In today’s business landscape, people are the asset. If you have the right ones, you win, and if you have the wrong ones, you lose. And if the right ones leave, I guess it’s only a loser's game. While reflecting on the daily issues of running a business, I realized that companies often face similar problems when it comes to managing their human resource assets. It is very difficult to assess and evaluate people before committing to long-term employment! In the end, as I always say, hiring is guessing!
In Abu Dhabi Global Market (ADGM), temporary work permits offer a strategic—and legally compliant—solution to this problem.
Something that often happens and is quite a legal risk, but many companies in the UAE still do, is that they hire foreign employees on a trial basis without formalizing a proper legal arrangement. These employees start working with no contract, without a residency permit, or even a work permit. Such solutions expose these companies to the risk of being fined up to AED 250,000, and of course, the reputational damage caused by the fines' announcements. This example may sound exaggerated, but it is reality. Such behavior may seem normal, but it exposes businesses to a great deal of financial consequences and legal troubles.
Temporary Work Permits for ADGM Companies
Having the possibility for companies registered in ADGM to apply for temporary work permits allows them to assess and evaluate talent in the market. They can evaluate candidates' performance, skills, and even cultural fit before offering them full-time employment and making long-term investments in infrastructure, such as providing medical insurance, residency visas, and other benefits that may financially burden the company.
In other cases where the company is not looking for a long-term hire, they may need to engage consultants or temporary specialists for certain projects. They can legally hire temporary consultants or specialists without the burden of taking on a full-time employee for just one project. This might also be needed for ongoing business lines when facing staff shortages or unusual demand.
The application for such a solution is efficiently processed through the ACCESS ADGM portal. The associated costs from ADGM are reasonable, as permit fees vary depending on the duration needed, starting from AED 300 and up to AED 1,200 if the permit is required for a full year! Companies need to submit a few documents outlining the relationship between the company and the employee, including the employee’s identification documents and valid proof of residency.
Potential Risks and Insurance Coverage
While temporary work permits provide a solution, businesses must remain aware of the associated risks, particularly regarding Professional Indemnity (PI) Insurance. PI insurance is a critical protection for companies offering professional services, such as legal, financial, or consulting firms. It covers liability for errors, omissions, or negligence in the performance of professional duties. However, engaging non-employees under temporary work permits can raise questions about whether their work is covered under the policy.
Many PI policies cover employees and individuals acting on behalf of the insured business. However, there may be ambiguity about whether non-sponsored or temporary workers qualify as insured individuals unless explicitly endorsed in the policy. Common exclusions in PI insurance include claims arising from subcontractors, consultants, or agents unless specifically covered by policy endorsement, and fraudulent or dishonest acts by non-employees. Failure to comply with ADGM employment regulations may lead to penalties and potentially invalidate insurance claims. Businesses must ensure that all individuals engaged under temporary work permits have proper legal documentation.
Recommendations
To minimize liability and ensure compliance with both ADGM regulations and insurance requirements, businesses should consider the following points:
- Confirm Insurance Coverage: Check with the insurance provider that the PI policy extends coverage to non-employees working under temporary work permits. Request an endorsement if necessary to include them in the policy's scope.
- Draft Comprehensive Agreements: Clearly define the scope of work, fee-sharing arrangements, and responsibilities in a formal engagement agreement. This ensures that both parties understand the limits of liability and professional obligations.
- Maintain Compliance with ADGM Regulations: Regularly review operations and adhere to ADGM’s temporary work permit requirements.
- Keep Documentation Updated: Ensure all relevant documentation is kept up to date and permits are renewed on time.
- Monitor Performance: Establish processes to review the performance of non-employees during their permit duration to control service quality and mitigate risks related to negligence or misconduct.
Consequences of Non-Compliance with ADGM Regulations
Companies that hire individuals without employment permits in ADGM face significant penalties, reputational harm, and potential business disruption. According to the ADGM Employment Regulations 2019, firms can be fined heavily for non-compliance, which can also affect their ability to secure future permits and contracts.
In addition to regulatory consequences, businesses may face claims from clients for professional negligence if non-compliant arrangements lead to service failures. Ensuring both legal and insurance coverage safeguards the company’s operations and reputation.
These permits are more than just a solution or a legal formality; they are a strategic tool for effective human resource management. By offering ADGM companies the flexibility to test, train, and temporarily hire talent, ADGM enables its members to access special talent while maintaining full regulatory compliance.
However, success requires thorough research and attention to details such as risk management, insurance coverage checks, regulatory compliance, and oversight measures. These steps not only protect the business but also build trust internally among management and employees, as well as externally with clients and stakeholders.
