Changes to End of Service Benefits in Dubai Labour Market
Is your firm keeping abreast of the latest trends in End of Service benefits (EoS) in your sector and market? If a significant portion of your workforce is coming from abroad, a fact that is especially prominent if you’re operating in Dubai and the rest of the UAE, this part of your employee benefits package is an area you should not overlook. This is a critical component of an employees' overall compensation plan to attract. What do you need to know about trends regarding the end of service gratuity for companies operating in Dubai and the UAE? Here’s our examination.
First, how is the end of service benefit calculated in the UAE?
According to the UAE Ministry of Labour, the end of service incentives on a federal level (for Abu Dhabi, Sharjah, Dubai, Ras Al Khaimah, Ajman and Umm al-Quwain and Fujairah) depend on two factors. It depends on the contracts and the circumstances under which someone decides to leave a corporation. No worker has the right to any end of service benefit if you work at a company for less than a year, no matter the type of work contract. If you have worked for a company for more than a year, you are entitled to a fraction of a year’s pay, and the basis of that calculation comes from your base salary. That means your relocation or housing expenses do not factor into the end of service calculation. Your unpaid days off do not factor into this calculation either. The UAE Ministry of Labour website links to a calculator you can use to determine the monetary amount for your end of service benefit.
End of service calculation factors
Here is the legal basis to calculate your end of service benefits if you are working in the private sector according to the Emirati federal authority. If you have a limited contract and have worked for a company for more than one year and less than five, you’re entitled to a full end of service gratuity payment based on 21 days’ pay for your services to a company if you are terminated. If you have worked at a company for more than five years, you’re entitled to a gratuity worth 30 days’ day for every year you’ve worked beyond five years upon your dismissal from the company. If you have an unlimited contract and your employer chooses to dismiss you, the same end of service benefits will apply as those for a limited contract upon the termination of your contract.
Then, if you have an unlimited contract and you choose to leave your position voluntarily, you will receive the following end of service benefits as a form of government-mandated severance. If you have worked between one and three years, you will receive one-third of 21 days’ pay. If you have worked for a company between three and five years before leaving, your end of service benefit will be equal to two-thirds of 21 days’ base pay. Finally, if you have been at a company for more than five years before your resignation, you are entitled to a full 21 days’ of base pay as an end of service gratuity.
For all contract types, the payable end of service benefits will be worth no more than the equivalent of two years of your base salary. And, as we previously mentioned, you are not eligible for any end of service benefits if you are at a company for less than a year.
End of Service Benefits Trends in Dubai and the UAE
A recent report from Zurich in the Middle East and Insight Discovery found that end of service benefits look like they are on their way out across organisations in the United Arab Emirates. 75% of firms do not set aside assets to cover their potential end of service liabilities and instead take the money they would need for them out of their operating costs. Another significant caveat is that of the firms that do allocate funds for end of service benefits, 78% of them do not disclose them to their employees. How could the end of service benefits we currently know in the UAE soon be on their way out?
The Dubai International Financial Centre (DIFC) Free Zone introduced an Employee Workplace Savings (DEWS) plan that is similar to the British pension scheme. Employees can opt into “...a low-cost investment platform for receiving and managing mandatory end-of-service contributions on behalf of employees.” Employees can add contributions either in cash or cash equivalents should they not want to risk their retirement savings through investments. The Zurich report found that 81% of UAE employers surveyed would be interested in implementing an end of service benefits change similar to the DIFC Employee Workplace Savings programme.
End of Service in Dubai
The response to the DIFC plan has already been so positive in Dubai that Sheikh Mohammed enacted the Employment Law Amendment Law No. 4 of 2020, which replaces the end of service benefit calculations we outlined above. The DIFC announced that the law goes into effect on 1 February 2020 and will require employers to make contributions to an employee savings plan. Corporations in Dubai have until 31 March 2020 to enrol in a qualifying employee savings scheme.
Are you looking to account for your employees’ end of service benefits properly?
With the new changes to employee end of service benefits in Dubai, it’s more crucial than ever for your enterprise to account for these needs adequately. Fortunately, as business service experts with an extensive track record in setting up enterprises in the DIFC and the rest of Dubai, we’re the right partner for proper compliance. In addition, we can guide you through everything you need to make sure you do not have to pay for them out of your operating costs. Ready to get started? Get in touch with the Europe Emirates Group team today.
CEO, Europe Emirates Group