Employment & HR
Employee or contractor — how the line is actually drawn
The invoice does not decide it. Direction, exclusivity and control do, and if the substance is employment then gratuity, notice and leave apply for the whole period retrospectively.
The entitlement
What the law gives, regardless of contract.
A contractor is an independent business supplying services under a commercial contract. An employee works under the direction and control of an employer, typically to set hours, using the employer's systems, with no other clients and no business of their own. The distinction matters because employment brings the whole statutory apparatus: work permit, registered contract, WPS, health insurance, annual leave, sick leave, notice and end-of-service gratuity. A contractor relationship brings none of it.
The first test is simply whether the individual holds a permit or licence covering the work. Without one, the arrangement is not a contractor relationship at all — it is unlicensed work, and the engaging company carries the exposure. Where a permit does exist, the substance still matters. A person working exclusively for one company under its direction, on its premises, to its hours, is in substance an employee, and if the relationship ends badly they will say so at MOHRE. The exposure is retrospective: gratuity, notice and accrued leave for the entire period, none of which was budgeted or provided for.
The numbers
- First test
- Does the individual hold a permit or licence for this work
- Substance factors
- Direction, control, exclusivity, hours, premises, other clients
- If reclassified
- Gratuity, notice and leave for the whole engagement
- Exposure
- On the engaging company
- Corporate tax
- Payments to connected persons must be arm's length
- Safer alternative
- A part-time or temporary work permit
What it costs
Proportions indicative — they shift with visa count, premises and activity.
In practice
How this is actually administered.
- Verify the permit or licence covers the activityAnd keep a copy. A promise that one exists is not a defence.
- Structure genuinely commercial engagements commerciallyDeliverables rather than hours, their own tools where practical, freedom to work for others.
- Avoid the markers of employmentFixed hours, a desk, a company email address, line management, exclusivity over a long period.
- Contract properly, including IPUAE law does not assign intellectual property to a client by default. Assign it expressly.
- Where it is really employment, use a permitPart-time or temporary permits exist precisely for these arrangements and cost far less than a reclassification.
Related
Questions
Only if they hold a permit or licence covering the work and the relationship is genuinely commercial. Otherwise it is unlicensed work or disguised employment.
Gratuity, notice and accrued leave become payable for the whole engagement, and the company faces permit-related penalties.
Not on its own. The substance of the relationship governs, not the label on the contract.
Not automatically the client. Intellectual property must be assigned expressly in the contract.
One question
How many people are on the payroll?
Then the order matters. Establishment card, then quota, then work permit, then entry permit, then medical, Emirates ID and contract registration. Skipping ahead to a signed offer letter before the quota exists is the usual way a start date slips by six weeks.
The first hire, in orderOr just ask usThis is the size where informal arrangements start costing money — salaries paid partly outside WPS, leave that was never tracked, gratuity nobody has accrued for. None of it is hard to fix now and all of it is expensive to fix at a MOHRE hearing.
What you are accruing without knowingOr just ask usThen Emiratisation quotas, WPS timing, ILOE subscriptions and health insurance renewals are running on separate calendars, and the penalty for each is levied per employee. Consolidating those dates is usually worth more than any single piece of advice.
What gets inspectedOr just ask us