As an update to our previous article from last year, the Ministry of Human Resources and Emiratisation ("MOHRE") has now put forward two approved investment funds, Lunate and Daman Investments, to administer the voluntary alternative end-of-service benefits scheme (the "Savings Scheme"), in line with the recent Cabinet Resolution No. (96) of 2023, and Ministerial Resolution No. (669) of 2023. The Savings Scheme has been established to offer an alternative to the traditional end-of-service gratuity system. The two approved investment companies provide savings funds, offering employees secure investment options in compliance with Islamic Sharia principles.
What's new?
UAE employers (outside the DIFC) are now able to offer their employees the option to opt-in to the Savings Scheme or remain with the traditional end-of-service gratuity benefit for their expat employees (non-GCC national employees). This Savings Scheme is similar in many ways to the employee savings scheme in the DIFC, the "Qualifying Scheme" which replaced the traditional end-of-service gratuity benefit in the DIFC in 2020 (you can read more about the DIFC Qualifying Scheme here).
For employers who decide to opt into the Savings Scheme for their employees, instead of paying out a lump sum gratuity payment on termination of employment, employers would instead make a monthly contribution into a fund on behalf of the employees. Unlike the DIFC, this is a voluntary scheme so there is no need for employers to opt-in if they would prefer to remain with the traditional end-of-service gratuity benefit which is paid on termination of employment. However, this may well change in the future.
Key points:
The main benefit to employees of employers who opt-in to the Savings Scheme is that there is greater certainty that their gratuity entitlement is "ring fenced" within the fund, providing protection even if the employer faces financial difficulties. This new scheme will remove the risk of an employer failing to take account of the end-of-service liability on their balance sheets and will provide protection against the consequences of employer insolvency.
Employers opting into the new Saving Scheme will need to factor these regular monthly payments into ongoing cash flow requirements as well as ensuring they have appropriate administrative measures in place to deal with the new scheme.
Employees are entitled to all basic subscription amounts paid by the employer and any returns within 14 days of termination of employment. In the event of an employee's death, their beneficiaries are entitled to receive the same within 10 working days.
The Savings Scheme is designed to achieve the following:
Protection and Security: Ensure that employees receive their end-of-service benefits, safeguarded against inflation, employer default, or bankruptcy. It also provides a structured investment program for saving and growing these benefits.
Labour Market Flexibility: Enhance the attractiveness and flexibility of the UAE labour market by offering high-quality services to employees.
Investment Opportunities: Leverage investment opportunities for employees in various economic sectors within the UAE.
What do you need to do as an employer if you wish to opt-in to the Savings Scheme?
Employers opting to participate in the Savings Scheme must adhere to the following requirements:
- Selection and Contracting: Choose and contract with one of the licensed investment funds, either Lunate or Daman Investments.
- Employee Inclusion: Decide which categories and levels of employees will be included in the scheme. The traditional end-of-service gratuity system must be discontinued for these employees.
- Calculation and Payment: Calculate the end-of-service benefits due to employees up to the date of transition to the new scheme based on the employee's basic salary, and ensure this amount is paid out to the employee upon termination of employment. Employers must then calculate and pay the basic subscription amount, which is 5.83% of the monthly basic salary for employees with less than 5 years of service and 8.33% for those with more than 5 years. This payment should not be deducted from employees' salaries. Employees also have the option to make additional voluntary contributions up to 25% of their annual salary. These contributions can be deducted from the employees' wages or paid as a lump sum.
- Documentation: Provide all necessary documentation and information about the beneficiaries to the investment fund service providers upon request, as in the event of an employee's death, the investment fund will pay the subscription amount to the employee's beneficiaries within 10 working days.
What are the potential penalties for Employers who opt-in but fail to comply with payments into the Savings Scheme?
Employers should establish an administrative framework to manage the monthly contributions set by MOHRE, to ensure compliance and avoid penalties. This may involve updating payroll systems, training HR staff, and setting up regular audits to monitor compliance. Employers who opt-in to the Savings Scheme must comply with the payment schedule to avoid penalties. Failure to comply with the payment schedule will result in the following penalties:
Written Notification: The fund manager will notify the employer in writing within 30 days of the missed payment, urging payment within 5 business days.
Ministry Notification: The fund manager will notify MOHRE of non-payment within 15 days of sending the payment notification.
Work Permit Suspension: MOHRE will cease issuing new work permits if payment is not made within 2 months.
Fines: Employers will face a penalty of AED 1,000 per beneficiary per month if payments are not made after 4 months.
Voluntary subscription "top-up" for employees
Provided the employer subscribes to the Savings Scheme, employees can make voluntary "top-up" contributions to the Savings Scheme. These "top-up" contributions can be withdrawn at any time in accordance with the terms set by the fund manager.
Next steps for employers who wish to subscribe to the new Savings Scheme
To effectively transition to the new Savings Scheme, employers should begin by thoroughly understanding the requirements and benefits associated with the Savings Scheme. Initiating discussions with the licensed investment funds is a recommended first step. These consultations will provide clarity on the enrolment process, compliance obligations, and the specific investment options available.
Employers should also evaluate their current end-of-service benefit liabilities and calculate the financial impact of transitioning to the Savings Scheme, considering the shift from lump-sum gratuity payments to regular contributions. Employers should engage in internal discussions to determine how this change might enhance overall employee satisfaction due to enhanced financial security.
For those interested in participating, employers should contact Lunate or Daman Investments to begin the enrolment process.
The contact information for the approved providers is as follows:
Lunate: Website: www.lunate.com, Phone: 026927213, Email: eosb@lunate.com
Daman Investments: Website: www.daman.ae, Phone: 046109666, Email: damaneos@daman.ae
Further information on the subscription process is available on the MOHRE website here.
For further details on these changes and how they may impact your business or employment, please contact David McDonald or India Dawson.
