Dubai’s newest end-of-service scheme: Everything you need to know!

Dubai’s newest end-of-service scheme: Everything you need to know!

Wednesday 06 September 2023Wed 16 Feb
Dubai’s newest end-of-service scheme: Everything you need to know!

In case you missed it this week, a significant new development in the UAE's employment landscape was announced, and it's designed to safeguard the rights of workers across the country. This scheme is known as the end-of-service gratuity scheme.

As for what it is, gratuity is a sum paid to you at the end of your work relationship on the basis of your last basic salary.

His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, unveiled this groundbreaking initiative, leaving many wondering, "Am I eligible?" Let's break it down for you.

Inclusivity across sectors

This new UAE end-of-service scheme isn't selective; it's open to employees from various sectors. Whether you work in the public sector, private sector, or one of the nation's vibrant free zones, you're covered.

The aim is to provide financial security and peace of mind to a wide range of workers.

The concept of gratuity

Gratuity is a lump sum payment you receive at the conclusion of your employment. It's based on your final basic salary and serves as a token of appreciation for your service.

To become eligible for gratuity, you need to have spent one year or more in your current job. This payment often becomes a valuable financial resource for employees as they transition to new opportunities.

Greater flexibility in your gratuity

The new UAE end-of-service scheme introduces a breath of fresh air when it comes to gratuity. Instead of the traditional one-size-fits-all approach, this scheme empowers you with three distinct investment options:

Risk-free investment: This option focuses on maintaining your capital, ensuring it stays safe and secure.

Risk-based investment: For those willing to explore investment opportunities, this choice offers the potential for growth and higher returns.

Sharia-compliant investment: For individuals seeking ethical and Islamic financial principles, this option aligns with Sharia guidelines.

This level of flexibility empowers you to make a choice that aligns with your financial goals and values.

Why your contract type matters

It's important to note that the type of employment contract you hold plays a significant role in determining your gratuity. UAE labour law recognizes two primary contract types:

Limited-term contract: This type includes specific start and end dates for the employment period, often used for project-based roles.

Unlimited term contract: More commonly used in the UAE, this contract offers greater flexibility and does not impose fixed end dates.

When is gratuity not applicable?

It's equally important to understand when you may not be eligible for gratuity:

If you resign before completing a full year of service, you won't be entitled to any gratuity payment.

Termination scenario:

For those who are terminated, the gratuity calculation is as follows:

If you've worked for more than one year but less than five years, you'll receive 21 calendar days' basic salary for each year within the first five years of your employment.

For employees with more than five years of service, the calculation extends to 30 calendar days' basic salary for each additional year, provided that the total compensation does not exceed two years' pay. Please note that unpaid leave days are not factored into this calculation.

Resignation scenario:

If you decide to resign, your gratuity entitlement varies:

Resigning before completing one year of service means you won't receive any gratuity pay.

Those who have served between one and three years are entitled to 1/3 of 21 days' basic salary as gratuity pay for each year worked.

For employees with a service duration of three to five years, the entitlement increases to 2/3 of 21 days' basic salary for each year served.

Finally, employees with more than five years of service are eligible for the full 21 days' basic salary as gratuity pay for each year worked, with unpaid leave days excluded from this calculation.

Keen to know more?

Take a look at the MOHRE (Ministry of Human Resources and Emiratisation) portal to know more about the end-of-service gratuity.

And if you have recently moved to Dubai, in search of the perfect role - Get in touch with our Allsopp & Allsopp Recruitment experts!

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