Dubai Payroll Outsourcing Alert – DIFC Announce a New End—of-Service Gratuity Law

Dubai payroll outsourcing leader issues a statutory alert for Dubai International Financial City (DIFC)

Mercans has alerted its Dubai payroll outsourcing clients of End of Service Gratuity Law related changes.  Effective from 1st February 2020, the UAE government has enacted the Employment Law Amendment Law No. 4 of 2020 for Dubai International Financial Centre (DIFC).

The amendment introduces a Qualifying Scheme workplace savings scheme in the DIFC, replacing the current end-of-service gratuity payment regime that has been in place since the inception of the DIFC in 2004.

In accordance with the new law, employers will make mandatory monthly contributions to a professionally managed and regulated savings plan.

Employers will have until 31 March 2020 to enroll in a Qualifying Scheme, which DIFC Authority backed DIFC Employee Workplace Savings (DEWS) Plan.

Alternatively, employers may seek a Certificate of Compliance from the DIFC Authority for an alternative Qualifying Scheme under the Regulations.

 

Highlights of the new law:

  1. Employer’s Mandatory Contributions: During the first five year of employment, employers are required to contribute 5.83% and thereafter 8.33% of the employee’s monthly basic salary.
  2. Voluntary Savings: Employees can make voluntary savings contributions into a Qualifying Scheme on top of the mandatory monthly contributions.
  3. Enrollment: All new hire must be enrolled in a Qualifying Scheme by no later than the 15th of the following months from their start date.
  4. Accrued Benefits: Employees, with at least one year of service, must be paid their end-of-service benefits in accordance with the previous law for their service period until the employees’ enrollment in a Qualifying Scheme. Employees can request cash payouts of the benefits accrued under the new law or leave the saving in a Qualifying Scheme at a time of their employment termination.
  5. Short Term Workers: Employees on secondment in the DIFC, short-term workers, equity partners, and employees working for government authorities are exempted from enrolling in a Qualifying Scheme.
  1. Exemptions: Employers with a statutory obligation to make pension, retirement or similar contributions on behalf of their employees elsewhere, as well for employers who wish to provide a regulated defined benefit scheme to their employees that provide benefits in excess of the mandatory defined contributions under the DIFC Employment Law, are exempted from the enrollment of their staff in a Qualifying Scheme under the amended law.

 

What is a “Qualifying Scheme”?

The DIFC Authority has established a framework DEWS plan whereby Equiom (a DIFC-licensed trustee) will be the master trustee, Zurich are the administrator and Mercer will have oversight of the asset management.

However, if a DIFC employer wishes to use a scheme other than the framework DEWS plan, the company can apply to the DIFCA for a “Certificate of Compliance” in order for a different scheme to be certified as a “Qualifying Scheme”.

Accordingly, the framework DEWS plan, or any alternative scheme which satisfies the various requirements below and accordingly receives a Certificate of Compliance from the DIFCA, would therefore constitute a “Qualifying Scheme”.

 

A Certificate of Compliance will only be issued by the DIFCA if the scheme satisfies the key requirements of a Qualifying Scheme, including that:

  • the scheme must provide for the payment of contributions by the DIFC company for each eligible employee at no less than the Core Benefits (rate shown above);
  • the scheme must provide for the payment of benefits in the event that the employee leaves the company’s employment or service, or is otherwise entitled to withdraw their benefits (including where the individual reaches 65 years of age);
  • the Operator, Administrator, Investment Adviser and the Fund Manager of the scheme must be regulated by a “Recognized Regulator” (where the regulator is not the Dubai Financial Services Authority (“DFSA”), the DIFCA will have discretion, in consultation with the DFSA, to determine what will be considered a “Recognized Regulator” for this purpose); and
  • if the Qualifying Scheme is established in the DIFC, it must be a DIFC trust established pursuant to the DIFC Trust Law.

In terms of the investment funds into which contributions may be invested under a Qualifying Scheme, each fund must be established and regulated in a “Recognized Jurisdiction” – meaning in the DIFC or any other jurisdiction determined by the DIFCA (in consultation with the DFSA) to be a recognized jurisdiction for this purpose.

Each Qualifying Scheme must have a Supervisory Body (to appoint and oversee the Operator), an Operator (to be responsible for the overall management operation of the Qualifying Scheme), an Administrator (to be responsible for the technical, operational and administrative functions of the Qualifying Scheme), and an Investment Advisor (to advise the Operator in relation to investment options and risk profiles, and to help the Operator establish and maintain an appropriate investment platform).