In brief
During 2023 we saw various changes to the UAE employment and labour law landscape continue apace, supporting the government’s objective of attracting and retaining business and talent in the country. These include the new alternative end-of-service benefits scheme, unemployment insurance scheme, changes to Emiratisation and more. In this article we set out a brief summary of the key developments that have taken place in 2023 and take a look ahead to 2024.
In more detail
Introduction of Savings Scheme as an alternative to end-of-service gratuity
To whom is this relevant? All private sector companies (except in the ADGM and DIFC).
Earlier in 2023, a new alternative end-of service benefits scheme (the “Savings Scheme”) was introduced, providing employers with the option to opt out of the traditional end-of-service gratuity system. Key features of the Savings Scheme included:
- Voluntary registration: Currently, employers are able to choose whether or not to register in the Savings Scheme. Employers wishing to participate must submit a request to the Ministry of Human Resources and Emiratization (MOHRE) and select:
- An investment fund
- The employees that the employer wishes to be enrolled in the Savings Scheme (employees who are selected for enrolment in the Savings Scheme cannot refuse to participate and are not permitted to opt for the traditional end-of-service gratuity system).
Notwithstanding that employers have some discretion at the moment with regards to registration, we expect that registration will become mandatory in the near future.
- Employer contributions: The employer contributions to the Savings Scheme are in line with current end-of-service gratuity liability (although employers will pay less under the Savings Scheme compared to the current end-of-service gratuity model). Employer contributions are:
- 5.83% of an employee’s basic monthly salary if the employee has less than five years of service; and
- 8.33% of an employee’s basic monthly salary if the employee has more than five years of service.
The contribution rate is calculated from the employee’s joining date – not from the date of registration in the Savings Scheme.
- Employee voluntary contributions: Employees can enhance their savings under the Savings Scheme by making voluntary additional contributions of up to 25% of their basic salary.
- End-of-service gratuity accrual: Any end-of-service gratuity liability will be suspended from the date the employee registers in the Savings Scheme (but paid out on termination of employment).
- Risk: Employers will not be responsible for any investment loss. Employees bear the risk if the funds do not perform.
Unemployment insurance scheme
To whom is this relevant? All employees in the Federal Government and private sector (including in the free zones).
The UAE’s mandatory unemployment insurance scheme – the first scheme of its kind in the region – was finally rolled out to all employees in the UAE (with a few exceptions). All existing employees were required to enroll in the scheme before 1 October 2023. New employees were given a grace period of four months to register from their date of joining.
In summary, conditional upon the employee having paid contributions into the scheme for at least 12 months and meeting the eligibility requirements, on termination of employment, employees are entitled to receive financial assistance from the scheme for a period of up to three months from the date of termination – equal to 60% of their monthly salary. Compensation is capped at AED 10,000 in respect of employees earning less than AED 16,000 per month and AED 20,000 for employees earning more than AED 16,000 per month. Scheme benefits will cease from the earlier of the date the employee secures alternative employment in the UAE or three months from the last day of employment.
Employees who resign or who are dismissed for disciplinary reasons are not entitled to benefit from the scheme.
A fine of AED 400 will be levied against employees who fail to register. Failure to register or to keep up to date with insurance premiums may also impact the employee’s work permit. Therefore, while not responsible for employee registration, employers do have a vested interest in ensuring that employees are properly registered.
Expansion to the Emiratisation rules
To whom is this relevant? All private sector companies registered with MOHRE.
In July 2023, the scope of the Emiratisation rules was expanded to companies employing between 20 and 49 employees and engaging in specific activities (see list below). Companies caught by the new law are required to hire one Emirati national before 31 December 2024, and another Emirati national before 31 December 2025. Failure to do so before the target deadlines will result in penalties of AED 96,000 for the year 2024, and AED 108,000 for the year 2025.
The current list of company activities falling under the scope of the expanded Emiratisation rules are:
- Information and communications
- Financial and insurance activities
- Property/real estate
- Scientific and technical activities
- Administrative and support services activities
- Education
- Human and health and social work
- Arts and entertainment
- Mining and quarrying
- Transformational industries
- Construction
- Wholesale and retail trade
- Transportation and storage/warehousing
- Accommodation and hospitality service activities
We expect that MOHRE will notify companies caught by the new law of their obligations. However, if in doubt with regards to whether your company is impacted by this new law, we recommend that you seek clarification from MOHRE directly.
Earlier in 2023, Cabinet Decision No. 95 of 2022 was amended to address the issue of companies restructuring their operations to avoid their Emiratisation obligations. The amendment expressly prohibits employers from “circumventing” Emiratisation obligations by reducing the numbers of their employees or changing the classification of employees (from skilled to unskilled). Employers who are found to be in breach will face a fine of AED 100,000, increasing to AED 300,000 and AED 500,000 for second and third offences, respectively. Companies should therefore ensure there are robust business reasons to support any employee transfers or restructures which result in a decrease in headcount.
We expect to see further updates and developments in relation to Emiratisation in 2024.
MOHRE’s new dispute resolution process
To whom is this relevant? All companies registered with MOHRE.
Previously, the role of MOHRE in relation to disputes was limited to acting as a mediator and referring unresolved cases to court. However, in order to limit the number of low value claims in the labour courts, effective from 1 January 2024, MOHRE now has the authority to decide and issue enforceable judgements in respect of disputes not exceeding AED 50,000. Where the value of the claim exceeds AED 50,000, MOHRE’s role will be limited to mediating the dispute and, should an agreement not be reached between parties, MOHRE will refer any unresolved dispute to the labour courts. In addition, MOHRE is now authorised to issue a final judgment where a dispute arises out of non-compliance with the terms of a MOHRE approved settlement agreement.
Either party may challenge any decision issued by MOHRE by submitting an appeal to the Court of Appeal within 15 working days of receiving the notification of the decision.
Where the dispute results in the non-payment of the employee’s salary, MOHRE can order the employer to pay the employee’s wages for up to two months.
We expect further details to be released shortly with regards to how the new dispute resolution process will work in practice.
Payment of employment entitlements on death
To whom is this relevant? All private sector companies (except in the ADGM and DIFC).
Under the issuance of Ministerial Decision No. 496 of 2023, employers are obliged to pay the employment entitlements of a deceased employee to a member of the employee’s family within 10 days from the date of death.
We recommend that employees are asked to confirm in writing the details of the beneficiary(s) 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.
To speak to us in relation to any of the developments above, or any employment and labour law related matters or issues more generally, please reach out to the Baker McKenzie contacts above.
