All about the new gratuity law in DIFC

With an increasing number of residents and working professionals in Dubai, the emirate is constantly looking for ways to improve its business infrastructure, by introducing relevant provisions for employees and employers. In a progressive move to enhance the end-of-service benefits for employees, His Highness Sheikh Mohammed Bin Rashid, Vice President of the UAE and Ruler of Dubai, enacted new amendments to the employment law in DIFC, the leading financial hub in the MENA region, to introduce a new workplace savings scheme to replace the existing process for gratuity. MyBayut provides a comprehensive overview of the new DIFC gratuity law, including how this will benefit employers and employees, and details of the new savings plan.

What is the new DIFC gratuity law?

In January 2020, HH Sheikh Mohammed Bin Rashid enacted changes to the employment law in DIFC, which will introduce a new mandatory workplace savings scheme to replace end-of-service gratuity for employees. These amendments were done under the Employment Law Amendment Law No 4 of 2020 and will go into effect from February 1, 2020.

What was the previous gratuity law in DIFC?

The new amendments will replace the current, statutory end-of-service gratuity payment accrued by employers and paid to employees upon the termination of their contract, which has been in place since 2005.

What will replace the end-of-service gratuity regime in DIFC?

The new amendment law will introduce a ‘Qualifying Scheme’, which is a workplace saving scheme, in DIFC. Employers based in DIFC will now have to make mandatory monthly contributions to a ‘professionally managed and regulated’ savings plan, under the new DIFC gratuity law. This will be a ‘defined contribution plan’ as opposed to end-of-service gratuity, which is a ‘defined benefit plan’.

The new DIFC employment law for gratuity protects employers from the risks of open-ended defined benefit plans. The common practice for UAE employers is to pay end-of-service gratuity from the working capital, which does not fully protect the employee’s gratuity payment. Thus, with the new workplace savings scheme, both employers and employees will have more financial security and will be better equipped for long-term financial planning.

DIFC’s Board of Directors also laid out new regulations that define the requirements for ‘Qualifying Schemes’. One of the workplace saving schemes that DIFC entities can choose is the DIFC Employees Workplace Savings (DEWS) plan. This plan has been established by the DIFC, with Zurich as the administrator, Equiom as the Trustee and Mercer as the investment advisor.

Employers in DIFC can also choose other qualifying schemes, provided that they receive a ‘Certificate of Compliance’ from the DIFC authorities. Some of the requirements that alternative qualifying schemes will need to meet, under the new DIFC gratuity law, includes having an oversight authority with the power to:

• Appoint or remove the operator of the scheme
• Review the operator’s governance
• Review fees and charges on the scheme

Alternative qualifying schemes must also have appropriate representation for the employer and employee, and independent oversight to ensure that the interests of employees are protected.

What is the contribution that employers will have to make under the new gratuity law in DIFC?

Currently, employers in DIFC pay end-of-service gratuity based on the number of days worked by the employee and their final salary. This would include 21 days of the basic monthly salary for each of the first five years served – and 30 days of the basic monthly salary for each additional year served after. This amount equals to 5.83% (21 days) or 8.33% (30 days), which employers in DIFC will need to mandatorily contribute to either the DEWS plan DIFC or any other qualifying scheme that meets the requirements.

When will the new DIFC gratuity law take effect?

The new DIFC law that concerns end-of-service benefits for expatriate employees will come into effect on February 1, 2020. However, employers will have until March 31, 2020 to enrol into a qualifying scheme, as per the newly amended DIFC employment law.

Are there any exemptions from the new DIFC employment law for gratuity?

According to the DIFC Authority, certain entities and employees are exempted from the new DIFC law.

Entities or employers who are not required to register their employees into a qualifying scheme include:

• International institutions that are mandated to make similar contributions for their employees elsewhere
• Employers with a defined benefit scheme that provides more benefits than the mandatory contribution outlined by DIFC’s employment law.

Additionally, the types of employees who do not need to be registered for the  new workplace savings scheme, are as follows:

• Employees who are on secondment (temporary position) in DIFC
• Short-term workers
• Equity partners
• Employees working for government bodies who are based in DIFC

What else do you need to know about the DIFC new gratuity law?

Under the new DIFC gratuity law, employees working in DIFC can also make voluntary contributions to the qualifying scheme, if they wish to do so. This will be in addition to the mandatory contributions from their employer.

End-of-service gratuity will no longer be accrued in DIFC from January 31, 2020 onwards. However, the gratuity that has been accumulated under the current system until January 31 will remain in place. Employers can hold the gratuity and pay it out when the employee leaves the company. Alternatively, employers can also pay the accrued benefits into a qualifying scheme.

And that concludes MyBayut’s overview of the new gratuity law in DIFC. The newly amended law in DIFC will help bring it in line with the global standards and protect both employers and employees.

Want to stay updated on the latest laws introduced in the UAE? You can read up on the new debt law introduced in Dubai, which will help with debt relief by providing support to debtors and placing them on a three-year plan.

Alternatively, if you’re leaving your job and moving out of Dubai, there are certain legal procedures that you will need to take care of. MyBayut has compiled an expat leaving Dubai checklist which will help the process become smooth and easy. You can also find out more about Tasheel, the online government system that streamlines labour-related processes. Tawjeeh is another of the UAE government’s initiatives to increase awareness about the local Labour Law among employers and employees.

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