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UAE’s Voluntary Alternative End-of-Service Benefits Scheme

In a groundbreaking move aimed at enhancing financial security and fostering a culture of savings, the UAE government has introduced the Voluntary Alternative End-of-Service Benefits Scheme, a voluntary initiative for private sector employees and free zone workers. This initiative not only transforms the traditional End-of-Service Gratuity (EOSG) landscape but also provides employees and employers with newfound flexibility and investment opportunities.

Understanding the Evolution – A Shift in EOSG Practices

Traditionally, EOSG for non-GCC national employees in the UAE private sector was regulated by Federal Decree Law No 33 of 2021 (the UAE Labour Law). However, the recent Cabinet Decision No 96/2023 has ushered in a new era with the introduction of the Voluntary Alternative End-of-Service Benefits Scheme (the New Scheme).

Employers now have the option to offer their non-GCC national employees a voluntary EOS benefits scheme based on monthly contributions into an investment fund. This scheme, while currently optional, is anticipated to bring a significant shift from the conventional lump-sum gratuity payments towards a more dynamic and investment-oriented approach.

The UAE Labour Law (Federal Decree Law No 33 of 2021) regulated the traditional EOSG practices, whereas the Cabinet Decision No 96/2023 introduces the legal framework for the Voluntary Alternative End-of-Service Benefits Scheme.

Unveiling the Mechanism – Key Features of the New Scheme

The New Scheme operates on a monthly contribution model, with employers subscribing to the scheme through the Ministry of Human Resources and Emiratisation (MOHRE). Employers must contract with an investment fund approved by the Securities and Commodities Authority (SCA) and discontinue the old EOS gratuity system for employees enrolled in the New Scheme.

  • Employers opting for the New Scheme must adhere to MOHRE and SCA regulations.
  • Overdue Basic Contribution payments by employers may result in penalties, such as suspension of work permits and fines.

Safeguarding Interests – 

Regulation and supervision of the New Scheme fall under MOHRE and SCA, with financial free zones authorities overseeing matters within their jurisdiction. This governance structure ensures a robust framework for dispute resolution and complaint handling.

  • MOHRE handles labor-related complaints, while the SCA oversees complaints about investment fund service providers.
  • Basic Contributions are protected from judicial enforcement, safeguarding employees’ EOS benefits.

Addressing Employee Concerns –

Effective communication is paramount in ensuring a smooth transition to the New Scheme. Employers should transparently communicate the changes, benefits, and implications to their workforce. Addressing employee concerns and providing comprehensive information about the scheme’s mechanics will foster trust and cooperation.

  1. Employers are encouraged to communicate their position on adopting the New Scheme to employees.
  2. Clear communication helps mitigate potential disputes and ensures employees understand the voluntary nature and potential advantages of the New Scheme.
  • The New Scheme is expected to make the UAE labor market more appealing to both existing and potential expatriate employees.
  • The UAE Cabinet envisions the scheme facilitating investment into various economic activities, contributing to the nation’s economic development.

The New Scheme is positioned not only as a financial empowerment tool but also as a strategic move to enhance the UAE’s attractiveness to global talent. By offering a flexible and investment-oriented EOS benefits system, the UAE aims to solidify its position as a global hub for top-tier professionals, fostering economic growth and innovation

Conclusion: 

The Voluntary Alternative End-of-Service Benefits Scheme marks a transformative leap towards a more dynamic and flexible EOSG landscape in the UAE. For employers, it streamlines financial processes, attracts global talent, and contributes to the economic growth of the nation. For employees, it opens avenues for personalized investment strategies, securing their financial future. As the UAE strides into this innovative era, the New Scheme stands as a beacon of financial empowerment for both employers and employees alike.

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