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End of Service Benefit (Gratuity)

End of Service Benefit (Gratuity)

Within the UAE, under the UAE Labour Law there is a legal obligation for all businesses to provide their employees with an End of Service Benefit (EoSB), also commonly known as an End of Service Gratuity.  The EoSB is a defined payment made to the employee by the employer upon the termination of employment, provided that this was longer than one year and that the relationship is not terminated upon the ground of Gross Misconduct. The rules relating to the end of service benefits are stipulated in Articles 132 to 141 of the UAE Federal Labor Law No. 8 of 1980 (the “Law”). 

Popularity of enhanced benefits

Whilst the End of Service Benefit (EoSB) has served well as a retention tool for businesses in the UAE, there is now an increasing demand from employees, and therefore for businesses, to go beyond what is effectively an increasing liability recorded as a negative entry on the balance sheet.

There are therefore many reasons why businesses in the UAE should be reconsidering their position and give serious consideration to offering employees access to a defined contribution savings or pension plans, and here are few key ones:

  • Employees perceive the EoSB as high risk, as many businesses keep the assets in their bank account and use the money as working capital until the EoSB is due to be paid.
  • The risk therefore of a business not having access to the EoSB when it falls due is very real!
  • Worst still, what happens if the business is forced to close?  This is a major concern for employees. Where are the funds to meet the EoSB liabilities?
  • Even if a business does ring fence the funds and effectively communicates this to their employees, the EoSB as a standalone benefit is not enough to retire on. 
  • If the EoSB is not invested, it will lose value due to inflation.  Another very strong reason for businesses to really re-consider their position.

Outside of the UAE, the presence of a Pension Scheme is a staple offering in an Employee Benefits Scheme.  In some countries it is mandated, with minimum contribution levels from both the employee and employer being a legal requirement and enrolment into such schemes being automatic.
With the ever-increasing need for businesses in the UAE to be able to attract and importantly retain key talent, the lack of a defined contribution savings or pension plans is something that can no longer be ignored. 

If you would like your business to stand out from the crowd and remove the fear factor for your employees why not get in touch and find out what we can deliver..


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