The United Arab Emirates (UAE) is implementing a new voluntary scheme for end-of-service benefits, aiming to provide employees with investment returns on their gratuity payments. Here’s everything you need to know about this innovative scheme introduced by the UAE’s Ministry of Human Resources and Emiratisation (MoHRE) and the Securities and Commodities Authority (SCA).
Who Can Subscribe to the Scheme? This scheme is available to employees working in public, private, and free zone companies, offering them an alternative to the traditional gratuity payment practice. Employers have the option to choose this new scheme.
Is the Scheme Open to All Employees? Yes, both expatriates and UAE citizens are eligible to participate in this new scheme.
Benefits for Employers:
- Enhances employees’ job loyalty and productivity.
- Allows companies to focus on commercial activities and capital gain instead of managing and disbursing end-of-service benefits operationally.
- On a medium-term basis, enrolling in the savings scheme is cost-effective compared to the traditional end-of-service scheme.
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Benefits for Employees:
- Offers various options for returns on savings.
- Facilitates precise financial planning.
- Contributes to a more stable and prosperous labor market.
Employer Obligations:
- Select and contract with a licensed investment fund.
- Decide which employee categories and levels should be included in the scheme.
- Discontinue the use of the current end-of-service benefits system for employees selected for the new scheme.
- Calculate and pay the basic subscription amount without deducting it from the beneficiary’s salary.
- Provide documentation and information to investment fund service providers upon request.
Fund Transfers:
- Subscriptions are transferred into the investment fund account within 15 days of the first day of the calendar month.
How to Sign Up:
- Employers submit a request to the MoHRE and choose an approved investment fund.
- Firms select the employees who wish to register in the scheme while ensuring their entitlements from the previous period are preserved.
Optional for Employers: Firms can choose to include all employees, a specific number of workers, or specific categories or professional levels.
Types of Schemes: There are two types of subscriptions: basic and voluntary. Basic subscriptions are for non-skilled workers, while skilled workers can choose between low, medium, and high-risk assets.
Allocation of Investment:
- Up to 5.83% of the monthly basic salary for employees with less than 5 years of service.
- For employees with over 5 years of service, it’s 8.33% of their salary.
- The voluntary subscription percentage cannot exceed 25% of the total salary.
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Part-Time or Job-Sharing Employees: The subscription percentage remains the same for employees working regular hours per day.
Transition from Gratuities: The existing end-of-service gratuity system will be suspended for employees registered in the new scheme. Their financial entitlements will be calculated based on years of service up to the date they join the new scheme.
Mandatory or Optional for Employees: Participation in the system is optional for both employers and employees. However, it becomes mandatory for workers chosen by the employer.
Withdrawal of Contributions: Employees can request the withdrawal of part or all of the voluntary contributions and investment returns. Basic subscription amounts and returns are generally non-refundable to employers.
Employer Withdrawal: Employers have the right to withdraw from the scheme with the MoHRE’s approval, under specific conditions.
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Suspension of Payments: Employers may temporarily suspend payment of the basic subscription in certain circumstances, subject to the MoHRE’s approval.
Penalties for Non-Payment: Employers failing to make payments may face penalties, including a Dh1,000 monthly penalty per beneficiary.
Fund Manager Responsibilities: Fund managers are responsible for providing a range of investment options and managing a minimum of Dh1 billion worth of funds and assets.
This new end-of-service benefit saving scheme aims to offer more financial security and flexibility to both employees and employers in the UAE.
