Hello Business Hub & Startups

08 Oct 2020

What you need to know about the end of service benefits in UAE

One of the largest contributors to a company’s operating costs is employee cost. Most of these workers are employed by small businesses and here is what you need to know to consider (and plan) for the end of service benefits (EOS) for your employees. The information is based on the UAE Labour Law and a lot of this information is available online. 

EOS is essentially a payment that is owed to an employee after termination or resignation.  This is a mandatory payment and the rules governing EOS is the same across the UAE except for some of the free zones (though the default is always the UAE Labour Law ) including DIFC and ADGM. 

In general, all employees in the UAE are entitled to an end of service gratuity payment on termination of employment, provided they have accrued at least one year's service and have not been dismissed for gross misconduct. The amount of the gratuity payment is calculated based on the employee's last basic pay before termination. 

An employee with an unlimited contract who resigns from employment with less than five years' service is entitled to a reduced gratuity payment. If they have not resigned, then, based on their duration of service, the employee is entitled to:

● one-third of the total gratuity entitlement if they have served more than one year's but less than three years

● two-thirds of the total gratuity entitlement if they have worked more than three years' but less than five years

An employee who has more than five years' service is entitled to the full gratuity entitlement. However, an employee with a specified term (limited) contract who resigns from employment with less than five years' service is not entitled to a gratuity payment.

Employees of DIFC and ADGM have different rules. In these two entities, the employee is entitled to a company pension that is at least as beneficial to the employee as the minimum EOS gratuity provisions of the UAE Labour Law, DIFC Employment Law or ADGM Employment Regulations. These pension contributions are made by the employer, on an employee's behalf, to the applicable UAE pensions authority. In DIFC and ADGM, the gratuity payment is calculated based on the number of days in the year. Resignation does not affect the gratuity entitlement.

The concept of EOS gratuity is being phased out from 1 February 2020 in DIFC. From that date, employers are required to make contributions to a defined contribution workplace savings scheme on a monthly basis. Employees will continue to be entitled to an end-of-service gratuity payment for the period of service before the introduction of the new defined contribution scheme. As with end-of-service gratuity, the new defined contribution savings scheme is not required to be offered to UAE and other GCC nationals.

Under the Labour Law, expatriate employees who are terminated by the company (as opposed to those who resigned) are also entitled to reimbursement of repatriation costs. These costs are the equivalent of the price of an economy class travel ticket as well as any other travel expenses as stipulated in the employment contract or provided for at the time of recruitment. However, this only applies if the employee does not obtain alternative sponsorship for UAE residence visa purposes within 30 days of the cancellation of their initial employment visa.

The DIFC Employment Law does not provide for reimbursement of repatriation costs. In the DIFC, employers will be required to sign a DIFC personnel secondment agreement stating that it has a financial obligation to provide the employee with a ticket back to their home country. Again, this only applies if the employee does not obtain alternative sponsorship for UAE residence visa purposes within 30 days of termination of employment.

The ADGM Employment Regulations require employers to provide a repatriation ticket regardless of whether the employee resigns or is terminated, except where the employee obtains alternative sponsorship within 30 days of the cancellation of the employee's visa or where the employee is terminated for cause.

While there is a comprehensive portal explaining the UAE Labour Law, you might want to research in your free zone or country of operations on what the labour laws are for your business and the rules governing end-of-service benefits.