveness of the business environment
MOHRE's Undersecretary for Human Resources, H.E. Khalil Khoury, commented: "The new classification system for private sector facilities and businesses will promote long-term growth while safeguarding the rights of investors and employees. It also underpins the UAE's business environment's leadership, which has defined several indices linked to competitiveness, ease of establishing a firm, and the diverse economy's innovation in terms of infrastructure and organizational structure. The new approach establishes clear and open criteria while incentivizing businesses dedicated to improving the UAE's business climate and attracting local and international talent and capabilities."
You may need to know: Can an employer take disciplinary actions against employees under the new Labour law?
Effectiveness of Classification of Companies
The new categorization system, according to Khoury, uses simple but sophisticated methods to immediately monitor firms' and establishments' efforts to strengthen abilities and talents. Based on the effectiveness of these activities in creating and enhancing the business environment, the system automatically raises its categorization. He clarified that raising these companies' classification would benefit them in terms of government tenders or receiving special incentives and exemptions.
According to Khoury, MOHRE's strategic and robust vision led to the adoption of the new system. This vision is based on the following key pillars: empowering national skills and talents in the private sector, strengthening the UAE's labour market to attract global talents and abilities, ensuring and protecting employee and worker rights, unlocking new opportunities for sustainable growth, and promoting investments in the UAE's booming private sector.
Discounts for firms in the first and second categories are being offered as an incentive:
For private sector businesses, implementing the new categorization system comes with reductions in service expenses like work permits and transfer fees. Fees for first category of Company will not exceed AED 250 for two years, while fees for second-category companies will be AED 1200. These costs will not apply to UAE and GCC nationals.
- Companies in the Third Category
Fee reductions will not apply to third-category enterprises, and the fees for acquiring or renewing work licenses will total AED 3450 over two years. Companies will be categorized in the third category under the new system if they breach Federal Law No. 33 of 2021 on the organization of labour relations and its executive rules, labour market resolutions, or labour rights protection criteria. Failure to adhere to the UAE's objective of encouraging cultural and demographic diversity in the labour market and other infractions outlined in Ministerial Resolution No. 209 of 2022 would result in categorization.
A final judgement confirming that the employer engaged in human trafficking, contracted or recruited a person without a work visa, or provided MOHRE with inaccurate data, papers, or information are offences. Employers' abuses of labour rights, such as a lack of commitment to workers' salaries, housing and safety standards, false Emiratization, and other significant infractions, are also included.
The new system's implementation aims to strengthen employees' rights, promote entrepreneurship, attract investments, and improve transparency. It also improves the legal framework that governs various economic sectors and the competitiveness and attractiveness of the UAE labour market to global talent and skills. The new method boosts Emiratization rates by providing a comprehensive incentive package to conforming businesses. The new approach enables Emiratization rates by offering a complete incentive package to conforming businesses.
For private sector Company that accomplish outstanding achievements in employing and training citizens and qualify for categorization in the first category, incentives include a reduction in MOHRE fees of up to 80%.
For more info contact our Top lawyers in Dubai UAE.