UAE Alternative End-of-Service Benefits scheme: How your gratuity can be invested for future growth

Dubai: In the UAE, your gratuity doesn’t have to be a fixed amount that you take home at the end of your employment term. It can work hard for you over time, and grow through strategic investments. This is thanks to the Alternative End-of-Service Benefits scheme (EOSB), also known as the Voluntary Savings Scheme. What is the Alternative End-of-Service Benefits scheme? On October 10, 2023, the UAE Ministry of Human Resources and Emiratisation (MOHRE), in conjunction with the Securities and Commodities Authority (SCA), issued Cabinet Resolution No. (96) of 2023. The Resolution provides an alternative End-of-Service Benefits scheme for employers and employees in the private sector. The legislation describes the Voluntary Savings Scheme as follows: “…namely, employers pay a monthly subscription to an investment fund for the purpose of enabling beneficiaries to receive their entitlements upon completion of their employment from the basic subscription amount allocated to them as well as any investment returns generated in lieu of their end-of-service benefits, in accordance with this Resolution.” Navandeep Matta, senior associate at Kochhar & Co. Legal Consultants in Dubai, explained: “Traditional gratuity under Article 51 of Federal Decree-Law No. 33 of 2021 is a lump sum the employer funds only when employment ends. The [EOSB] savings scheme, introduced under Cabinet Resolution No. 96 of 2023, converts this into a funded, monthly obligation instead: the employer contracts with a licensed investment fund and pays a monthly ‘basic subscription’ – 5.83% of basic salary for under five years' service, 8.33% thereafter – which grows through investment returns rather than sitting as a static liability.” What is the difference between EOSB savings scheme and traditional gratuity? Traditional gratuity is a lump sum, based on an employee’s basic salary, that is paid out when they leave their job. The EOSB scheme, on the other hand, is a plan under which, employers pay monthly contributions into professionally managed investment funds, with the final amount paid out to employees upon the termination of their employment. By investing end-of-service benefits in high-performing investment funds, the EOSB savings scheme ensures your money is working hard, and growing, rather than staying stagnant as an eventual fixed payout. What are the benefits of the EOSB savings scheme? According to MOHRE, these are the key benefits for establishments who sign up for the Voluntary Savings Scheme: Cost savings in the medium term, as the cost is lower compared to paying end-of-service benefits. Promotes a proactive approach in managing financial obligations and supports the establishment’s financial health in the long term. Enhances the establishment’s reputation in the national labour market. Increases employee loyalty, contributing to attracting top talent and promoting well-being. Boosts employee productivity by enabling them to grow their financial assets. Eligibility and restrictions There are certain aspects of the EOSB scheme that both employers and employees must understand and consider: Scope: According to Matta, the EOSB scheme extends to “private sector employers and employees, including free zones. A secondary, subscription-only tier also exists for self-employed persons, expat employees of government entities, and UAE nationals whose employers keep up General Pension and Social Security Authority (GPSSA) contributions”. Employer’s prerogative: Opt-in to the EOSB scheme is the employer's choice, not the employee's – but once an employer selects an employee, subscription is mandatory for them. Employers who wish to participate in the alternative system must submit a request to the Ministry. Lock-in: Matta said: “Basic subscriptions and returns cannot be withdrawn before termination, except the employer may call back its own contributions if the employee leaves within one year of enrollment.” Employer’s minimum term: Once the employer opts in, they must comply with a minimum term of one year, “with early exit only via MOHRE approval on narrow grounds, like licence cancellation, ownership change, or proven insolvency,” according to Matta. Enforcement: Missed payments trigger penalties from the authorities. Matta said the fines include “a work-permit freeze after two months [of missed payments], and a fine of Dh1,000 per employee, per month, after four months”. How basic and voluntary subscription works Basic subscription: The basic subscription is the amount paid by the employer on a monthly basis, to implement the alternative system. Employers select and contract with a licenced investment fund for the implementation of the EOSB savings scheme. They must decide which employee categories and levels are included in the alternative system, and discontinue the use of the current gratuity system for employees selected to participate in the alternative system. Matta said: “Gratuity accrued before enrolment is frozen and paid separately