UAE introduces new end-of-service gratuity system for private sector employees

Image credit: WAM

Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai, announced the UAE is bringing in a new end-of-service gratuity system for employees working in the private sector, as per state news agency WAM.

Sheikh Mohammed bin Rashid Al Maktoum, while leading a UAE Cabinet meet, said: “We approved an optional system for end-of-service gratuities for private sector and free zones employees… 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,” WAM reported.

Employees in the UAE receive a gratuity at the end of their contract. Those who spend one year or more in continuous service are entitled to this end-of-service benefit. The fund will hence allow employees to invest and save their end-of-service gratuities according to various investment options.

He added, “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…Also, government sector employees can participate in the System, for savings and investment purposes.”

Who can contribute?

The UAE Cabinet approved a new optional system for end-of-service gratuities.

The optional system allows all employees in the private sector and free zones to participate in it.

As per the new law, all employees of different occupational levels and working patterns can benefit from the new system. Additionally, government employees too can join in, for savings and investment purposes.

If opted for, it will replace the existing end-of-service benefits for private sector workers in the country.

It is considered optional for employers.

Employers participating in the system, have the right to choose the employments’ categories to benefit from the system, and to pay a monthly contribution. Upon termination of service, the beneficiary (employee) receives his savings under this system.

Who will oversee the optional system for end-of-service gratuities fund?

The Ministry of Human Resources and Emiratisation in coordination with the Securities and Commodities Authority will supervise the system and its funds in the country.

How is the gratuity fund set up?

The system includes three main investment options: risk-free investment that maintains capital; risk-based investment where the risk varies between low, medium and high; and the sharia-compliant investment.

The system sets mechanisms for each option to contribute to the achievement of the associated objectives and to enhance the competitiveness and stability of the UAE labour market.

Legal financial benefits will be paid to the beneficiaries, including accrued returns on participation in the system’s investment funds, after the termination of the employment relationship. If an employee dies, financial benefits will be given to the eligible person.

However, no timeline has been announced for the transition to the new system.