Dubai: Earlier this month, the UAE Cabinet approved a new optional system for end-of-service gratuities, substituting the existing end-of-service system for workers in the country.
The decision was among 11 new federal laws announced during the Cabinet meeting on September 4, chaired by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai.
Speaking about the new investment scheme and how it would benefit employees, Joanna Matthews-Taylor, Partner and Head of Employment at Baker McKenzie UAE, said: "On the termination of employment, employees may walk away with higher end of service gratuity than they would have received under the traditional regime, subject to the overall performance of the investment funds."
But what exactly is the gratuity investment scheme and how will your end-of-service benefits be invested? Here are the details.
On the termination of employment, employees may walk away with higher end of service gratuity than they would have received under the traditional regime, subject to the overall performance of the investment funds.
Is the scheme mandatory?
According to the UAE government media office, the system is optional for employers to join.
Which sectors is the new scheme for?
The new system for end-of-service gratuities will be for private sector and free zones employees. As mentioned, the system is optional for employers to join, and includes establishing private sector investments and savings funds supervised by Securities and Commodities Authority in coordination with the Ministry of Human Resources and Emiratisation (MOHRE).
Government sector employees can also participate in the system, for savings and investment purposes.
What is the current end-of-service scheme for private sector employees?
Currently, employees are entitled to a lump sum payout, after they complete one year of continuous service at a company. The amount is calculated based on the number of years of service.
What is the new end-of-service investment scheme?
Companies taking part in this optional scheme will have to pay a monthly contribution and at the end of their service, employees will receive the savings they have built up plus the returns made from investing.
According to the UAE government media office, through these funds, employees can invest and save their end-of-service gratuities according to various investment options.
The aim is to safeguard workers’ savings, which constitute the end-of-service gratuities, and to ensure that they are safely invested in order to guarantee their rights and to achieve the stability of their families.
How will the end-of-service amount be invested?
There are three ways in which the amount can be invested:
- A risk-free investment that maintains capital
- A risk-based investment
- A Sharia-compliant investment.
When does the new scheme come into effect?
The date of implementation is yet to be announced.