A New Era in Employee Benefits: Exploring the UAE’s Optional Alternative System for End-of-Service Gratuity

Cabinet Resolution No. 96 of 2023

In a significant leap forward, the UAE Cabinet has ushered in a ground-breaking change with Cabinet Resolution No. 96 of 2023, unveiling an Optional Alternative System for the traditional End-of-Service (EoS) Gratuity. This revolutionary resolution marks a pivotal moment in the country’s labour landscape, introducing a more dynamic and customizable approach to employee benefits.

Empowering Choices for Employers and Employees

A key feature of this novel system is its voluntary nature, offering employers the freedom to choose from a range of schemes for their employees. This departure from the mandatory End-of-Service Gratuity System provides a unique opportunity for both employers and employees to tailor their benefits, aligning them with individual needs and long-term financial goals.

The existing EoS Gratuity System operates on a straightforward principle – a lump-sum payment based on the employee’s last basic salary, applicable only after a year of employment. The new resolution introduces a fresh perspective, allowing employers to invest and save employees’ gratuity through private-sector investments and saving funds, governed by the Securities and Commodities Authority in collaboration with the Ministry of Human Resources and Emiratization.

Diverse Investment Options for Financial Flexibility

Under the new system, a diverse range of investment options becomes available to employers and employees. Choices include a risk-free capital guarantee, a risk-based investment with varying levels of risk, or a Sharia-compliant investment option. This versatility enables individuals to align their investments with their risk tolerance and ethical considerations, adding a personalized and flexible dimension to their financial planning.

This innovative resolution not only grants employees more control over their EoS benefits but also ensures that accrued returns are fully accessible upon termination of employment. The newfound flexibility and empowerment redefine the traditional model of end-of-service gratuity, providing employees with enhanced financial freedom.

The Path to Sustainability for Employers

The Optional Alternative System to the EoS is not just a flexible retirement planning tool for employees; it’s also a sustainable and cost-effective method for employers to fulfil their obligations. While the new system is optional, employers choosing to enrol contribute to these external funds monthly, securing a brighter financial future for their employees.

Cabinet Resolution No. 26 of 2023 is a transformative moment in the UAE’s labor landscape. By introducing the Optional Alternative System to the EoS Gratuity, the government is charting a course toward a future where employees wield greater control over their retirement benefits, and employers are presented with a more sustainable, cost-effective means of meeting their obligations. This forward-thinking resolution underscores the UAE’s commitment to progressive employment policies, promising a strong, secure financial future for all.

N.R. Doshi & Partners is well-prepared to be your strategic partner as the UAE adopts the transformative Optional Alternative System for End-of-Service Gratuity. Beyond mere compliance, we provide tailored solutions, strategic insights, and a dedication to your financial success. Together, let us embark on a journey where financial empowerment, flexibility, and sustainability redefine the future for both employers and employees in the UAE. Join hands with N.R. Doshi & Partners and navigate these changes with confidence.

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