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Mar 2020

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UAE: DIFC amends employment law to introduce end-of-service savings plan

Source: Middle East Insurance Review | Feb 2020

Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, in his capacity as the Ruler of Dubai, has enacted the Employment Law Amendment Law No. 4 of 2020, said the DIFC. 
 
The Amendment Law introduces the new Qualifying Scheme workplace savings scheme in the DIFC, replacing the current end-of-service gratuity payment regime that has been in place since DIFC’s inception in 2004.
 
The new regime commenced on 1 February 2020, from which employers will make mandatory monthly contributions to a professionally managed and regulated savings plan. The plan replaces the accruing of end-of-service gratuity benefits in favour of employees, which is currently in line with the rest of the UAE.
 
The Board of Directors of the DIFC Authority has also issued new Employment Regulations that set out the requirements for Qualifying Schemes. Employers will have until 31 March 2020 to enrol into a Qualifying Scheme. These include the DIFC Employee Workplace Savings (DEWS) Plan, established by the DIFC as a default Qualifying Scheme after an exhaustive competitive bidding process. Alternatively, employers may seek a Certificate of Compliance from the DIFC Authority for an alternative Qualifying Scheme under the regulations.
 
The requirements for Qualifying Schemes reflect the DIFC’s commitment to robust regulation in the financial centre. The requirements include having an oversight body that will have the right to appoint and remove the scheme operator, review its governance and fees and charges imposed on the scheme. In addition, Qualifying Schemes must require employer and employee representation and independent oversight with the aim of ensuring the proper protection of the employee’s interests.
 
Other key changes include:
  • Allowing employees to make voluntary workplace savings contributions into a Qualifying Scheme on top of the mandatory monthly contributions to be made by employers under the Employment Law;
  • Ensuring that any accrued end-of-service benefits under the current regime remain in place, also providing employers with the option to pay these accrued benefits into a Qualifying Scheme;
  • Creating exemptions for certain types of employees, such as those on secondment in the DIFC, short-term workers, equity partners, and employees working for government departments and bodies that have a presence in the DIFC;
  • Settling the mandatory contributions to be made by employers at 5.83% of monthly basic wage (for employees who have less than five years’ service), and 8.33% of monthly basic wage for employees who have longer service;
  • Creating exemptions for international institutions who have a statutory obligation to make pension, retirement or similar contributions on behalf of their employees elsewhere, as well for employers who wish to provide a regulated defined benefit scheme to their employees that provides for benefits in excess of what the mandatory defined contributions are under the DIFC Employment Law; and
  • A number of miscellaneous enhancements.
 
DIFC governor Essa Kazim said, “With a firm commitment to creating a prosperous hub for our 24,000 professionals based at the DIFC, these comprehensive enhancements to DIFC Employment Law Amendment will give clear guidance to employers and employees seeking to grow their savings securely while fortifying both their interests. By doing this, the DIFC also sets a clear example for others to follow global best practice in this regard.” M 
 
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