Navigating UAE's End Of Service Benefits: All You Need To Know
Employees in the UAE are entitled to specific end of service benefits (EoSB) as a token of appreciation their dedication. These benefits, including gratuity, are paid after the termination of an employment contract based on the tenure served. This article provides comprehensive details about EoSB for private-sector employees in the UAE.
End of service benefits (EoSB) are statutory monetary entitlements given to employees upon contract termination, provided they meet eligibility criteria. These benefits include unpaid wages, overtime payments, encashment of unutilised leaves, repatriation expenses, and gratuity.
Gratuity Calculation
The calculation of gratuity pay is crucial for understanding EoSB. Previously, it depended on whether the contract was limited or unlimited. However, with recent changes in labour law, all contracts must now be limited with a validity of up to three years. The formula for calculating EoSB is: EoSB = (basic salary * years of service) / 3.
For example, if an employee earns a basic salary of Dh10,000 and has served for 10 years, their EoSB would be Dh33,333. This calculation applies regardless of whether the termination is voluntary or by the employer.
Unfair Dismissal Compensation
In cases of unfair dismissal, employees can seek legal recourse and may be compensated up to three months' salary if they meet specific criteria. For limited contracts, compensation should not exceed three months' remuneration or the remaining contractual period's amount—whichever is shorter unless specified otherwise in the contract.
2023 Reforms
In September 2023, a new voluntary scheme was introduced for private-sector employees. This initiative allows both employers and employees to participate in investment funds and savings schemes supervised by the Ministry of Human Resources and Emiratisation and the Securities and Commodities Authority.
The scheme aims to protect employees' savings by offering three investment options: a risk-free investment maintaining capital, a risk-based option with varying risk levels (high, medium, low), and a sharia-compliant option. Employers handle subscription applications and end-of-service entitlements while employees contribute a percentage of their basic salary.
Eligibility Criteria
To be eligible for gratuity pay, an employee must have worked with the same organisation for at least one year. Unpaid leaves do not count towards this period. Employees who have worked between one to five years are entitled to full gratuity based on 21 days' salary per year. Those who have served more than five years receive full gratuity based on 30 days' salary per year.
The total gratuity cannot exceed two years' wages in any case. Additionally, severance pay is also calculated based on basic salary and years of service if termination is by the employer.
This new scheme ensures that employees can safely invest their end-of-service benefits while providing flexibility through various investment options. It represents a significant shift towards safeguarding employee savings in the UAE's private sector.
The introduction of these reforms marks an important step in enhancing employee welfare in the UAE's private sector. By offering flexible investment options and ensuring secure savings management, these changes aim to provide better financial security for employees upon contract termination.
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