UAE’s Alternative End-of-Service Benefits Scheme: Transforming Gratuity into Growth through Strategic Investments

Dubai: The UAE has introduced a transformative approach to employee gratuity through the Alternative End-of-Service Benefits scheme (EOSB), also known as the Voluntary Savings Scheme. This initiative allows gratuity to be invested strategically, enabling it to grow over time rather than remaining a fixed amount payable at the end of employment.

Overview of the Alternative End-of-Service Benefits Scheme

On October 10, 2023, the UAE Ministry of Human Resources and Emiratisation (MOHRE), in collaboration with the Securities and Commodities Authority (SCA), enacted Cabinet Resolution No. (96) of 2023. This resolution establishes an alternative End-of-Service Benefits scheme aimed at private sector employers and employees.

The legislation outlines that employers will contribute a monthly subscription to an investment fund, allowing beneficiaries to receive their entitlements upon employment termination. This includes both the basic subscription amount and any investment returns generated, as stipulated in the resolution.

Navandeep Matta, a senior associate at Kochhar & Co. Legal Consultants in Dubai, clarified that traditional gratuity, as defined under Article 51 of Federal Decree-Law No. 33 of 2021, is a lump sum paid only at the end of employment. In contrast, the EOSB savings scheme transforms this into a funded monthly obligation, where employers contract with licensed investment funds. The monthly contributions are set at 5.83% of the basic salary for employees with less than five years of service, increasing to 8.33% thereafter. This approach allows for growth through investment returns rather than remaining a static liability.

Key Differences Between EOSB and Traditional Gratuity

Traditional gratuity is a one-time payment based on an employee’s basic salary, disbursed upon job termination. The EOSB scheme, however, involves employers making monthly contributions to professionally managed investment funds. The final payout to employees occurs at the end of their employment, but the funds are actively managed to ensure growth.

By investing end-of-service benefits in high-performing funds, the EOSB scheme ensures that employees’ money works for them, rather than remaining idle until the end of their employment.

Benefits of the EOSB Savings Scheme

According to MOHRE, the Voluntary Savings Scheme offers several advantages for participating establishments:

• Cost Efficiency: The scheme is more cost-effective in the medium term compared to traditional end-of-service benefits.
• Proactive Financial Management: It encourages a proactive approach to managing financial obligations, supporting long-term financial health.
• Enhanced Reputation: Participation can improve an establishment’s standing in the national labor market.
• Increased Employee Loyalty: The scheme fosters employee loyalty, aiding in the attraction of top talent and promoting overall well-being.
• Boosted Productivity: Employees can grow their financial assets, which can lead to increased productivity.

Eligibility and Restrictions

Both employers and employees should be aware of specific aspects of the EOSB scheme:

Scope: The EOSB scheme is applicable to private sector employers and employees, including those in free zones. There is also a subscription-only tier for self-employed individuals, expatriate employees of government entities, and UAE nationals whose employers maintain contributions to the General Pension and Social Security Authority (GPSSA).

Employer’s Choice: Participation in the EOSB scheme is at the employer’s discretion. Once an employer opts in, subscription becomes mandatory for selected employees. Employers wishing to participate must submit a request to the Ministry.

Withdrawal Restrictions: Basic subscriptions and returns cannot be withdrawn before employment termination. However, employers may reclaim their contributions if an employee leaves within one year of enrollment.

Minimum Commitment: Employers who opt into the scheme must adhere to a minimum commitment of one year, with early exit only permitted through MOHRE approval under specific circumstances, such as license cancellation or insolvency.

Penalties for Non-Compliance: Failure to make timely payments can result in penalties, including a work-permit freeze after two months of missed payments and a fine of Dh1,000 per employee for each month missed after four months.

Understanding Basic and Voluntary Subscriptions

Basic Subscription: This is the monthly amount paid by employers to implement the EOSB scheme. Employers must select and contract with a licensed investment fund, determining which employee categories will participate in the alternative system. Gratuity accrued prior to enrollment is frozen and paid separately upon exit, while the EOSB scheme takes effect from the enrollment date.

Fund managers are required to offer various investment options, including:

• A risk-free capital guarantee portfolio.
• Risk-based options with varying levels of risk.
• Sharia-compliant investment options.

Matta noted that unskilled workers typically default to a capital-guarantee fund, while skilled laborers earning over Dh4,000 per month may choose risk-based portfolios, accepting responsibility for any potential losses.

Voluntary Subscription: This refers to contributions made by employees from their wages, either monthly or annually, at their discretion. Employees can retain their funds in the alternative system even after employment termination. They may also opt to contribute additional amounts beyond the basic subscription.

Employees can select their preferred investment fund for voluntary subscriptions. If they do not specify a choice, their investments will default to the capital guarantee portfolio or risk-free fund.

For further details, visit the source: www.emirates247.com.

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Published on 2026-07-11 20:14:00 • By the Editorial Desk