Key Takeaways
- The investment scheme is optional for employers, offering a flexible approach to end of service investment for both private and government sector employees.
- Encompassing private sector and free zone workers, the scheme introduces private sector investments and savings funds supervised by regulatory authorities.
- Employees presently receive a lump sum gratuity, while the new scheme emphasizes monthly contributions and accrued returns, promoting financial security and stability.
- The scheme offers employees three investment avenues: a risk-free option, a risk-based approach, and a Sharia-compliant investment, enabling tailored financial strategies.
- By safely investing end-of-service gratuities, the scheme aims to protect workers’ savings, ensuring their financial well-being and that of their families.
- The exact implementation date for this pioneering investment scheme is eagerly awaited, signifying a groundbreaking shift in UAE’s labor landscape.
End of Service Investment for Gratuities
Earlier this month, the UAE Cabinet approved a new optional system for end of service investment for gratuities, substituting the existing end-of-service system for workers in the country.
The decision was among 11 new federal laws announced during the Cabinet meeting on September 4, chaired by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai.
ترأست اليوم بقصر الوطن بأبوظبي اجتماعاً لمجلس الوزراء .. أكدنا في بدايته استمرار دولة الإمارات في استراتيجيتها الطموحة لقطاع تكنولوجيا الفضاء .. واستمراريتها في تأهيل وإرسال المزيد من رواد الفضاء لمحطة الفضاء الدولية .. وترحيبها بعودة ابن الإمارات سلطان النيادي أول رائد فضاء عربي… pic.twitter.com/TkFvOwYUZv
— HH Sheikh Mohammed (@HHShkMohd) September 4, 2023
How It Would Benefit Employees?
Speaking about the new investment scheme and how it would benefit employees, Joanna Matthews-Taylor, Partner and Head of Employment at Baker McKenzie UAE, said:
“On the termination of employment, employees may walk away with higher end of service gratuity than they would have received under the traditional regime, subject to the overall performance of the investment funds.”
But what exactly is the gratuity investment scheme and how will your end-of-service benefits be invested?
Here are the details.
Is It Mandatory?
According to the UAE government media office, the system is optional for employers to join.
Sectors Involved:
The recently introduced end-of-service gratuity system is applicable to both private sector and free zone employees. Employers have the choice to opt into this system, which involves setting up investment and savings funds supervised by the Securities and Commodities Authority in collaboration with the Ministry of Human Resources and Emiratisation (MOHRE). Government sector employees also have the opportunity to participate in this system for the purpose of savings and investments.
End-of-Service Scheme for Private Sector Employees:
Currently, employees are entitled to a lump sum payout, after they complete one year of continuous service at a company. The amount is calculated based on the number of years of service.
Mohammed bin Rashid chaired UAE Cabinet meeting and approved Optional System for End-Of-Service Gratuities for private sector, available for government sector employees. The meeting also approved 11 new Federal Law Decrees, to strengthen the UAE’s legislative environment#UAEGOV pic.twitter.com/HiyJKu9vst
— UAEGOV (@UAEmediaoffice) September 4, 2023
New End-of-Service Investment Scheme:
Participating companies will make monthly contributions, and upon an employee’s service completion, they’ll receive both their accumulated savings and investment returns. The UAE government allows employees to invest and secure their end-of-service benefits through diverse investment options. The primary goal is to protect workers’ savings, constituting their end-of-service benefits, ensuring their rights and promoting family stability
Investment Options:
The amount can be invested in three ways:
- A risk-free investment that maintains capital.
- A risk-based investment.
- A Sharia-compliant investment.
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Implementation Date:
The date of implementation is yet to be announced.
Stay tuned for further updates on this transformative shift in the UAE’s end-of-service gratuity scheme, enhancing financial security for workers.
