Setting up a start-up in one of the UAE’s free zones provides notable benefits—corporate tax exemptions, sophisticated infrastructure, and streamlined licensing. Yet, first-time employers still face a maze of regulatory obligations governing payroll, HR, and overall employee welfare. Here’s our step-by-step guide to help new founders handle payroll and HR requirements and responsibilities accurately and compliantly.
1. Free Zone Labour Frameworks
While free zones each have their own rules, they must still uphold the minimum standards established by UAE Labour Law (Federal Decree-Law No. 33 of 2021). Key points include:
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Visa Sponsorship
In most free zones, the authority is formally the visa sponsor, but you, as the employer, remain responsible for meeting every legal obligation—from timely salary payments to contractual benefits. -
Core Employee Protections
Anti-discrimination provisions, minimum rest days, sick leave entitlements, and regulated working hours apply across all free zones to protect staff welfare.
Always consult your free zone’s dedicated HR or legal department for any zone-specific requirements, such as official labour contract templates or distinct processes for employee dispute resolution.
2. Transitioning to Fixed-Term Contracts
Recent changes to the UAE Labour Law phased out the use of unlimited employment contracts. Employers in free zones must now use fixed-term contracts, typically set for one, two, or three years, renewable upon expiry. If you still have older unlimited contracts, replace or amend them promptly to remain compliant. This clarity in contract duration benefits both employer and employee by defining a clear end date and renewal criteria from the start.
3. Setting Up Employment Contracts and Onboarding
Whether you are hiring one developer or a full operations team, a properly documented contract is the backbone of compliance.
Most free zones:
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Provide Standard Contract Templates
You can often customise these contracts to reflect your company’s needs, but none of the changes can conflict with federal labour laws. -
Onboarding Steps
After signing the contract, your new hire will undergo medical tests, Emirates ID application, and visa stamping. Only then can they legally commence work. Make sure you also provide a company handbook (if available) and any additional policies on data protection or confidentiality.
Take time to orient new employees properly, clarifying probationary periods, annual leave procedures, internal communication channels, and key office protocols.
4. Mandatory Unemployment Insurance (ILOE)
Since 2023, unemployment insurance has been mandatory for almost all private-sector employees, including those in free zones.
While the employee pays the minimal quarterly premium:
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Employer’s Role
You should inform and remind staff that timely subscription is compulsory. Those who fail to register may face fines or visa renewal blocks, causing broader disruptions for your start-up. -
Coverage Benefits
If the employee loses their job under qualifying circumstances, the scheme may provide temporary financial support. Ensure your HR onboarding packs include details about this requirement, ideally signposting official government channels or websites for sign-up.
5. Handling Payroll and the Wage Protection System (WPS)
The Wage Protection System (WPS) is central to ensuring fair, timely employee payments. While WPS began in mainland UAE, most major free zones now either require or strongly encourage it:
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Registration
Set up a dedicated WPS account with a UAE bank or an approved financial agent. Each pay cycle, submit a salary information file so wages can be accurately dispersed. -
Avoiding Penalties
Late or incomplete salary payments may result in fines, blocked work permits, or licence complications. The standard requirement is to pay monthly wages within 15 days of the due date.
If your free zone does not formally enforce WPS, paying via bank transfer is still considered best practice for transparent record-keeping. Keep consistent, clear payroll documentation to manage disputes or audits effectively.
6. Calculating End-of-Service Gratuity (EOSB) and Leave Encashment
Under UAE law, employees who complete at least one year’s service earn an end-of-service gratuity. For the first five years, the calculation is based on 21 days of basic pay per year. Beyond five years, it increases to 30 days’ pay for every additional year.
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Timing of Payment
You must pay gratuities within 14 days of the employee’s final working day. -
Unused Leave Encashment
At termination, unused but accrued annual leave must be paid out in cash. Track leave balances carefully in your payroll system or HR software to avoid under- or over-payment at the end of service.
7. Notice Periods and Termination Procedures
UAE legislation sets minimum and maximum notice periods for both resignation and termination—commonly between 30 and 90 days. Some free zones allow modest adjustments, but contracts cannot exceed legally permitted durations.
Following fair termination procedures is equally crucial. Always document reasons for dismissal (where relevant), issue appropriate written notice, and ensure final settlements (gratuity, unused leave, any bonuses) meet the 14-day legal deadline after the last working day.
8. Meeting Health Insurance Requirements and Additional Benefits
UAE law mandates that every employer provides health insurance coverage for their staff. Without proof of valid insurance, free zone authorities will not finalise or renew visas. At a minimum, most employees receive a basic benefits plan. However, many start-ups upgrade to enhanced plans, especially if they aim to attract top international talent.
Beyond insurance, staff also expect:
- Annual Leave: 30 calendar days per year (after the first 12 months).
- Sick Leave: Up to 90 days (with varying degrees of pay).
- Maternity and Paternity Leave: Expanded allowances introduced under recent reforms.
These statutory provisions are non-negotiable; failing to offer them can lead to complaints and potential legal action.
9. Emiratisation Obligations and Future Changes
Currently, Emiratisation quotas mainly affect private companies on the mainland, particularly larger organisations. Most free zones remain exempt. That said, certain free zones partnered with government projects have hinted at phased Emiratisation initiatives. Keep an eye out for changes in your specific zone—especially if your workforce exceeds a certain size or operates in regulated sectors.
10. Remote and Hybrid Work Approvals
While flexible working models are popular globally, not every UAE free zone automatically permits full remote or off-site arrangements. Some require employees on free zone visas to primarily work within the designated zone:
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Check Zone Policy
Consult your free zone authority on whether you need an addendum or explicit approval for hybrid or remote work. Failing to abide by location-based rules could result in penalties or visa issues.
11. Upholding Anti-Discrimination and Safe Workplace Standards
The UAE Labour Law prohibits discrimination based on race, gender, disability, or nationality. As a first-time employer, ensure your recruitment, performance reviews, and everyday workplace interactions align with these legal standards. Additionally:
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Health and Safety
Rules around workplace safety remain strict. If you occupy a co-working area or shared office space, keep common areas hazard-free. Free zones periodically revise these regulations, especially in the wake of any public health concerns, so check for updates.
12. Recommended Payroll Tools and Outsourced Services
For early-stage founders, juggling visa applications, WPS filings, and day-to-day HR tasks can be overwhelming. Several SaaS platforms cater to UAE-specific payroll needs:
- Zoho Payroll: Affordable and integrates seamlessly with other Zoho applications.
- Bayzat: Comprehensive HR suite, covering payroll, benefits administration, and employee self-service.
- Zimyo or gulfHR: Provide user-friendly dashboards for WPS compliance, leave management, and performance reviews.
Alternatively, outsourcing key functions—such as PRO (public relations officer) services or payroll administration—can save time and reduce compliance errors. Evaluate your budget, growth trajectory, and whether dedicating an internal resource to HR and payroll is more efficient than hiring an external specialist.
13. Differences Across Major Free Zones
While general compliance steps remain similar, the specifics can vary:
- DMCC: Mandates WPS, uses fixed contract templates, and closely monitors on-site vs off-site work.
- Dubai South (DWC): Requires WPS registration and offers a fully digital platform for visa and payroll updates.
- JAFZA: An early WPS adopter, JAFZA keeps a close eye on timely salary disbursement.
- DAFZ: Employs an internal payroll system rather than strict WPS enforcement, but still expects prompt salary filings.
- Other Zones (IFZA, DUQE, etc.): Requirements continue to evolve. Some are brand-new or smaller zones, offering more personalised helpdesks but potentially introducing new guidelines over time.
Research the free zone you choose, attend any employer induction sessions, and keep abreast of policy notices. Adapting your internal processes to local regulations is often simpler than contending with penalties later.
14. Best Practices to Avoid Fines and Protect Your Reputation
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Timely Salary and Settlements
Pay wages by the agreed deadline each month and settle end-of-service dues within 14 days to avoid formal complaints. -
Maintain Solid Paperwork
Keep employment contracts, Emirates ID copies, leave records, and payslips filed securely. Digital or cloud-based systems are ideal for easy retrieval. -
Stay Up-to-Date
Labour laws can change quickly—sign up to your free zone’s official newsletter or alert service to remain informed. Also, monitor new regulations on Emiratisation, remote work, or mandatory insurance schemes. -
Educate Employees
Provide staff with clear information on local labour rights, contract terms, and company policies. A knowledgeable workforce is less likely to make errors (e.g., failing to sign up for unemployment insurance) that could affect overall compliance. -
Adopt a Supportive Workplace Culture
When employees feel listened to, they are more likely to discuss concerns before escalating them. Respectful communication, fair treatment, and prompt responses to HR queries foster goodwill and reduce the risk of legal disputes.
How DUQE Can Help
DUQE, operating on the historic QE2 in Dubai, brings a novel experience to business set-up.
Beyond our uniquely maritime location, DUQE supports first-time employers with:
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Dedicated Onboarding Support
DUQE’s team walks new companies through visa applications, WPS requirements, and health insurance enrolments, simplifying the paperwork so founders can focus on their core business. -
Community Resources
By connecting entrepreneurs through networking events and shared workspaces, DUQE encourages peer collaboration—helpful if you need tried-and-tested payroll tools, referrals to outsourced HR providers, or local insights from seasoned founders. -
One-Stop Licensing and HR Platform
Having a single point of contact for formation, licensing, and HR queries reduces the risk of missing crucial steps. DUQE’s portal centralises most of the administrative processes that often trip up new business owners. -
Future-Focused Infrastructure
As a new and agile free zone, DUQE anticipates trends—whether that is digital solutions or emerging HR regulations. This forward-looking approach ensures you can adapt quickly to changes and maintain compliance with minimal hassle.
By leveraging DUQE’s expertise, first-time employers can streamline the entire HR journey, from drafting compliant contracts to establishing a thriving workplace culture on board the QE2.
Set Your UAE Start-Up Up for Success With a Strong HR Foundation
Navigating payroll and HR responsibilities as a first-time employer in the UAE may initially seem complex, but following these 14 key steps will ensure your start-up remains compliant and thrives within the dynamic UAE free zone environment. Establishing solid employment contracts, ensuring timely salary payments through WPS, fulfilling statutory benefits like health insurance and gratuity, and staying abreast of evolving labour laws are vital to your long-term success.
Leveraging resources such as dedicated payroll software and outsourced PRO or HR services can streamline compliance, freeing your time to concentrate on business growth.
DUQE, situated uniquely aboard the historic QE2, further simplifies this journey, providing personalised support, comprehensive onboarding assistance, and proactive guidance tailored specifically for new businesses. Reach out today to get started!