A new voluntary investment system for end-of-service benefits has been introduced in the UAE. Employers can now register their workers for the ‘Voluntary Alternative End-of-Service Benefits Scheme’, which was announced by the Ministry of Human Resources and Emiratisation (MOHRE) and the Securities and Commodities Authority (SCA) on November 1.
This optional scheme allows employers to invest in the end-of-service gratuity benefits of their registered employees. The investments are made through approved investment funds, as determined by MOHRE and SCA.
The primary goal of this scheme, according to MOHRE, is to enhance employees’ savings, safeguard their financial entitlements, and reduce the occurrence of labor disputes related to end-of-service gratuity.
By implementing this new savings scheme, the UAE aims to provide employees with greater financial security and promote a more harmonious relationship between employers and workers.
Who can register?
Here are the three categories eligible to sign up for the scheme:
- Private sector workers who have been chosen by their employers.
2. UAE nationals employed in both the government and private sectors have the option to voluntarily enroll in the scheme.
3. The scheme is also available on a voluntary basis for non-citizen employees in the public sector, self-employed individuals, and those with freelance work permits.
If you are an employee in the private sector, you cannot directly register for the scheme. Instead, employers must subscribe to the scheme and then select the employees they wish to have registered.
What are the benefits of the scheme for employees?
According to Cabinet Resolution No. (96) of 2023 ‘Regarding the Voluntary Alternative End-of-Service Benefits Scheme for Private Sector Workers’, “…the scheme ensures that employees receive their end-of-service benefits, protect them from inflation, default, or bankruptcy, and provides them with an investment programme that allows them to save and invest their benefits.”
Skilled workers have the opportunity to enhance their end-of-service benefits by opting for high-return investment funds.
What happens to a worker’s current gratuity?
If you are enrolled in the scheme by your employer, here is how it will work: you will retain the gratuity that you have earned before subscribing to the new scheme.
Once you are registered in the new scheme, your gratuity will be calculated according to its guidelines.
Upon completion of your service, your total earnings – both before and after the implementation of the new scheme – will be disbursed to you.
What is the monthly subscription fee for employers who want to enroll in the system?
According to the Ministry of Human Resources and Emiratisation (MOHRE), employers are required to pay fees based on the employee’s basic salary. The fee structure is as follows:
– If the employee’s service duration is less than five years, the employer must pay 5.83 percent of the employee’s monthly basic salary.
– If the employee’s service duration exceeds five years, the employer must pay 8.33 percent of the employee’s monthly basic salary.
These fees are calculated to ensure fair compensation for employees based on their length of service.
Can workers increase their benefits?
The employer will cover the subscription fee for the scheme, but workers have the choice to enhance their investment returns by making additional contributions of around 25% of their total annual salary. Moreover, they have the flexibility to withdraw their contributions and investment returns, specifically those made by the employees themselves, excluding the gratuity subscription fee provided by the employer.
How does the employee receive the benefits?
When an employer terminates the employment contract by canceling the worker’s work permit with MOHRE, the worker is presented with a choice: they can either receive their financial benefits or opt to continue investing in the scheme. As per MOHRE regulations, the worker will be duly compensated for their financial benefits.
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