Picture for illustrative purposes only. ARCHIVE

The Ministry of Human Resources and Emiratisation (MOHRE) has launched an alternative system for end-of-service gratuity for workers in the country. Minister Abdulrahman Al Awar announced the gratuity scheme during a media briefing in Dubai on Wednesday (November 1). Here's all you need to know.

What is the alternative gratuity scheme?

It works like a savings scheme and ensures that employees receive their gratuity while being able to save and invest their benefits through an investment programme. Subscribers can voluntarily contribute a percentage of their salary or an additional amount, either monthly or a lump sum, in addition to the basic subscription payment made by employers.

Why is it important?

The scheme puts employees’ end-of-service money under a third party. This means that when an employee is terminated from work or resigns from a company that is financially struggling, they don’t have to worry about not receiving their gratuity.

Where will the gratuity money be invested?

It will be held with investment funds that are specifically licensed for this purpose. The investment decision will be made by a licensed fund manager.

Is the alternative gratuity scheme mandatory?

The Voluntary Alternative End-of-Service Benefits Savings Scheme is optional for expats or Emiratis. It is an alternative to the UAE's existing gratuity scheme, under which employees receive a lump-sum payment when they leave their jobs.

How does the alternative gratuity scheme work?

Employers must register with the ministry. "When subscribing to the alternative system, the employer may involve all workers, select workers who will be subscribed to the system, or select their occupational categories or levels for them,” Al Awar said. Employers must select and contract with licensed investment fund managers and decide which employee categories and levels should be included in the programme.

Is there a salary requirement?

There is no minimum salary requirement to be eligible for the scheme.

How does the contribution payment work?

For full-time employees who have worked for a company for less than five years, employers will contribute 5.83 percent of their monthly basic salary to the investment fund and 8.33 percent if the worker has served more than five years. Subscribers to the fund can voluntarily contribute a percentage of their salary or an additional amount, either monthly or a lump sum, in addition to the basic subscription payment made by employers. The voluntary contribution will be deducted the employee's salary. The voluntary subscription percentage cannot exceed 25 per cent of the total salary while, in case of a lump sum, it cannot exceed the same percentage annually, according to MOHRE.

Is there a minimum period for subscription?

Yes. Subscribers must make a contribution for a minimum of one year once registered in the system.

Can you withdraw your contributions?

Yes. Employees can withdraw part or all of the voluntary contributions or their investment returns at any time during their employment, in accordance to the terms. However, it is prohibited to withdraw the basic subscription amount while the subscriber is still employed. The employer has the right to recover the basic subscription amount upon termination of the employee within one year of the start date.

What is the role of a fund administrator in this scheme?

Companies must subscribe to the scheme through a fund administrator approved by the Securities and Commodities Authority (SCA) in partnership with the ministry. The administrator will provide services that include a fund manager, custodian and other entities to operate as a broker.

Can the employer change the fund manager?

Yes. The employer may change the fund manager and transfer all amounts and returns to an alternative investment fund, after obtaining the approval of the ministry and the SCA.

Can self-employed individuals subscribe to the gratuity scheme?

Yes. Fund managers can accept voluntary subscriptions from self-employed people, as well as business owners, expat employees working for government agencies and institutions, and Emirati employees in the public and private sectors. Contributions for this group must be made to the General Authority for Pensions and Social Security.

What is the investment programme of the gratuity scheme?

Employers can make voluntary contributions to the investment programme, which allows employees to invest in various portfolios and Sharia-compliant funds. Employees must have a monthly basic salary of at least Dh4,000 to qualify.

What happens if the employee changes jobs or loses a job?

If the employee changes jobs, the new company may complete the basic subscription in lieu of the previous employer. In case an employee is terminated from work, he or she can either receive financial benefits or continue investing in the scheme. ICA/Expat Media
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