To enhance benefits for employees and employers in the private sector of UAE, the government of the United Arab Emirates has approved a new voluntary form of program known as the Alternative EOSB Scheme. This article will give fundamental knowledge of the new Alternative EOSB Scheme and how it is different from the end-of-service gratuity system.
Traditional end-of-service gratuity system
Formerly in UAE, end of services, gratuity was an obligatory legal right that employees in the private sector were eligible to receive after the termination of the contract, serving a minimum of one year of continuous employment. All employees were provided service benefits including end-of-service gratuity depending on the number of years of service and the employee’s last basic salary in accordance with the UAE Labour Law.
End-of-service gratuity for employees with less than 5 years of service was computed in terms of twenty-one days wages for each year of the first five years of service. For more than five years of service, end-of-service gratuity was payable at a rate of 30 days’ wages for each year in excess of five years. Some employers provided improved end-of-service gratuity schemes that could be further superior to these provisions, for instance, providing end-of-service gratuity in accordance with the gross salary including allowances rather than the basic salary.
Read More: Gratuity Calculator in UAE
Key features of the Alternative EOSB Scheme
The Alternative EOSB Scheme is optional for employers, however, employees are obliged to participate in this kind of scheme if the employer chooses to do so. Here are some key features of the new scheme:
- Employers must contribute a basic monthly contribution to the employee’s investment fund account, calculated as a percentage of the employee’s basic salary.
- Contribution rates are 5.83% for the first 5 years of service and 8.33% thereafter.
- There are also voluntary contributions where employees can contribute up to 25% of their gross salary in addition to the basic employer contribution.
- They are funded through various investment products based on their risk profile and can be withdrawn at any time during the course of their employment.
- For contributions and returns, the employee is paid all the amount within 14 days after termination or can reinvest the money.
- This new scheme, however, does not affect any end-of-service gratuity entitlements that had been earned by employees before joining this scheme.
Investment options and funds
Under the Alternative EOSB Scheme, some of the important investment opportunities that are possible are:
- Risk-free, capital-guaranteed portfolios
- Small, medium and high-risk portfolios
- Sharia-compliant investment funds
- The skilled employees ( monthly salary of at least AED 4,000) can decide about the investment option except for the capital protection on the basic contributions.
- Lunate and Daman Investments are two of the first investment funds that have been authorized to introduce the Alternative EOSB Scheme. To this end, employers may choose one of these funds to facilitate the contributions.
Benefits of the Alternative EOSB Scheme
Employers |
Employees |
| Reduced long-term liabilities by paying monthly contributions instead of lump sums at termination. | Greater choice and control over retirement savings through various investment options. |
| Improved competitiveness in attracting talent by offering competitive retirement benefits. | Opportunity for investment returns on contributions through fund growth over time. |
| Ringfenced employee savings protected from insolvency procedures if employer becomes bankrupt. | Protection from inflation as savings value will grow rather than remain fixed like lump sum end-of-service gratuity payments. |
The new Alternative EOSB Scheme or end-of-service benefits for the private sector has a clear advantage over the traditional gratuity system for employers and employees in the UAE. The employers would get the financial and market utility while the employees would get the improved retirement savings and have the prospect of getting wealthy. The fact that this is beneficial for all the major players goes some way towards explaining why the scheme is so attractive.
Implementation process
To participate in the scheme, an employer requires a permit from the UAE Ministry of Human Resources and Emiratisation (MOHRE). After this approval, the employer may get in touch with any of the licensed investment funds and decide which categories of employees should be enrolled. The employer then has obligations in regard to contribution payments, the settlement of these and communication with employees.
FAQs
1. Is the Alternative EOSB Scheme mandatory?
The scheme is voluntary on the part of the employer but compulsory for some of the employees in case the employer decides to participate in the scheme.
2. Can employers continue existing enhanced end-of-service gratuity schemes?
Yes, employers may provide end-of-service gratuity schemes in addition to participating in the Alternative EOSB Scheme.
3. What is the difference between basic and voluntary contributions?
As a matter of fact, basic contributions refer to the compulsory employer contribution that is computed based on a percentage of the basic wage/salary. Voluntary contributions are supplementary employee contributions where they use other additional resources.
Conclusion
The new Alternative EOSB Scheme brought to the UAE seeks to offer more options and better conditions for employers and employees as compared to the previous end-of-service gratuity norms. By requiring constant contributions to savings, promoting growth, and preserving funds, it creates a contemporary approach to the employees’ post-employment retirement plans. If more employers continue to embrace the scheme, it can revolutionize retirement saving for private sector human capital in the country.
