This page contains information about the provisions and calculations for end of service benefits for UAE nationals and expatriate workers in the UAE’s private sector.
The Savings scheme – a voluntary and alternative end-of-service benefits scheme
The Savings scheme offers a unique alternative to the traditional end of service benefits system. This optional scheme allows employees to invest their end of service benefits in reputable funds, giving them the opportunity to earn returns after the completion of service.
Employers who choose to participate in this scheme make monthly contributions to an investment fund on behalf of their employees, ensuring they receive the basic subscription amount and any investment returns generated over time.
As a result, employees benefit from a more flexible and growth-oriented approach to their end of service benefits, rather than simply relying on the standard payout at the end of their contract. It’s a win-win situation, as both employers and beneficiaries gain from this system, which helps make the most out of the contributions over the years.
Objectives of the scheme
The Savings scheme is designed with clear goals in mind, ensuring employees are safeguarded against issues like inflation, default, and even bankruptcy. By offering an alternative to the traditional end of service benefits system, it encourages employees to benefit from the growth of the UAE’s economy.
This scheme enables them to invest in reputable funds, allowing them to take part in various economic activities, which helps generate returns over time. Essentially, it gives employees a better way to plan for their future, instead of just waiting for a standard payout when their service ends.
Investment options
The Savings scheme offers several investment options tailored to meet the diverse needs of employees. For those who prefer a more secure route, the capital guarantee portfolio option provides a risk-free investment, which can be particularly beneficial for unskilled workers. On the other hand, Sharia-compliant funds are available for those who want to ensure their investments align with their values.
There are also various investment portfolios that carry varying levels of financial risk, allowing employees to choose investments based on their comfort with expected return.
One of the most trusted options is Daman Investments’ End of Service Programme, which is approved as one of the leading investment funds under the Savings scheme, giving employees peace of mind about where their contributions are going.
Scope
The scheme applies to both employers and employees working in the private sector and the free zones. This means that all workers in these areas can participate, ensuring that no one is left behind when it comes to securing their end of service benefits.
It provides a structured way for employers to contribute towards their employees’ future financial security, regardless of the industry they work in or the region they are based.
Participation in the scheme
If employers wish to participate in this alternative system, they must submit a request to MoHRE. The employers will need to select and contract with investment funds that are licensed by the Securities and Commodities Authority (SCA) to provide these services.
They will also need to determine which employee categories and levels should be included in the scheme. Once selected to participate, it becomes mandatory for employees, and the employers must ensure that the employees’ entitlements from the previous period are preserved.
Furthermore, the employers must discontinue the use of the current end of service benefits system for those employees who are now part of the new scheme.
Basic subscription fee
As part of the employers’ contribution, for full-time employees, the contribution to the investment fund is based on their monthly basic salary. If the employee has completed five years, the contribution is set at 5.83 per cent of the salary, while for those who have served more than five years, it increases to 8.33 per cent.
The subscriptions need to be transferred into the investment fund within 15 days from the beginning of each calendar month to ensure timely and consistent participation in the scheme.
Additional voluntary subscription
Under the Savings scheme, employers allow subscribed employees to contribute voluntarily a certain percentage of their salary or an additional amount. These voluntary contributions can be made in instalments or as a lump sum, and they are deducted directly from the salaries.
However, these contributions cannot exceed 25 per cent of the total annual salary. This gives employees more flexibility in saving for their future while being part of the Alternative End of Service Benefits System.
For further information on how these contributions work and the fees associated with different work patterns, refer to Ministerial Resolution No. 668, 2023, which governs the Subscription and administration of the Savings scheme.
Entitlements of the employee
An employee is entitled to receive all the basic subscription amounts that were paid by the employer during the subscription period, along with any returns resulting from the investment. These amounts must be paid within 14 days after the termination of employment.
Additionally, the employee has the option to continue investing in the scheme even after their employment ends. If desired, the employee can withdraw part or all of their voluntary contributions or investment returns at any time during their employment, based on the terms set by the fund manager.
Supervision of the scheme
The MoHRE and SCA are responsible for overseeing the alternative system, ensuring it aligns with the applicable legislations. They monitor, supervise, and inspect the scheme, addressing any labour complaints received and investigating potential violations discovered during inspections. The SCA specifically focuses on the performance of service providers and investment funds.
Meanwhile, financial free zones authorities play a role in supervising and resolving complaints within their jurisdiction. If any issues arise regarding the alternative end of service benefits system, these authorities are there to offer information and ensure that the Savings scheme is being properly implemented.
End of service benefits under full time contracts
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Calculations for gratuity pay
A worker who has served in continuous service is entitled to an end of service gratuity when their termination occurs. If the worker has had any absence from work without pay, it will not be included in the calculation of their period of service. If the worker has served for less than 1 year, they are not entitled to any gratuity pay.
However, if they have served for more than 1 year but less than 5 years, they will receive full gratuity pay, calculated at 21 days’ salary for each year of work. For those who have served for more than 5 years, the full gratuity is calculated as 30 days’ salary for each year, but only after the first five years. In all cases, the total gratuity cannot exceed the wage of two years.
Under other types of employment
According to Article 30 of Cabinet Resolution No. 1, 2022, the end of service benefits for workers in part-time contracts or other work arrangements are calculated differently. The number of working hours in the employment contract is divided by the working hours in a full-time contract, and the result is multiplied by 100 to get the percentage.
This percentage is then applied to the value of the end of service benefits due under the full-time contract. The guidelines for calculating these benefits are set out under the Regulation of Federal Decree Law No. 33, 2021 on the Regulation of Labour Relations, which includes Articles 51, 52, and 53 of the UAE Labour Law.
- For more information, Ministry of Human Resources and Emiratisation provides further details.