January 3, 2018

MHRE Classification System - is your company aware of the recent changes?

New legislation has been published by the Ministry of Human Resources & Emiratisation (MHRE) which may impact companies' grading and compliance requirements within the existing classification system. In a move to encourage private sector buy-in, MHRE has added a layer to the existing classification system, expanded on the list of exemptions to payments of bank guarantees, defined workers considered 'skilled' and with 'limited skill' and applied reduced fees to MHRE services involving 'skilled' workers. This article examines these recent changes and provides a condensed synopsis of the current classification position.

In August 2017, we reported on some changes to the MHRE classification system in place.  By way of a recap, Cabinet Resolution No. 11 of 2017 came into effect on 1 December 2017, adding an additional layer to the existing classification system by introducing an additional band within the Category Two classification (Band D) and expanding on the list of exemptions applicable to payment of the bank guarantee.  It further made a distinction between workers with 'limited skill' and those who are 'skilled'.  In addition, Cabinet Resolution No. 15 of 2017 came into effect at the same time and amended the fees payable to MHRE for the services they provide, including incorporating fees applicable to the newly introduced Band D and distinguishing between fees payable for 'skilled' workers and those considered to have 'limited skill'.

In October 2017 MHRE issued further legislation to complement the above resolutions.  Ministerial Resolution No. 729 of 2017 (Resolution No. 729) came into effect December 2017 and sets out definitions for both 'skilled' and 'limited skilled' workers and further expands on the classification criteria for Category One, Two and Three. 

Where it all began…        

The system of classifications originally began with the enforcement of Cabinet Resolution No. 26 of 2010, which introduced the three categories and the basic parameters for each classification.  Since this resolution four supplementary laws have been published which complement and expand on the original text.  These include; Ministerial Resolution No. 1187 of 2010 which developed the criteria companies are required to satisfy in order to qualify into each category, Ministerial Resolution No. 740 of 2016 which set out circumstances in which companies grouped within the Category Two classification could be upgraded, either within Category Two or to Category One, Cabinet Resolution No. 11 of 2017 which, as described above, introduced a new band within Category Two and the recently published Resolution No. 729.

Resolution No. 729

Before delving into Resolution No. 729, it is worth expanding on the previous changes made.  As alluded to above and in our previous article (link above), Resolution No. 11 of 2017 (Resolution No. 11) makes two distinct changes to the classification system.  Firstly, it adds an additional 'Band D' within the Category Two classification and classifies workers working for companies falling under the three categories into 'skilled' or with 'limited skill' and secondly it reiterates the circumstances in which companies may be exempt from paying the bank guarantee to MHRE for new workers, as previously set out in Resolution No. 26 of 2010.   The amount payable in terms of bank guarantees remains unchanged; however the resolution confirms the amount payable by such companies falling within the newly introduced Band D, Category Two.  The below table provides a recap on the bank guarantee minimum and maximum caps.

2 (A) 3,000 - 1,500,000
2 (B) 3,000 - 3 ,000,000
2 (C) 3,000 - 5,000,000
2 (D) 3,000 - 7,000,000
3 3,000 - 10,000,000

What remained unclear following the publication of Resolution No. 11 was the criteria establishments need to satisfy in order to fall into Category Two, Band D and what the resolution meant by 'skilled' and 'limited skilled' workers, albeit statutory provisions pertaining to skill levels have been in place for some time.  Resolution No. 729 has clarified any previous ambiguities by clearly defining 'skilled' and 'limited skilled' workers and setting out the criteria for Category Two, Band D as well as expanding on existing criteria in place for other categories.  

'Skilled' and 'limited skilled' workers

Resolution No. 729 defines 'skilled' workers as those employed to perform a role which requires the worker to hold, as a minimum, a legalised education certificate higher than the general secondary education certificate with the implication being that such workers must hold a diploma or a degree certificate (or such equivalent).  'Limited skilled' workers are those not meeting the minimum requirements under the definition of 'skilled' workers.  

Classification Criteria

The resolution sets out the criteria companies must meet for each classification level.  With respect to the Category One, the resolution confirms which companies will be considered as falling within this category and consequently benefiting from not having to pay a bank guarantee for their workers.  Such companies include; fishing boats owned by UAE nationals, compliant members of the Emiratisation Partners Club, the newly established Tad-beer service centres and certain small, medium sized companies and members of the Youth Entrepreneurship Support Institutions.   Additional exemptions to the payment of the bank guarantee exist under the provisions of Resolution No. 11.

The criteria for Category Two has been amended to incorporate the new Band D, increase the cultural diversity levels and the minimum levels for skilled workers which were previously in place.  What currently remains unclear is the method in which cultural diversity is calculated.  The below table illustrates the criteria within Category Two.

2 (A) 40% or more of the total workforce Minimum of 50%
2 (B) 10% - 40% of the total workforce Minimum of 50%
2 (C) 5% - 10% of the total workforce Minimum of 50%
2 (D) Less than 5% of the total workforce Less than 50%

The position for companies with a maximum of three workers remains unchanged; they will remain classified as Category Two, Band B.  However companies with 4-10 workers will be classified as Category Two, Band B on the proviso that they satisfy the minimum cultural diversity requirement, being 50%.  Those that do not will be lowered to Category Two, Band D.

In terms of Category Three, the new resolution provides a list of offences which if undertaken will result in companies finding themselves being categorised as Category Three.  Such offences inter alia include; being convicted of human trafficking offences or of employing illegal workers, falsifying Emiratisation numbers, entering incorrect data on the Wage Protection System (WPS) or failing to pay workers through WPS and failing to report workplace injuries.  

The category and the band (as applicable) as well as the worker's skill level will all directly impact whether a bank guarantee is payable by the company as well as the amount of fees payable for every day MHRE services, such as issuing and renewing work permits.  MHRE is taking positive steps to encourage cultural diversity and recruitment of more skilled workers within the private sector labour force and is incentivising companies to reinforce such position within their establishments by financially rewarding those who take heed with reduced administrative fees.