The UAE has introduced an optional alternative scheme for the conventional end of service gratuity.
Commencing 13 October 2023, an official alternative scheme to the end of service gratuity (EOSG) regime came into force. This alternative scheme is optional for the private sector employers operating in the UAE mainland or in the free zone.
According to the new scheme, instead of accumulating the employees' EOSG with the employer, the employer will have the option to make monthly contributions into one of the specific investments funds, licensed by the Securities and Commodities Authority (SCA), for the benefit of the employee. The monthly contribution must be equivalent to 5.83% of the employee's basic salary whenever the period of service does not exceed five years. This percentage will be increased to 8.33% whenever the period of service exceeds the five-year period.
Unlike the current EOSG regime, the new scheme will give the employee the chance to invest the amount, made up of the employer's contributions, in one of the investment options offered by the operator of the investment funds, with the aim to make profits and subsequently increase the value of the amount the employee will receive at the end of the employment relationship. The investment funds will offer a cash preservation option, various risks options and a Shari'a-compliant option. Needless to say, the employee can only withdraw these amounts at the end of the employment relationship. The employer will have...
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