The UAE's New End-of-Service Gratuity Scheme: Smarter Benefits, Greater Control

The UAE has redefined the concept of end-of-service gratuity for private sector employees and those working in free zones. In a significant regulatory shift, an optional investment-based end-of-service scheme has been introduced by the Ministry of Human Resources and Emiratisation (MoHRE). This initiative presents a smarter, long-term alternative to the traditional lump-sum gratuity—one that aims to enhance employee financial security while aligning with international best practices in workforce benefits.

What Is End-of-Service Gratuity?

End-of-service (EoS) gratuity is a statutory benefit granted to employees who complete their employment tenure in accordance with UAE labour laws. Under the traditional structure, employees receive a lump-sum amount calculated based on years of service and basic salary—21 days’ pay per year for the first five years and 30 days per year thereafter.

However, the newly launched scheme replaces this model with monthly employer contributions to an approved investment fund. These contributions accumulate and grow over time, offering employees a potentially higher return than the static lump sum model. While participation is currently optional, it is expected to evolve into a preferred choice for companies looking to provide sustainable employee benefits.

Traditional vs. New Scheme: What's Changed?

Under the new system, employers may opt to contribute monthly to an investment fund licensed by MoHRE, rather than deferring gratuity until termination. The structure includes:

• 5.83% monthly contribution for employees with less than five years of service

• 8.33% monthly contribution for those with more than five years of service

This amount is not deducted from the employee’s salary. Contributions are made directly by the employer into a fund chosen from MoHRE-approved options.

The traditional model continues to apply to employees whose employers have not enrolled in the new scheme or who opt to remain under the old structure. It remains the default system unless the employer takes proactive steps to register with MoHRE and enrol staff in the updated scheme.

Eligibility and Participation: How Does It Work?

The scheme is employer-driven. Only employers can enrol employees into the plan. Employees cannot opt-in individually unless they are self-employed or freelancers. Once enrolled, contributions begin from the first month of registration. Employees are notified, and participation is automatic unless otherwise specified.

Importantly, the employer chooses whether to participate, and subsequently decides which eligible employees are to be enrolled. This means that most employees are subject to their employer’s decision unless they operate independently as business owners or freelancers.

Investment Fund Structure and Options

Funds under this scheme are designed to provide flexible investment options based on employee preferences and risk tolerance:

• Capital Guarantee Portfolio: Suitable for unskilled or risk-averse workers, offering protection of principal investment with stable returns.

• Risk-Based Portfolios: Offering a range of risk-return profiles for more experienced or willing investors.

• Sharia-Compliant Funds: Allowing employees to invest in compliance with Islamic principles.

Employees may also make voluntary contributions of up to 25% of their annual salary. These contributions can be withdrawn during employment (subject to fund-specific terms), unlike employer contributions, which are generally available upon termination or transition.

Termination and Changing Jobs

One of the key advantages of the new gratuity scheme is portability. If an employee leaves or changes employers:

• The accumulated employer contributions remain in the fund.

• Any investment returns earned during employment are retained by the employee.

• If the new employer is also enrolled in the scheme, the gratuity balance can be transferred to the new employer’s fund.

• If not, the employee can either withdraw their accrued benefits or continue managing the investment independently.

Employees are always entitled to the full value of their investment fund upon termination, including all contributions and earned returns. This ensures greater continuity and financial planning flexibility across employment cycles.

How to Enrol

For employers:
The registration process begins with a formal request to MoHRE and involves selection from a list of approved investment funds. Once selected, the employer submits employee information and begins monthly contributions.

For self-employed individuals and freelancers:
You can voluntarily enrol by selecting an approved fund and registering through the UAE Government or MoHRE portals. The same rules on contribution and access apply.

Legal and Administrative Support

The implementation of this new model is governed by MoHRE’s executive regulations issued under Federal Decree Law No. 33 of 2021, further supported by relevant resolutions from the UAE Cabinet. For additional clarity and dispute resolution, employees may approach MoHRE’s service channels or labour courts as needed.

All employee entitlements, including end-of-service benefits—whether traditional or investment-based—are protected under UAE labour law, reinforcing the nation’s commitment to employee welfare and financial inclusion.

Conclusion

The UAE’s new end-of-service gratuity scheme marks a forward-thinking shift in how employee benefits are structured. With employer-funded contributions, flexible investment options, and enhanced portability across jobs, the new system reflects the UAE’s ambition to align labour practices with international standards while empowering employees with more financial autonomy. While traditional gratuity remains an option, the investment-based scheme offers a compelling opportunity for long-term wealth building. Whether you are an employee, freelancer, or business owner, understanding this system is key to making informed financial decisions about your future.