End of Service Gratuity, Proposed Changes to DIFC Employment Law, Unemployment Insurance and More
In brief
There have been a raft of developments to the UAE’s employment regime over the last few months as the UAE government ramps up initiatives to attract and retain talent in the country. We have set out below a summary of the legal and commercial updates and key considerations for employers to comply with the changes and minimize potential business risk.
End of Service Gratuity – new alternative employee savings scheme introduced
What’s new?
The UAE government has recently announced the introduction of an employee savings scheme as an alternative to the traditional end of service gratuity benefit.
Who is this change relevant to?
All private and public sector companies and free zone companies outside of the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).
What do you need to know?
Legislation governing the proposed scheme is currently not available. As such, we have set out what we understand so far[1]:
- The new scheme is not (yet) mandatory. It is an alternative to the current end of service gratuity benefit and therefore registration for employers is optional.
- The finer details of the scheme are yet to be confirmed. However, as we understand it currently, employers who enroll will be required to make regular contributions into the scheme on behalf of each of their eligible employees. It is expected that the level of employer contributions will be equal to the accrual rates under the current end of service gratuity scheme.
- The aim of the scheme is to protect employee savings and ensure they are invested safely. The scheme will be overseen by the Securities and Commodities Authority (SCA) in partnership with the Ministry of Human Resources and Emiratisation (MoHRE) to ensure protection of investment savings.
- The scheme enhances and safeguards employee rights as:
- on the termination of employment, employees may walk away with a higher end of service gratuity amount than they would have received under the traditional regime (subject to the overall performance of the investments funds); and
- under the current end of service gratuity framework, employers do not need to have an allocated fund which accounts for end of service gratuity benefit. This means that employees’ end of service gratuity entitlement is vulnerable should, for example, their employer becomes unable to pay its debts or become bankrupt. The scheme will provide more certainty of available funds.
- on the termination of employment, employees may walk away with a higher end of service gratuity amount than they would have received under the traditional regime (subject to the overall performance of the investments funds); and
Overall, the scheme will be a useful tool in attracting and retaining talent as it provides an opportunity (or at least the option) for employees to potentially enhance their savings by walking away with a higher end of service gratuity payment than they may have otherwise received.
Employers who participate in the scheme will also benefit from cash flow certainty and will have up to date visibility with regards to end of service gratuity liability at all times.
Unemployment Insurance Scheme – free zone employers can now register their employees
Who is this change relevant to?
Companies registered in the UAE free zones.
What do you need to know?
In early 2023, the UAE authorities announced the unemployment insurance scheme aimed at providing employees added protection in case of involuntary loss of employment. The scheme was extended to free zones in May 2023 and now the authorities have announced that employers in free zones can register their employees on their behalf. This can be done by writing to the ILOE via the email address companyreg@iloe.ae.
As a reminder, the 1 October 2023 deadline for registration is fast approaching. It is primarily the employee’s responsibility to enroll. Fines for non-compliance will be levied against employees rather than employers. However, we recommend that employers notify and inform employees of the obligation to register and provide the information – particularly given that there is a risk that an employee’s work permit will not be renewed if they have outstanding fines.
You can view our previous articles on the unemployment insurance scheme for further details here and here.
Payment of employment entitlements in the event of death
Who is this change relevant to?
All private free zone and mainland companies in the UAE.
What do you need to know?
Employers are obliged to pay the employment entitlements of a deceased employee to a member of the employee’s family within 10 days of the date of death.
We recommend that employees are asked to confirm in writing the details of the beneficiary/beneficiaries to whom their employment entitlements will be paid in the event of their death. This step can be built into an employer’s onboarding process.
Emiratisation – employers reminded to comply with quota requirements
Who is this change relevant to?
Companies registered with the MoHRE.
What do you need to know?
In July 2023, the MoHRE announced the expansion of the Emiratisation quota requirements to companies and businesses employing between 20-49 employees. The new law has now been issued and is in force.
In-scope companies and businesses must recruit at least one UAE national by 31 December 2024 and another UAE national by 31 December 2025 or risk a fine being imposed (AED 96,000 for the year 2024 of AED 108,000 for the year 2025).
You can view our previous article for further details here.
Proposed change to the DIFC Employment Law
Who will this change be relevant to?
All companies registered in the DIFC.
What do you need to know?
The proposed amendment intends to enhance the entitlements of GCC national employees by requiring employers to make a ‘top up’ payment on behalf of their GCC national employees into the employee’s DEWS (or Qualifying Scheme).
This top up payment would be equal to:
| i. the value of the contributions that the employer would have made into the DEWS (or other Qualifying Scheme) on behalf of that employee had they not been a GCC national | MINUS | ii. the value of the contributions made by the employer into the employee’s GPSSA fund. |
The monthly payments would be subject to a de minimis threshold of AED 1,000.
The DIFC has commenced a consultation process on the proposed change which will end on 29 September 2023.
To speak to us in relation to any of the developments above, or any employment law related matters or issues more generally, please reach out to the Baker McKenzie contacts above.
[1] The above may be subject to change once further information is issued and the final legislation is published.
