INTRODUCING THE NEW VOLUNTARY ALTERNATIVE TO END OF SERVICE GRATUITY IN THE UAE
04 December 2023
Manasi Dicholkar
The United Arab Emirates (UAE) Cabinet has recently issued resolutions (Cabinet Resolution No. 96 of 2023 and Ministerial Resolution No. 668 of 2023) unveiling an innovative voluntary end-of-service system for the private sector in the UAE, including entities within free zones.
Dubai: Following the initiation of the Dubai Employee Workplace Savings Scheme in DIFC in February, 2020, there has been considerable anticipation regarding the launch of a comparable scheme within the UAE federal system. This development occurred with the issuance of Cabinet Decision No. 96/2023, introducing an optional alternative system for end-of-service benefits. This groundbreaking scheme offers employers and employees a choice between the traditional end-of-service gratuity (ESG) model and a new, optional alternative system (the "Scheme").
The Scheme is designed to empower employees by providing them with diverse investment options, allowing them to maximize returns. Simultaneously, employers gain a strategic tool for more effective financial planning regarding employment liabilities. Enrolled employees can benefit from higher returns, protection against inflation, and insulation from risks associated with company insolvency or bankruptcy.
KEY FEATURES OF THE SCHEME
•Employer Options: Employers can choose licensed investment funds for the Scheme and select specific employee categories and professional levels for inclusion. While participation is voluntary for employers, employees selected to join are mandated to participate.
•Transition from ESG to Scheme: Employers opting for the Scheme must calculate the ESG accrued up to the changeover date. This amount, based on the employee's basic salary at the changeover date, remains on the employer's balance sheet and is paid out upon termination.
•Mandatory Subscription Amounts: Employers committing to the Scheme must subscribe for a minimum of one year, paying a monthly premium based on a percentage of the employee's basic wage. Monthly premiums are standalone obligations, not deducted from the employee's wage.
•Voluntary Employee Contributions: Employees can make voluntary contributions to the Scheme from their wages, with the option to withdraw partially or fully during their service period. Employers may also contribute on behalf of employees, up to 25% of the total monthly wage.
•Investment Options: The Scheme offers various investment options, including a capital guarantee portfolio and a risk-based investment option. Employees are responsible for any losses from their chosen investment option, unless service providers act in bad faith or breach obligations.
•Fund Management Flexibility: Employers can switch fund managers with approval from slot maxwin the Ministry of Human Resources and Emiratisation (MOHRE) and the Securities and Commodities Authority (SCA). Withdrawal from the Scheme is possible under specific conditions and MOHRE approval.
•Supervision and Control: MOHRE and SCA supervise and control the Scheme, handling monitoring, inspection, and complaint resolution. Fund service providers must adhere to anti-money laundering provisions.
IN CONCLUSION
For companies interested in the Scheme, MOHRE has initiated the enrollment process. Representatives can call MOHRE to begin the application, providing essential company details. Further details, including the enrollment procedure for free zone companies and options regarding fund managers and administrators, are anticipated.
ALKETBI TOUCH
ALKETBI team is highly skilled and frequently provides legal assistance specializing in labor and employer, employee cases in the UAE. If you would like to know more or request further guidance with relation to the end of service gratuity and its alternatives, Let us know!
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