The United Arab Emirates (UAE) has recently announced a new end-of-service scheme that offers an alternative to the existing gratuity payment system. This new initiative is designed to protect end-of-service dues for employees while providing them with investment options. The scheme is open to employees across public and private sectors as well as free zones. The announcement has generated a lot of interest and questions among UAE residents, and this article aims to provide a comprehensive understanding of the new system.
Is the New End-of-Service Scheme Mandatory?
No, the new end-of-service scheme is optional for employers. It serves as an alternative system that employers can choose to adopt. This flexibility allows companies to evaluate the scheme and decide whether it aligns with their organizational goals and employee benefits strategy.
How Does the Current End-of-Service System Work?
In the existing system, gratuity is paid to employees at the end of their work relationship. The amount is calculated based on the employee’s last basic salary. Employees become eligible for this benefit after completing one year or more of continuous service.
How Will the New System Operate?
The new scheme will be supervised by the Securities and Commodities Authority in coordination with the Ministry of Human Resources and Emiratisation. A private sector investments and savings fund will be established where eligible employees can invest their gratuity in multiple savings schemes.
Who is Eligible to Participate?
The scheme is open to all employees in the private sector and free zones. According to a statement from the UAE Government Media Office, workers of “all occupational levels and work patterns” are eligible. Government sector employees can also join the system for “savings and investment purposes.”
What Investment Options are Available?
The new system offers three main types of investment options:
- Risk-free investment: This option maintains the capital amount.
- Investment options with varying levels of risk: These range from low to high risk.
- Sharia-compliant investments: These are investment options that adhere to Islamic Sharia law.
How and When Will Benefits be Paid?
End-of-service benefits, along with the returns accrued from the investment funds, will be paid to beneficiaries after the employment relationship is terminated. In the unfortunate event of an employee’s death, the nominee will receive the benefits.
Timeline for Implementation
As of now, the authorities have not announced any specific dates or timelines for the implementation of the new scheme.
