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New End-of-Service Benefits Scheme for Employees in the Private Sector Approved | Bashir Ahmed and Saurbh Kothari © Afridi & Angell

​The United Arab Emirates (UAE) cabinet recently approved a scheme for the establishment of savings and investment funds for employees primarily in the private sector, including free zones. This scheme is an alternative to the current system of payment of end-of-service benefits (gratuity) to an employee at the end of employment.

Participation in the scheme will be optional for employers. Under this scheme, the participating employer will be required to make a monthly contribution to the selected fund.

The funds will be supervised by the UAE Securities and Commodities Authority in coordination with the Ministry of Human Resources and Emiratization.

The scheme is likely to have three investments options: 1) risk-free investment option (which will maintain the capital); 2) low, medium or high risk-based investment options; and 3) sharia-complaint investment option.

An employee will be entitled to receive the worker’s savings (contributions made by the employer) and returns on investments, as per the investment option selected, at the end of employment. If employment has been terminated, it is likely that an employee will have the option to continue with the fund without additional contribution from the previous employer by not withdrawing the worker’s savings and returns.

Participating employers will not be required to pay end-of-service gratuity to the employees at the end of their employment. However, other benefits such as return ticket/airfare, payment of unused annual…

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