News & Insights
By the turn of the century, the UAE realized the importance of joint amalgamation of international laws and their compatibility with the existing UAE Legislature. The nomenclature of the UAE law stems from two distinct roots. Primarily the Shariah Law, followed by the Civil Code adopted from the French Legal system. Nonetheless, due to an overwhelming population explosion, starting with the initiation of Freehold property laws of Dubai, followed by the Freezone’s multiplication of the whole UAE, the requirements of a Legal system which could compute with the International Laws materialized. By 2004, the Dubai Executive Committee, headed by HH. Sheikh Mohammed Bin Rashid Al-Maktoum promulgated the advent of the Dubai International Financial Centre (DIFC). It was the dawn of a new beginning, as for the first time, an Arabic-speaking country introduced the English Common Law Jurisdiction in its legislative system. Ever since then, the DIFC has left no stone unturned in making astounding discoveries, as opposed to its contemporaries, to garner a good grip on the market. The introduction of the DIFC-LCIA as its arbitration wing, espoused a new perception for employment within the DIFC, which should not remain in oblivion for the masses. Hence a brief explanation is provided of the end of service benefits for DIFC Employees.
Since the DIFC strictly adheres to the Common law procedures, hence the term ‘gratuity’ is used to describe the end of term benefits. The DIFC procedures recognized the End of Service Benefits (EOSB) as in Article 60 (5) and (7) were the regulatory marks of this law. This scheme provided through the DIFC Law no. 4 of 2005-the employment law, the entire end of service benefits for DIFC employees. This step was a revolutionary change in the already cosmopolitan environment of the DIFC. An employee at the DIFC is entitled to the gratuity if his employment terminates according to the circumstances listed under article 60 (4) of law no. 4 of 2005. The late end-of-service gratuity arrangement was an unfunded defined benefit (DB) scheme initially designed to attract talented employees to work in Dubai.
Nonetheless, that scheme eschewed the best practices of employment law across the globe. The DIFC Employment Amendment Law, which got enacted on the 14th of January 2020, repealing DIFC Law No.2 of 2019 (the DIFC Employment Law) with the prime goal of replacing the existing end of service gratuity regime with the DIFC Employee Workplace Savings Plan (DEWS) or a qualifying alternative scheme (QAS). The end of service benefits scheme is now repealed as of February 2020 through the enactment of the DIFC Employee Workplace Savings (DEWS) and the QAS.
DEWS-DIFC Employee Workplace Savings Plan
On the 1st of February 2020, HH Sheikh Mohammed Bin Rashid Al-Maktoum, in his capacity as the Ruler of Dubai enacted a nascent Law for the DIFC, which may be cited as the “Employment Law Amendment Law, DIFC Law No. 4 of 2020”. The most significant advantage of the new law is the introduction of a gratuity system, which happens to be a more lucrative option for the employees. One of the most significant changes promulgated through the new law of the conception of DEWS (DIFC Employee Workplace Savings Plan). It is a unique contribution to the existing DIFC laws and is enacted to keep the best interests of the employee. Moreover, Articles 66 (1) and (2) further laid the guidelines of the Gratuity procedures of the DIFC laws, the prerequisite of eligibility happens to be a minimum year of employment at the DIFC. DEWS champions the gratuity of employees as an investment ratio, having their contributions professionally managed in a cost-effective manner saving for their future financial goals. Although a vast majority of employees will adhere to their Qualifying Scheme Commencement Date, there is an exception to the rule for Exempt employees who are either (1) serving their notice period during the promulgation date of the 1st of February (2). Employees who were employed under fixed-term contracts, before the 1st of May 2020, calculated until the termination date. The gratuity contributions rates for all non-exempt employees and are required by the employer to contribute:
- 5.83% of an Employee’s Monthly Basic Wage during the first five years of an Employee’s service; and
- 8.33% of an Employee’s Monthly Basic Wage during each additional year of the employee’s service.
Fees for DEWS will start at a minimum of 1.33% of plan assets for trust, administration and investment services, pertaining to a round of clock review. However, Shariah-compliant companies’ application of DEWS on them is still not clear and needs more clarity. Hence, the employees of the DIFC can enjoy more perks of their incomes in the UAE even post-employment. This enables a scheme, which is far more contributing to an employee, as opposed to all other programmes. The case of the probationary period should also be emphasised, according to the DIFC Law, if an employee surpasses the probationary period with distinction, the employer has to calculate the DEWS from the actual start date. A DIFC employee is allowed to voluntarily contribute to the DEWS or the QAS by notifying this request to his employer. Furthermore, UAE locals and other GCC nationals are exempted from the mandate but may participate voluntarily. Those companies which possess multiple entities at the DIFC will need to have separate DEWS accounts for each entity.
Qualifying Alternative Scheme (QAS)
All employers are law-bound to register all of their employees into the scheme by or before the 31st of March 2020, failure to non-compliance of the above the law will incur a fine of US $ 2000 upon the employer. All DIFC employees need to enrol for the DEWS Program on or before the 1st of April 2020. Hence to accommodate the vast numbers of registrations, the QAS is deployed together. The QAS, for whom the employers have acquired assurance certifications from the DIFC Authorities is activated in the second quarter of 2020 Let’s say if the QAS is established for a company outside judicial limits of the DIFC, then the jurisdictional procedures of the DIFC will be applied. For example, if a company claims their QAS account is established at the Barclays bank in London, then they have to follow the rules and regulations of the DIFC to accommodate all functions in favour of the employees. For obtaining approvals for the QAS, there are a number of criteria which a scheme must adhere to be certified, including but not limited to the prerequisite the allowances of Employer Contributions must not be less than those stipulated in the DIFC Employment Law, as amended, and it must release all payments when a member resigns/ gets terminated.
Additionally, to function the requirement of an operator and administrator is needed, who are either regulated by the DFSA or a competent jurisdiction within the realms of approval. The Operator must possess a Supervisory Board or, in the case of a QAS not established in the DIFC, this operation may be performed by a protector of a trust. The certificate of compliance has to be obtained by the employer before the 31st of March 2020.
The aftermath of the introduction of the DEWS and the QAS is expected to attract a lot more number of companies registering at the DIFC. Also, these two programs will be equally lucrative for the upcoming employees of the DIFC. This historic introduction of a new law can bring much stability to the market and to the DIFC itself. Nonetheless, all employees of the DIFC must register themselves through their employers in either the EOSB or the QAS as soon as possible. The online portal allows filing applications for the respective employees. Please render your precious times, as employees of the DIFC, and avoid any sort of complication for the future.
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