Dubai: If you are a small business owner in the UAE, every employee you hire needs to be covered either by a bank guarantee or an employee insurance scheme. This requirement came into effect recently, when the Ministry of Human Resources and Emiratisation (MOHRE).
But if you do choose the option for a bank guarantee, which requires you to pay a minimum of Dh3,000 at the time a work permit is issued or renewed, it is also important for a business owner to keep in mind when you can recover this cost.
Here is all you need to know about the bank guarantee for employees.
What is the bank guarantee?
According to Natasha Sood, a senior associate at Dubai-based law firm Motei and Associates, the bank guarantee paid by the employer is meant as a guarantee that bank will step up to cover any costs that may arise during an employee’s term of employment, as per conditions laid down by the ministerial resolution.
With the new decree issued by MOHRE – Ministerial Resolution No. 318 of 2022 – employers should submit a minimum of Dh3,000 as bank guarantee or enroll employees in an insurance scheme.
“The guarantee will be used to settle disputes involving the non-payment of wages if a company collapses or an expatriate partner flees, leaving behind financial commitments to its workers,” Sood said.
While the option to cover certain employee costs through an insurance scheme was announced recently, bank guarantees have been a requirement from earlier, with the legislation coming into effect in the UAE in 2001.
“The guarantee is paid by an employer to one of the banks authorised by the State to hold such guarantee. Furthermore, the bank guarantee needs to be renewed annually so as to remain effective and sufficient to meet the threshold identified by the legislations,” Mohammed El Dakamawy, lawyer at Dr Mahmood Hussain Advocates and Legal Consultancy LLC, said.
a) Expenses for repatriation of an employee to his or her place of origin or any other place agreed upon by the employee and the employer.
b) Amounts acknowledged by the employer or his representative before the Ministry as entitlements of the employee.
c) By virtue of a court judgment, to deliver the employee's entitlements.
d) Pursuant to a claim raised by the concerned authorities in the country, to reimburse expenses incurred for repatriation of an employee to his place of origin or any other place agreed upon by the employee and the employer in case of employees covered by the bank guarantee. Employees covered by insurance coverage are subject to the provisions of their insurance policies.
e) In all cases, it is the employer's responsibility to reimburse the sums paid or complete the sum of the bank guarantee.
Want to know how much it would cost to enroll your employees in an employee insurance scheme instead of paying a bank guarantee? Read our guide here.
When can an employer recover the bank guarantee?
According to the new resolution, Ministerial Resolution No. 318 of 2022 issued by UAE’s Ministry of Human Resources and Emiratisation (MOHRE) in August 2022, if an employer wants to recover the cost of the bank guarantee, they can only do so if the work permit of the employee is cancelled or the employee has moved to a new job. Article 3 of the decree not only highlights when an employer can recover the cost of the bank guarantee, but also the instances when MOHRE may refuse to reimburse the bank guarantee to the employee.
According to the first clause of Article 3 of Ministerial Resolution No. 318 of 2022, the employer may submit a request to reclaim an employee’s bank guarantee or the remaining part of it, in the following cases:
1. Cancellation of the employee's work permit and evidence of his or her departure from the country.
2. In the event of the employee’s death and evidence of the body's repatriation or burial in the country is submitted.
3. If the employee transfers to a new employer.
4. Any other case in which the employer provides proof of cancellation of the employee’s work permit and payment of entitlements due to the employee.
The Article further goes on to state the instances when MOHRE may refuse to reimburse the bank guarantee to the employer. This includes situations when an employee’s entitlements need to be settled, following a collective labour dispute being filed against the employer. The bank guarantee may also not be returned if there are any fines issued against the establishment or if the issuance of work permits has been suspended for the establishment.