Revolutionizing the traditional paradigm of end-of-service benefits, the End-of-Service Scheme emerges as a dynamic and optional alternative.
This initiative empowers employees by offering them the unique opportunity to strategically invest their end-of-service benefits in esteemed funds, paving the way for potential returns upon the culmination of their service tenure.
Participation in this scheme requires employers to make monthly contributions to a dedicated investment fund, fostering a commitment to employees’ financial well-being. These contributions not only form the basic subscription amount but also encompass any generated investment returns, effectively replacing the conventional end-of-service benefits.
1. Flexibility in Investment: Employees can make strategic investment decisions, introducing a personalized approach to managing their end-of-service benefits.
2. Employer Engagement: Employers actively contribute to a specialized investment fund, embodying a commitment to the financial empowerment of their workforce.
Diverse Investment Avenues:
The scheme’s rich tapestry of investment options includes Sharia-compliant funds, a capital guarantee portfolio tailored for risk-averse individuals, and a spectrum of other portfolios characterized by varying degrees of financial risk aligned with expected returns.
In essence, the End-of-Service Scheme heralds a new era in financial planning, providing a flexible and forward-thinking platform for employees to navigate their financial futures. By embracing this innovative scheme, employees not only fortify themselves against financial uncertainties but also become integral contributors to the economic landscape of the UAE. Embrace the transformative potential of the End-of-Service Scheme – your gateway to financial freedom and strategic investment opportunities.
The scheme applies to employers and employees in the private sector and the free zones.
Participation in the scheme
Employers who wish to participate in this alternative system must submit a request to MoHRE.
Employers must select and contract with one of the investment funds licensed by the Securities and Commodities Authority (SCA) to administer this alternative scheme.
Simultaneously, they must carefully delineate which employee categories and levels will be encompassed within the framework of the scheme.
Companies adopting this innovative approach are mandated to phase out the conventional end-of-service benefits system for employees selected to participate in the scheme. Once employees have been chosen, their involvement in the fund becomes obligatory, necessitating employers to diligently safeguard the preservation of the employees’ entitlements from the preceding period.
Employers demonstrate their commitment to the financial well-being of their workforce through a structured contribution mechanism:
- For full-time employees with less than five years of service, the employer’s contribution is 5.83% of the monthly basic salary.
- Employees with more than five years of service incur an 8.33% contribution from their employers.
These contributions are diligently transferred into the investment fund within 15 days of the initiation of each calendar month.
In addition to the compulsory basic subscription, subscribed employees are granted the flexibility to make voluntary contributions. This can be a percentage of their salary or an additional amount, paid in installments or as a lump sum. The voluntary contribution, however, should not surpass 25% of the total annual salary.
The scheme ensures that employees are entitled to receive all basic subscription amounts paid by the employer, along with any accrued returns during the subscription period. This entitlement is disbursed within 14 days after the termination of employment, providing employees with a timely overview of their financial standing.
Employees are empowered to make partial or complete withdrawals of voluntary contributions or investment returns at any point during their employment, subject to the terms outlined by the fund manager.
Supervision and Oversight:
The Ministry of Human Resources and Emiratization (MoHRE) and the SCA collectively monitor, supervise, and inspect the alternative system in adherence to relevant legislations. MoHRE takes the lead in addressing labor-related complaints, conducting investigations, and rectifying violations discovered during inspections. SCA is designated to handle complaints pertaining to the performance of service providers managing the investment funds.
Moreover, the financial free zones authorities hold the responsibility of supervising and resolving complaints specific to the alternative end-of-service benefits system within their respective jurisdictions.
For comprehensive details regarding the Savings Scheme, including an introductory guide and pertinent legislative resolutions, interested parties are encouraged to refer to the provided documents: “Introductory to the Optional Alternative End-of-Service Benefits Scheme (Savings Scheme)” and “Cabinet Resolution No. 96 of 2023 Regarding an Alternative End of Service Benefits System.”
Calculation Methodology for Gratuity Pay:
Upon the termination of service, workers with one year or more of continuous service are eligible for an end-of-service gratuity. The calculation follows a structured approach:
- Less Than 1 Year of Service:
Workers with less than one year of service are not entitled to any gratuity pay.
- 1 Year to Less Than 5 Years of Service:
For workers with more than one year but less than five years of service, the gratuity pay is calculated based on 21 days’ salary for each year worked.
- 5 Years or More of Service:
Employees with five years or more of continuous service are entitled to full gratuity, calculated at a rate of 30 days’ salary for each year of work following the initial five years.
- Overall Limit:
In all cases, the total gratuity shall not exceed the equivalent of two years’ wages.
Special Considerations for Other Employment Types:
For workers engaged in part-time contracts or alternative work arrangements, the calculation is specified under Article 30 of the Cabinet Resolution No. 1 of 2022. The process involves:
- Calculation Formula: The end-of-service benefit for workers in non-full-time contracts is determined by a specific formula.
– The number of working hours in the employment contract per year is divided by the number of working hours in a full-time contract per year.
– The result is then multiplied by 100 to establish the percentage on which the end-of-service benefit should be calculated.
- Monetary Valuation:
– The determined percentage is applied to the value of the end-of-service benefit due for a full-time contract.
These calculations ensure that workers, regardless of their employment arrangement, receive a fair and proportionate end-of-service benefit based on their years of service and the nature of their contractual commitments.
It is imperative for both employers and employees to be aware of these standardized calculations, promoting transparency and equitable treatment in matters related to end-of-service benefits. For further details on these calculations and related regulations, reference can be made to the Cabinet Resolution No. 1 of 2022 and the Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations in the Private Sector.