End-of-service benefits (EOSB) in the United Arab Emirates (UAE) serve as a statutory entitlement designed to support employees financially upon the conclusion of their employment. These benefits are calculated based on an employee’s basic salary and the duration of the service.
How EOSB is Calculated
- First Five Years of Service: Employees are entitled to 21 days of basic salary for each year of service during the first five years.
- Service Beyond Five Years: For any additional years beyond the initial five, employees receive 30 days of basic salary per year.
It is important to note that the total EOSB payout cannot exceed the equivalent of two years of the employee’s basic salary.
Recent Updates and Alternatives
In 2023, the UAE government introduced an alternative voluntary scheme for end-of-service benefits. This initiative allows employers to contribute to an investment fund on behalf of their employees. The scheme’s objective is to enhance financial security for employees while promoting a culture of savings.
Key Features of the New Scheme:
- Voluntary Nature: Employers have the option to join the scheme, and employees can choose to participate.
- Employer Contributions: Contributions depend on the length of the employee’s service:
- For employees with less than five years of service: 5.83% of the monthly basic salary.
- For employees with more than five years of service: 8.33% of the monthly basic salary.
- Employee Contributions: Employees can voluntarily contribute up to 25% of their total salary annually.
- Investment Options: The scheme offers multiple investment options, including risk-free funds, variable-risk funds, and Sharia-compliant funds.
This alternative aligns with global best practices and offers greater flexibility for employees to grow their end-of-service savings.
Additional Considerations
- Eligibility Criteria: Employees must complete at least one year of continuous service to qualify for EOSB.
- Exclusions: EOSB may not be payable under specific circumstances, such as termination, for reasons outlined in Article 120 of the UAE Labour Law.
- Special Provisions for UAE and GCC Nationals: Nationals typically participate in pension schemes that differ from EOSB entitlements for expatriate employees.
Leveraging greytHR for EOSB Compliance
Organizations can streamline their compliance with EOSB requirements by utilizing tools like greytHR. This comprehensive HR software simplifies the management of employee benefits and ensures compliance with UAE labor laws. Here’s how greytHR can help:
- Automated Calculations: The platform accurately computes EOSB entitlements based on service duration and basic salary, reducing the risk of errors.
- Customizable Policies: Employers can configure the software to align with both the traditional EOSB framework and the alternative voluntary scheme.
- Documentation and Reporting: greytHR provides detailed records and reports to support transparency and audit readiness.
- Employee Self-Service: Employees can access their EOSB calculations and contributions through the software’s self-service portal, fostering trust and clarity.
By adopting greytHR, organizations can enhance operational efficiency while maintaining compliance, ensuring that both employer and employee obligations are met seamlessly.
Conclusion
End-of-service benefits in the UAE provide critical financial support for employees upon the termination of their employment. The introduction of the alternative scheme reflects the UAE’s proactive approach to ensuring financial stability for its workforce. Both employers and employees are encouraged to understand these provisions thoroughly to ensure compliance and to make well-informed decisions about their financial futures.
