The UAE has consistently led the way in pioneering innovative policies aimed at advancing the employment market and retaining top-tier global talent.

In a significant development on October 10, 2023, the Ministry of Human Resources and Emiratisation (MoHRE), in collaboration with the Securities and Commodities Authority (SCA), unveiled Cabinet Resolution No. (96) of 2023. This resolution marks the introduction of a voluntary and alternative end-of-service benefits scheme, known as the ‘Savings Scheme’, applicable to both employers and employees in the private sector. The resolution came into effect the day following its official publication.

The Savings Scheme represents a ground breaking option alongside the existing end-of-service benefits system. This voluntary initiative empowers employees to invest their end-of-service benefits in well-established funds, offering them the prospect of earning returns upon the completion of their service tenure. This strategic move aligns with the UAE's commitment to fostering a dynamic and attractive employment landscape while providing employees with enhanced financial flexibility.

The objectives of the Savings Scheme are twofold: firstly, to safeguard employees from the adverse impacts of inflation, default, and bankruptcy, and secondly, to provide employees with the opportunity to reap benefits from investing in diverse economic activities within the UAE.

The Savings Scheme presents a range of investment possibilities, encompassing:

1. Sharia-compliant funds

2. A Capital Guarantee portfolio ensuring a risk-free investment

3. Diverse investment portfolios with differing levels of financial risk corresponding to anticipated returns.

The key points of the legislation have been summarized below:

1. Savings Scheme Framework:

Prospective participating employers must adhere to a structured process to participate in the Savings Scheme, employers must take several key steps as outlined below:

i. Initially, they need to submit a formal request to the Ministry of Human Resources and Emiratisation (MoHRE), adhering to the specified procedures.

ii. Following this, employers are required to select a licensed investment fund that aligns with the scheme. Additionally, they have the responsibility of determining which category of employees will be included in the alternative scheme, with participation becoming mandatory for the selected individuals.

iii. As part of the transition, employers are expected to discontinue the use of the current end-of-service benefits for those employees chosen to engage in the alternative scheme.

iv. Furthermore, employers must accurately calculate and remit the basic subscription amount without subtracting it from the beneficiary's salary, noting that these contributions are non-refundable.

Employees have the right to select the investment fund for their voluntary subscription. Employees of the “skilled labour” category may choose any type of investment option, while employees of the “unskilled labour” category must adhere to the capital guarantee option. However, in the absence of a specific choice, contributions will automatically be directed to the Capital Guarantee Fund.

These procedural guidelines aim to streamline employer participation in the Savings Scheme, fostering a seamless transition for both employers and employees alike.

3. Calculation of Monthly Contributions:

Employers are mandated to calculate the monthly subscription amount based on the employee's tenure. Contributions for those with less than 5 years of service amount to 5.83% of the basic monthly salary, while those with 5 years or more contribute 8.33%.

The stipulated timeframe for transferring these contributions to the investment fund is within 15 days of each month.

4. Employee Voluntary Contributions:

Complementing employer subscriptions, employees have the option to make additional contributions, capped at 25% of their total salary. Employers facilitate this process by deducting the additional amount from the employee's wages, and transferring it to the employee’s investment account, providing an added layer of financial security.

5. Beneficiary Flexibility:

Beneficiaries hold the prerogative to select their preferred investment fund, ensuring alignment with their unique financial objectives. Upon the termination of employment, the employee is entitled to receive all basic subscription amounts contributed by the employer and any associated returns generated during the subscription period, within a 14-day timeframe. Even post-employment termination, employees retain the option to keep their funds in the investment account, offering an option for comprehensive long-term financial planning.

6. Tax and Financial Implications:

The implementation of the Savings Scheme necessitates a recalibration of tax planning for employers, particularly concerning expatriate employees. A thorough assessment of the program's implications is imperative for businesses to navigate this transformative shift seamlessly and mitigate any unforeseen liabilities.

7. Supervision of the Scheme:

The oversight of the scheme is conducted jointly by the MoHRE and SCA, aligning with relevant legislations. MoHRE takes charge of receiving and investigating labor complaints associated with this alternative system, ensuring compliance during inspections.

Concurrently, the SCA handles complaints pertaining to the performance of service providers managing the investment funds.

Additionally, the financial free zones authorities are tasked with supervising and resolving complaints specific to the alternative end-of-service benefits system within their jurisdiction. This comprehensive supervision framework aims to address concerns, uphold compliance, and ensure the smooth operation of the alternative system.

Conclusion:

The UAE's innovative Savings Scheme signifies a strategic leap toward ensuring a more secure and advantageous financial future for the private sector workforce. Aligned with the broader objective of attracting global talent, this initiative not only revolutionizes the traditional approach to end-of-service benefits but also showcases the UAE's commitment to fostering a progressive and employee-centric business environment. As organizations integrate this transformative change, meticulous consideration of the implications will be pivotal for a successful and seamless transition.

Should you need assistance or seek further information about participating in the alternative end-of-service scheme, feel free to contact us at info@rasmalegal.com .Stay tuned for future updates as we continue to share further developments in due course.