United Arab Emirates – New Voluntary End-of-Service Benefits Scheme

What’s new?

As of 10 October 2023, UAE employers have the option to sign up to the Voluntary Alternative End of Service Benefits Saving Scheme (the “Scheme“), as an alternative to providing a lump-sum gratuity payment to employees on termination. The Scheme aims to protect employees’ entitlements and encourage long-term investing.

Private sector employers based within the UAE and in certain UAE free zones will be eligible to participate in the Scheme.

What contributions are made under the Scheme?

Previously, UAE employers were required to pay employees a specified end-of-service gratuity payment based on their length of service, as a lump-sum on termination. Now, under the Scheme, eligible employers can instead choose to make monthly contributions to a licensed investment fund. If they choose this option, employers must contribute 5.83% of the employee’s monthly salary to the fund each month during the employee’s first 5 years of service, increasing to 8.33% for employees with over 5 years’ service.

In certain circumstances, an employee can voluntarily contribute to their accrued Scheme funds themselves, which can be withdrawn at any time during their employment.

How are employees reimbursed under the Scheme?

Employees can choose to withdraw the funds accumulated on their behalf under the Scheme, or leave the funds invested.

An employee’s end-of-service gratuity payment will stop accruing when their employer opts in to the Scheme, so when the employee’s employment is terminated, the employer must pay the employee their end-of-service lump sum, calculated to the date that the employer opted in to the Scheme.

So, what should employers do now?

Employers should familiarise themselves with this new Scheme option and consider whether they wish to opt-in.

If you have any questions or require further details about the Scheme, please get in touch with a member of the MDR ONE team.

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