Legal Analysis of the UAE’s New End-of-Service Gratuity Savings Scheme
I. MOHRE Approves 4 Investment Funds for New Gratuity Savings Plan
The United Arab Emirates has introduced a significant reform of the end-of-service gratuity system. With the approval of a new voluntary savings plan by the Ministry of Human Resources and Emiratisation (MOHRE), employees are expected to gain greater financial security and investment opportunities upon leaving their employment. This article provides a detailed analysis of the new system, including its legal framework, benefits, and implications for employers and employees.
II. Legal Basis: End-of-Service Gratuity in UAE Labour Law
The regulation of end-of-service gratuity in the UAE is primarily based on Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations („UAE Labour Law“). Article 51 specifically outlines the entitlement and calculation of gratuity for private sector employees who have completed at least one year of continuous service. The gratuity is calculated based on the employee’s last drawn basic salary. For the first five years of service, the gratuity amounts to 21 days of basic salary per year, and for each additional year, it increases to 30 days. The new savings model offers a modern alternative, enabling employees to manage their savings more efficiently and plan for the future.
III. Overview of the New End-of-Service Savings Model
The UAE government has approved four investment funds under MOHRE’s supervision to manage end-of-service gratuities. The plan allows employers to contribute to professionally managed investment funds, with employees also having the option to make additional voluntary contributions. Participation in the program is voluntary, allowing employers to continue using the traditional gratuity system if they choose. The managed funds offer various investment options tailored to different risk preferences. The scheme is strictly regulated by MOHRE to ensure transparency and legal compliance.
IV. Key Benefits for Employees, Employers, and the Economy
For employees, the new system provides several advantages. Professional investment management offers the potential for higher returns while ensuring better protection of their capital. The ability to retain accumulated savings when changing jobs within the UAE enhances flexibility and security. Additionally, employees can choose between different investment portfolios and, under certain conditions, make early withdrawals.
Employers also benefit from the model. Ongoing contributions reduce the financial burden of large lump-sum payouts at the end of employment and enable better financial planning. Participating in the scheme enhances employer attractiveness in the job market, helping to retain skilled talent in the long term. Furthermore, the system facilitates structured financial obligations and minimizes business risk.
On an economic level, the introduction of the savings plan strengthens the UAE’s financial market by directing capital into professionally managed investment instruments. Encouraging structured savings and investment plans contributes to financial inclusion for employees and supports sustainable economic growth.
V. Implementation and Compliance Considerations
Employers considering the adoption of the new savings plan should first assess whether the transition aligns with their financial strategy. Next, they must select one of the MOHRE-approved funds that best fits their company’s needs. Any changes must be clearly documented in employment contracts and internal policies. Additionally, companies are required to ensure compliance with labour and financial regulations and to submit regular reports to the relevant authorities.
VI. Conclusion
The UAE’s new end-of-service savings model represents a forward-thinking reform that offers substantial benefits for both employees and employers. The ability to transfer gratuity funds into professionally managed investment schemes provides greater transparency and long-term financial security. Companies interested in participating should proactively adjust their internal processes to take full advantage of this innovative model.
