The UAE has introduced a forward-thinking alternative to the traditional end-of-service gratuity model for private and free zone sectors: the Savings Scheme. This is a voluntary system that allows employees to build financial reserves through investments, offering a more sustainable and potentially rewarding approach to end-of-service planning.

Overview of the Savings Scheme

This alternative scheme enables employers to contribute a monthly amount to a licensed investment fund on behalf of their employees. Over time, these contributions, along with any investment profits, replace the lump-sum gratuity typically provided at the end of employment.

Once an employee is selected for the scheme, they become an active participant, and the employer must discontinue using the traditional gratuity calculation for them. The transition requires approval from the Ministry of Human Resources and Emiratisation (MoHRE), and employers must collaborate with funds licensed by the Securities and Commodities Authority (SCA).

Purpose of the Scheme

The Savings Scheme was introduced with several key intentions:

1. Shield employees from inflation, company insolvency, and payment default.
2. Encourage steady, long-term saving habits.
3. Offer access to UAE-based investment opportunities aligned with various risk preferences.

Investment Opportunities

Employees can choose from a selection of portfolios based on their financial comfort level:

1. Sharia-compliant investment options.
2. A capital-protected plan tailored for unskilled or risk-averse employees.
3. Multiple other funds with varying risk and return expectations.

Daman Investments End of Service Programme is among the approved fund options available to participants.

Eligibility and Participation

The Savings Scheme is open to private sector and free zone employers and their workforce. Interested employers must file a request with MoHRE and select which employee levels or roles will be included. Once enrolled, participation is compulsory for those selected, and the company must preserve any accrued entitlements prior to the transition.

Contribution Structure

Employers contribute a percentage of the employee’s monthly basic salary:

1. 5.83% if the employee has been with the company for fewer than five years.
2. 8.33% if service exceeds five years.

These contributions must be transferred to the investment fund within the first 15 days of each month.

Optional Employee Contributions

Employees have the option to make additional contributions to their fund, up to 25% of their annual salary. These can be made in installments or as a one-time amount and are deducted directly from the employee’s salary. Voluntary contributions and their returns can be partially or fully withdrawn at any point during employment, depending on fund rules.

Employee Rights Upon Exit

At the end of employment, employees are entitled to the full amount of the employer’s contributions and any associated investment gains. These must be paid out within 14 days of termination. Employees may also opt to keep their funds invested even after leaving the company.

Oversight and Governance

The scheme is monitored by:

1. MoHRE, responsible for labor disputes and inspection oversight.
2. SCA, which supervises fund provider performance.
3. Financial Free Zone authorities, which manage related matters within their jurisdictions.

Traditional Gratuity System: Still an Option

For companies and employees not enrolled in the Savings Scheme, the current end-of-service model remains active.

For UAE nationals, benefits are provided under federal pensions and social security legislation.

For foreign employees, benefits are calculated based on the final basic salary and the length of service:

1. No gratuity if service is less than one year.
2. 21 days’ salary per year for service between 1 and 5 years.
3. 30 days’ salary per year for service exceeding 5 years, after the fifth year.

The total gratuity payout cannot exceed the equivalent of two years’ basic salary. Employers may deduct any unpaid dues from the final entitlement, and all payments must be made within 14 days of contract termination.

For Non-Standard Work Arrangements

According to Article 30 of the Cabinet Resolution No. 1 of 2022, end-of-service benefits for part-time or flexible work models are calculated proportionally. The ratio of actual annual hours worked to full-time hours is applied to the standard gratuity calculation.