End of service - Employees in UAE

The End of Service Gratuity: from Article: 132 Labour Law UAE

1. How the End of Service Gratuity is determined? From Article: 132:

The worker deserves the End of Service Gratuity if he completed one year or more in the service…and it shall be calculated as follow:

A- 21 days for each year from the first 5 service years

B- 30 days for each year if his service years have exceeded the same.

However, the total End of Service Gratuity should not exceed the salary of two years.

2. Shall the leaves without pay be calculated within the service period? Article: 132:

The period of leaving the work without pay shall not be included within the service period.

3. I have worked with my employer for two years and 5 months…, shall the End of Service Gratuity be calculated for the parts of years? Article: 133:

The worker shall have the right to have the End of Service Gratuity for the part of the year if he has completed one year of service or more.

4. Shall the End of Service Gratuity be calculated for the total salary? Article: 134:

The End of Service Gratuity shall be calculated according to the last salary, (Basic) obtained by the worker…, this shall be true for all workers getting their salaries on monthly, weekly or daily basis…, and shall be calculated based on the average salary forworkers receiving their salaries based on piece. So the allowances shall be included in the basic salary, such as: the accommodation allowance, transportation, overtime and other allowances…………etc.

* Important: A worker who receives his salary on piece…,e.g. He may receive DHS. 1000 for the piece…,

or DHS. 500 for the piece…, in this case the average salary only should be calculated, i.e. * His total salary for 6 months…, to be divided over 6…to obtain the average salary: Total salary for 6 months = 25000/6 = DHS. 4166 which is the average salary

5. If a worker died, shall his employer pay his End of Service Gratuity? Article: 136:

If the worker died, his employer must pay his End of Service Gratuity to his hires.

6. I have worked with my employer for the year 1975, i.e. before the issuance of the Labor Law in 1980; shall I have the right to claim for the End of Service Gratuity for my service period with my employer before the issuance of the Federal Labor Law in 1980? Article: 136:

The worker shall not be entitled to have the End of Service Gratuity for the period before the issuance of the Federal Labor Law in 1980 unless the worker was a national citizen.

* The Unlimited Period Contract: In case the worker has ceased working:

7. Kindly show how can the End of Service Gratuity be calculated if the worker has ceased working when he is employed under unlimited Period Contract? Article: 137:

1- If the worker’s service period is not less than one year and not exceeding 3 years, he shall be entitled to have 1/3 the value of End of Service Gratuity, i.e. 7 days in each year.

2- If his service period has exceeded 3 years but less than 5 years he shall be entitled to have 2/3 the value of End of Service Gratuity, i.e. 14 days in each year.

3- If his service period has exceeded 5 years he shall be entitled to have 21 days as a value of End of Service Gratuity for each year of service.

* And if the service period has exceeded 5 years he shall have 30 days as End of Service Gratuity for each year of service.

* Example:I have worked with my employer for 2.5 years, how can my End of Service Gratuity be calculated, knowing that I have ceased working on my own will, and I have unlimited period contract with a salary of DHS. 1500?If the service period does not exceed 3 years, this worker shall have 7 days End of Service Gratuity for each year of service…parts of the year shall also be included, i.e. The two years shall be multiplied by the Gratuity’s days: 7x2 = 14 days - In case the employer has dismissed a worker of an unlimited period contract without reason after completing one year of service…, such worker shall have the right to receive 21 days End of Service Gratuity for each year:

* Example: - If the worker has worked for 3 years and 7 months and his employer has then dismissed him, such worker shall be entitled to have: - 21 days for each year if his service period didn’t exceed 5 years. - 21x 3 + 21/12x 7= 75 days

* Other Example: A worker of unlimited Period Contract was dismissed after completing 6.5 years of service , He shall be entitled to have an End of Service Gratuity of: 21x5+ 30+30/6 = 105+ 30 + 15 = 150 days, whereas 21 days were calculated for the first 5 years…, and 30 days each year for the above to this.

* TheLiimited Period Contract: - In case the worker has cancelled his labor contract: Article: 138:

If the worker has willingly ceased working before completing the contract period…, he shall not be entitled to have the End of Service Gratuity…, unless his service period has exceeded 5 years.

* Example: A worker with a limited period contract which has commenced on 4/4/2004 and expired on 3/4/2007, he has submitted his resignation letter on 25/5/2005 and before completing the contract period, the worker has cancelled the contract, such worker shall not have the right to receive the End of Service Gratuity.

* Example: A worker with limited period contract which shall start on 4/4/2001 and expires on 3/4/2004. This contract was renewed for further 3 years ending on 2/4/2007. This worker has submitted his resignation letter on 20/11/2006…, in this case the said worker shall be completing 5 years and 7 months of service. Then he shall have the right to receive the End of Service Gratuity as provided for in Article: 138. This because his service period has exceeded 5 years * 5 x 21 + 30/12 x 7 = 105 + 17 = 122 days

* In case the employer has cancelled the labor contract: In this case the worker shall have the right to receive an End of Service Gratuity if his employer has dismissed him without reason, in amount equal to 21 days for each year provided that he has completed one year of work, and 30 days for each year if his service period has exceeded 5 years.

8. When shall the worker be banned from having the End of Service Gratuity? Article:139:

The worker shall be banned from having the End of Service Gratuity in two cases: * If the worker was dismissed from the service for any reason set forth in Article: 120 of the labor law…, or if he left the work for the purpose of avoiding dismissal for the same reason

* If the worker has willingly ceased working without notice…, and for reasons other than those shown in Article: 121 of the law, and if he is working under unlimited period contract…, or if he didn’t complete 5 years of service with regard to the limited period contract…, and submitted his resignation letter.

9. I have worked with my employer…, whereas present in the establishment a box called the “saving box” in which the employer was used to put in it an amount of money for the account of the workers as an End of Service Gratuity…, in case I have reached my end of service period, shall I deserve to have from such amount? Article: 140:

* The worker shall have the right to receive from this amount, if the employer is depositing the same in the saving box against his legal obligation towards the End of Service Gratuity…, and if it was stipulated in the saving box as such.

* The worker shall have the right to receive What he was entitled for from the saving box in addition to the End of Service Gratuity if the saving box didn’t stipulate that What was deposited by the employer in the said saving box is against the employer’s legal obligation towards the End of Service Gratuity.52. I am working in an establishment, in which the system of pension and insurance is adopted…, in case of my end of service; shall I have the right of option between having the pension and the End of Service Gratuity? Article: 141:

According to Article: 141: The worker may chose between having the pension and the End of Service Gratuity or to have his dues in the pension or insurance box or whichever preferred to him…, (except with regard to nationals, whereas the Pensions and Insurance Authority’s terms shall be valid wherefore)…, Law No. 7 for the year 1999 regarding Social Pensions and Insurances.

Return Tickets

* The return tickets shall be in the worker’s account if he resigned without reason before the expiry of the limited period contract or resigned with respect of the unlimited period contract.

* The return tickets shall be in the employer’s account if he dismissed the worker, without reason or cause provided for in Article: 120

* The return tickets shall be in the employer’s account if the worker has completed the limited period contract.

UAE consider changes to end-of-service gratuity policy for expatriates

Under UAE law, all employers must pay employees an end-of-service gratuity. It is meant to serve a similar role as pension schemes do in the West and parts of Asia.

UAE officials have had preliminary discussions with the International Labour Organisation and several consultants in the region about requiring companies to set aside the money for employee gratuities, instead of paying them out of the operating budgets. This would ensure the funds remain available in case the company encounters financial problems.

An end-of-service gratuity: the name makes it sound so generous, like a tip received from an employer in exchange for outstanding service.In fact, the gratuity foreign workers in the UAE receive is mandated by the UAE Government to compensate for the absence of a true pension scheme. But the payment is not fully guaranteed nor widely understood and as a result, there are talks about reforming the current system.

The UAE is in talks with the International Labour Organisation (ILO) about either establishing a Government-run pension fund for expatriates or requiring employers to set aside employee gratuities in a separate pool to ensure it is available when employees qualify for it.

Currently, almost all companies pay gratuities out of their general operating budgets, which can lead to problems if a company runs into financial trouble.

"It is not always paid. I receive letters every day from employees who say they do not receive their salary or end-of-service benefit," says Maurizio Bussi, the deputy regional director for Arab States at the ILO, who adds that the UAE Government is "looking seriously" at the proposed changes. "There is a commitment from the Government in principle that the workers should be paid."

The combined liabilities of companies in the UAE for end-of-service benefits is more than US$4 billion (Dh14.6bn), according to research last year by the consultancy Watson Wyatt. For the GCC, it totals more than $15bn. Those figures are believed to be growing rapidly as employees stay in their jobs longer after the financial crisis. This is significant because gratuities are paid out based on an employee's final salary, although many employees leave their jobs without knowing what they are owed.

"We are seeing that the employee, more often than not, just does not understand it," says Jahangir Aka, a Dubai-based senior executive officer with SEI, a global investment firm that helps to manage pension funds. "He thinks it is like pension law in the West [and parts of Asia] and it is not."

The current UAE system works like this: each foreign employee earns 21 days' pay for each full year of service for the first five years, and 30 days for each year of employment more than five years. The maximum gratuity is two full years' pay. However, the amount owed is slashed by two thirds if the employee leaves voluntarily before serving three full years, and by one third if an employee leaves before the end of five years.

If employees are made redundant, they qualify for the full gratuity.These rules only apply to foreign workers. Emirati workers are eligible for a Government pension.

These are the minimum requirements as established by the Government. Watson Wyatt recently surveyed more than 100 Gulf companies to see if many were offering enhanced gratuities or formal pensions to recruit and retain staff. Only 30 per cent were offering extra incentives.

"Up until now, cash has been king. The companies have said, 'We are paying you loads of money so you can go out and get your own pension'," says Iain Collins, a Dubai-based senior consultant at Watson Wyatt. "The overriding message was that most companies are simply providing what they are told to provide by the law."

Further, it is common practice for UAE companies to pay a modest base salary to an employee and increase the total compensation with add-ons such as utilities and housing, in part because the gratuity is based solely on the base salary. "Most companies structure their compensation to minimise that final payment," says Mr Collins.

Mr Collins says this is "slowly but surely changing" as companies adopt western-style standards of employee retention. The old model was created in the pre-financial crisis era, when employee turnover was much higher and companies mostly assumed a large portion of the workforce would be moving on in a year or two.

"The hot employees have churned and gone back [to their home countries]. We've got a different employee base than we did five years ago. Most of us are comfortable with a longer-term view now," says Mr Aka.

But as the gratuities get larger, it becomes more important that the money is somehow ring-fenced to ensure that it is available when needed.

The money could be allocated to a fund controlled by the Government or by individual companies. Employees are the obvious beneficiaries of either structure because their gratuities are protected, but the financial industry in the Gulf is also making the case that companies will benefit as well.

"Right now, to pay Dh100, you have to take Dh100 off the balance sheet. If you do it smartly, to pay 100, you only have to take 93 off. We can grow the money for him," says Mr Aka, whose firm administers and manages pension funds.

There are potential ancillary benefits as well. In most emerging markets, there are rules requiring that a certain percentage of the funds are invested within that country (in Oman, for example, only 20 per cent of pension assets can be invested outside the country).

In the UAE, that could provide a much-needed boost to liquidity in the markets. Also, bringing in executives to administer and manage the funds could aid the local financial sector. "You incubate the growth of an asset management industry," Mr Aka says.

At the moment, Bahrain is the only Gulf country with something like a pension plan for foreign workers. Mr Bussi, of the ILO, says the UAE "could set the standard" for Gulf countries if it enacts the proposals being discussed.

Most experts caution that a change in the law is not imminent, not least because most UAE companies are not having difficulty attracting skilled workers."It is still an attractive region to work, given what is going on elsewhere in the world," says Mr Collins.

Dubai property should revive 2011 and UAE to grow at 4.7% - Credit Suisse

Dubai’s real estate market is gradually stabilising and should begin to gain traction next year and thereafter on the back of improving domestic economic and financial conditions, according to a Credit Suisse study.

Dubai's troubles with its slumping property market and cash-strapped state-owned firms mean a longer road back to health, which is holding back overall GDP growth in 2010. Key sectors such as construction and real estate have in fact continued to undergo protracted adjustments. Demand for purchasing new homes remains weak as credit conditions are tight and rental prices are still falling, the bank said in its report ‘United Arab Emirates: 2011, the year of recovery’ as part of its latest Emerging Markets Quarterly, Q1, 2011.

That said, the real estate market is gradually stabilising and should begin to gain traction in 2011-2012 thanks to improving domestic economic and financial conditions. Meanwhile, exports have rebounded, providing a much-needed lift to growth this year, the report added.

Headway on debt restructuring and higher oil prices have been a boon for confidence. Dubai World struck a debt-restructuring deal with its creditors in September. The accord has helped to ease concerns over Dubai's debt crisis, boosting investor confidence, it noted.

The eventual resolution of the Dubai World saga should lead to greater improvements in banking and financial conditions by the end of 2010 and into 2011. As domestic conditions further stabilise and strengthen, we expect the economy to steadily build momentum. Indeed, activity in the private sector, which has lagged behind this year, should see greater gains in 2011 as deleveraging by businesses and households winds down, the report noted.

Additionally, it said strong public spending and investment, mainly financed by the oil-rich emirate of Abu Dhabi, would also continue to drive non-oil economic activity.

Abu Dhabi has launched its own industrial development with a port complex, the landmark Khalifa Industrial Zone Abu Dhabi (Kizad), which is a step forward in its longer-term objective of economic diversification. As such, we expect strengthening domestic conditions in 2011 to take up slack from a still soft external environment, driving an acceleration in non-oil GDP growth to 4.8 per cent from 2.4 per cent in 2010, it said.

The recovery in the UAE economy has proceeded slowly in 2010, with GDP growth rising just 2.3 per cent on the year, the report said while adding: “We see the UAE economy steadily building momentum in 2011, with GDP growth rising to 4.7 per cent.”

After a modest, albeit positive, contribution to overall economic growth in 2010, we expect growth in the oil sector to gradually pick up over the course of 2011, the report also noted.

Crude oil production has held relatively steady at around 2.3mn barrels per day during the first ten months of 2010, up 1.6% yoy. OPEC has kept a firm grip on production levels to support prices, but we expect output to rise as global demand again picks up by the end of next year. This underpins our projection for oil GDP to expand 4.5 per cent in 2011 after rising 2 per cent in 2010, it added.

Further, it said, the combination of rebounding oil and non-oil exports as well as relatively moderate import growth should boost external balances in 2010, in our view, and we expect additional gains in 2011.Strengthening external demand and higher oil prices have reignited export growth, which should raise the foreign trade surplus to 28.3 per cent of GDP in 2010. Accordingly, we expect the current account surplus to rise to 11.8 per cent of GDP this year, the report said.

The bank also expects UAE’s fiscal performance to continue to improve in 2011, as revenue collection benefits from higher oil prices and output and strengthening domestic economic activity.

We estimate that the fiscal balance turned positive in 2010, moving to a surplus of 2.2 per cent of GDP. We project a rise in the fiscal surplus to 4.4 per cent of GDP in 2011 under our baseline oil price assumption of $85/bbl. We expect government revenues to grow 16 per cent yoy in 2011, powered by both oil and non-oil revenues, the study said.

Further, it said although credit remains tight, the eventual resolution of the Dubai World saga should lead to greater improvements in lending conditions by 2011.

Private sector credit has continued to decline on a year-on-year basis, falling 2.4 per cent in August, but the pace of decline has eased in the past two months. Credit to the private sector certainly remains tight as banks have had to tighten lending criteria and boost provisions for non-performing loans (NPLs) to cover their exposure to cash-strapped local and regional firms like Dubai World. In addition, rising provisions for NPLs have continued to hold back lending growth. Nevertheless, the outlook has brightened thanks to the recent progress on Dubai World's debt restructuring. We think credit growth should accelerate to 9.4 per cent in 2011, the report said.

Consumer prices will likely continue to accelerate on a year-on-year basis through the end of 2010 and into 2011 in the UAE, as the pace of the recovery picks up, but inflation should remain moderate, the report added, while maintaining that there is no significant risk to the dirham's dollar peg at present.

It said although housing prices have already undergone their worst declines, soft demand and new supplies of both commercial office space and residential housing are contributing to continued weakness. We see inflation rising 4.5 per cent on an average annual basis in 2011 after edging up just 1 per cent on average in 2010

Private sector in UAE likely to see further pay cuts in 2011

The New Year may not be so happy or prosperous for those working in the country's private sector, recruitment experts have warned. Instead of pay freezes being thawed, employees working for private companies are likely to see further salary cuts, lower bonuses and less perks, they say.

The market, they claim, remains oversupplied with talent which can be hired cheaply compared with the heydays of 2007/08. Matthew Carter, Managing Director at McArthur Murray, sees the downward trend continuing to the next year as well. “I can only see the private sector reducing salaries as they believe that they can still hire people cheaply and that there is no problem in the supply of people,”  Emirates 24/7 report

“Existing staff still employed can expect a reduction in salary to be discussed in 2011 along with a reduction in quality of benefits, such as cheaper healthcare, cheaper flights etc. We expect bonus levels to drop as well,” he said adding that “the private sector is generally struggling still irrespective of the PR in the market. I can’t see the employers offering increases in 2011 to existing staff. Only in some very niche markets such as renewable, nuclear and possibly oil and gas can we see the trends being different.”

Commenting on the senior layer of employees, Konstantina Sakellariou, Partner, Marketing & Operations Director at Stanton Chase, said: "I would say that increases in remuneration are subject to overall performance of the company and not to general trends.

“If a company feels comfortable with revenues and their sustainability, then senior executives are going to receive an increase, either in the basic salary or in some of the allowances offered. Senior executives know from the beginning that they are not simple employees, waiting for a salary increase, but they contribute in making this happen,” she told this website.

But considering the current global economic scenario, hikes may not be expected, she added. “The international markets are not solid yet, so all companies are very cautious as per the increase of their expenses (including expenses in human capital). Companies will be making rational decisions for their expenses and will avoid the huge remunerations of the past that were not really paying back in productivity and profitability. This is indeed a way that most companies will choose for their operations in the next year(s),” she said.Of those who seem hopeful about any pay hikes, say things have mellowed down a lot and only rationality will prevail.

As per Lama Ataya, Chief Marketing Officer at Bayt.com, an online job search portal, employee satisfaction in the UAE is in the satisfactory range. “[We] gauge employee opinion and satisfaction levels vis-à-vis the salaries they receive, and how these have kept pace with the cost of living: 58 per cent of professionals in the UAE are ‘satisfied’ to ‘very satisfied’ with their current income.

"However, the total percentage of raise which professionals in the UAE stated they have earned in the past 12 months was 6.3 per cent compared to 10.6 per cent the year before. Hopes are high still vis-à-vis salary raise in the year to come with the average salary raise expected for year-ending 2010 being 11.6 per cent (indicating expectation that the effects of the financial crisis are finally waning). Moreover, as another barometer of consumer sentiment, 47 per cent of the UAE’s professionals surveyed expect their financial situation to be better in a year's time.”

Michael Al-Nassir, Partner and Head of Middle East, Africa and India at Pedersen and Partners, said: “The private sector is (and has to be) optimistic as is it driven by return on investment, and the shareholders and boards would like to see in 2011 a significant pick-up.”

Pregnancy tests for women workers under revised set of medical fitness rules in UAE

Pregnancy tests for women workers for some categories will be required under a revised set of medical fitness rules for granting work and residency permits to expatriates in the country, health officials announced.

The date for its enforcement will be decided in due course while the fee structure remains unchanged, they said.

Under the new federal rules aimed at benefitting public health, all maids, nannies and female drivers will be required to undergo pregnancy tests. In case of a pregnancy, it will be up to the sponsor to allow her to work or not. Only a category of professionals applying for new or renewal of visas will be tested for Hepatitis B and Syphilis. Under this category, those testing positive for Hepatitis, will not be given residency permit while those testing negative will be given mandatory vaccination and issued a certificate. Those with Syphilis will be given treatment locally. Expatriates from all other professions and their dependants applying for a new/renewing visa will only be tested for HIV, pulmonary TB and Leprosy. Those testing positive for these diseases will not be given residency permit.

Only six categories of workers including nannies, housemaids, nursery/kindergarten supervisors, beauty salon and health club workers, private drivers and food handlers in cafeterias and restaurants will be tested for Hepatitis B and Syphilis.

“The latest amendments are designed to eliminate any existing gaps as a result of the increased numbers of foreign labourers to work or reside in the UAE,” said the Minister of Health, Dr Hanif Hassan while announcing the new rules.

There is also a plan to increase the number of medical checkup centers.Rules for tuberculosis remain unchanged making old, new or active cases of pulmonary TB subject to deportation.

“In Dubai Health Authority, we isolate and treat such cases until completely cured before deporting them and providing them with one month’s medicine,” said Maisa Al Bustani, Head of the Medical Fitness Centre, DHA.