UAE: Developments under the End of Services System in Dubai 2023

published on 15 September 2023 | reading time approx. 2 minutes

Sheikh Mohammed bin Rashid Al Maktoum announced a new End of Services System for employees in the UAE, which is now intended to be an alternative to the current practice of the End of Services System. In the current practice, severance pay is made by paying out a certain amount in the event of termination of employment. Under this system, severance pay to foreign employees working in the private sector is governed by Article 51 of the UAE Labour Law.

As a minimum requirement for claiming this entitlement, the worker must have been employed continuously for at least one year. Currently, the employer records this amount of lump sum in his account throughout the employee's employment. This means that the amounts do not earn any income during this time and are potentially at risk if the employer runs into financial difficulties.

With the new scheme, participating employers can pay a monthly contribution into the investment funds on behalf of each employee. The beneficiary employee will receive his savings and the accumulated earnings from the funds after termination of his employment. If the employer voluntarily decides to participate in the scheme, he is obliged to pay a monthly contribution into the selected fund. This provides the eligible employee with an opportunity to invest their severance pay in various savings plans. The aim is to protect the severance pay for workers employed in the public and private sectors, as well as the free zones, at the end of the employment period, while ensuring that the gains are safely invested.

For this purpose, a private sector investment and savings fund will be established for the new scheme under the supervision of the Securities and Commodities Authority and in consultation with the Ministry of Human Resources and Emiratisation. The system offers three investment options: risk-free investment, low, medium and high risk investment options, and Shariah-compliant investment.

For employers, the new system is expected to be more favorable than the conventional system in the long run. The date when the new system will come into effect, is not yet known, as the authority in charge has not made any announcement on its implementation.