Overview of end of service benefits in the UAE

What are the recent changes to end of service benefits in Dubai?

New savings retirement scheme

The long awaited retirement saving scheme for expatriate employees working in the Dubai government sector (the “Scheme”) as recently announced by the Crown Prince of Dubai, H.H. Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, came into effect as of 1st July 2022. The Scheme has been introduced with the aim of enhancing the attractiveness of the labour landscape in Dubai, ensuring the interests of employees and employers, and bolstering retirement planning for expatriates in line with international best practices. 

The DIFC Employee Workplace Savings Scheme (“DEWS”) has been chosen by the Dubai government as the mechanism to deliver and implement the Scheme, which is administered by Zurich alongside Equiom as Master Trustee, and Mercer as the Investment Advisor. 

We understand that the Scheme will operate in a similar manner to the DEWS mechanism already in place however, expatriate employees will only be enrolled onto the Scheme on completion of one year of continuous service, and in line with an implementation schedule set out for employees of the Dubai government. Whilst the applicable employer contribution rates are yet to be released, contributions will be based on an employee’s length of service and basic salary.

Expatriate employees (who are eligible to receive an end of service gratuity payment) will be enrolled onto the Scheme by default however, UAE nationals have the option to voluntarily contribute into the Scheme. 

The Scheme applies to expatriate employees in the public sector but what about other employees?

End of service gratuity

End of service gratuity (“ESG”) is a lump-sum statutory payment that is paid to expatriate employees on termination of employment, provided that they have completed at least one year of continuous service. ESG is calculated with reference to an employee’s final basic salary at the time of termination, having consideration to their overall length of service as follows:

• 21 calendar days’ basic salary for the first five years of service and;

• 30 calendar days’ basic salary each year thereafter.

ESG entitlements are pro-rated and are capped at a maximum of two years total salary. 

Previously, under the old labour law (Federal Law No. 8 of 1980, as amended), pension benefits could be provided to expatriate employees in lieu of ESG provided that certain statutory conditions were met. However, under the new labour law (Federal Decree-Law No.33 of 2021), no provision is made for alternative arrangements to ESG albeit, we understand that pension arrangements introduced prior to the introduction of the new labour law will continue to be recognised. 

DEWS

In the DIFC, DEWS was introduced as of 1 February 2020, replacing the statutory ESG scheme. DEWS is generally seen as a first of its kind in the region, introducing a monthly defined contribution saving scheme (akin to a pension), and transforming the way in which end of service benefits are managed. Since its implementation, there have been ongoing discussions in a number of the other free zones concerning the potential introduction of DEWS (or an equivalent scheme). To date, the DIFC is the only UAE free zone that has opted for an alternative to ESG for private sector expatriate employees. 

For all eligible employees, DIFC employers are required to make monthly contributions into DEWS (or an alternative qualifying scheme) at the rate of either 5.83% or 8.33% of the employee’s monthly basic salary, depending on an employee’s length of service. Additional voluntary contributions are optional on the part of an employee (through salary deductions).  On the eventual termination of employment, employees have the option to either withdraw their accrued monies from DEWS or alternatively, keep the funds invested and withdraw at a later date. 

UAE and GCC national employees registered with the General Pension Social Security Authority (“GPSSA”), are automatically exempt from registration onto DEWS (or an alternative qualifying scheme). Other employees may also be exempt from DEWS subject to meeting certain conditions. 

Social security contributions for UAE and GCC nationals

Qualifying UAE nationals are entitled to be enrolled in the state pension scheme, administered by the GPSSA. For those employees, monthly social security contributions must be paid to the GPSSA. The rates of contribution vary depending upon the Emirate in which the employee works, and whether the employee is employed by a government or private sector entity. Employers are responsible for both their monthly contributions, and an employees’ monthly contribution (generally deducted from their salary). 

GCC nationals working in the UAE are also eligible to receive social security contributions, subject to the applicable rates and rules in their respective home country.