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U.A.E. — DIFC labor law changes and end-of-service reform

Ubezpieczenia zdrowotne i benefity pracownicze|Integracja i różnorodność|Retirement|Całkowite Pakiety Wynagrodzeń|Zintegrowane podejście do dobrostanu
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July 30, 2019

Employers operating in the DIFC should review changes to maintain compliance. The proposed retirement plan could be a useful pilot program.

Employer action code: Monitor

The Dubai International Financial Center (DIFC) recently enacted a new Employment Law (DIFC Law No. 2 of 2019). The new law introduces or modifies a number of employee rights and employer responsibilities, and will take effect on August 28, 2019 (90 days after its enactment). The DIFC has also announced its intention to transform the mandatory employer-paid end-of-service benefit from the existing unfunded defined benefit (DB) design to a funded defined contribution (DC) centrally managed arrangement, known as the DIFC Employee Workplace Savings (DEWS) plan. Draft legislation is expected during the summer with the new scheme rolling out in January 2020.

Key details

DIFC employment law

Some of the more noteworthy changes included in the new Employment Law include:

  • The introduction of five days of employer-paid paternity leave for new fathers (including adoptive fathers, for children up to five years of age) with at least 12 months of service: Leave must be taken within one month of the birth or adoption.
  • A reduction in mandatory employer-paid sick leave benefits: Employers will be required to provide 60 days of sick leave over a 12-month period, at full pay for only the first 10 days and half pay for the next 20 days. Currently, employers are required to provide 60 days a year at full pay.
  • Provisions that explicitly address part-time, temporary and seconded staff: The previous law didn’t distinguish between types of employees.
  • A provision for a mandatory end-of-service payment for employees terminated for just cause: The law also includes expanded grounds and clarifications as to what constitutes just cause for both termination and resignation.
  • Strengthening anti-discrimination rules: This includes extending bases for prohibited discrimination to include age and pregnancy; specifically defining and prohibiting harassment; specifying legal redress rules, employer responsibility and financial awards; and protecting victims of discrimination and whistleblowers.
  • Specific employer responsibilities regarding foreign workers: These include the inability to retain employee passports or to deduct the cost of sponsorship from wages.

DIFC mandatory end-of-service benefits

Under the proposed DC end-of-service benefit design, employers would be required to contribute to the centrally administered DEWS plan on a monthly basis. Employees would be granted a range of investment options to apply to accrued funds. Additionally, employees would be able to make voluntary contributions to the fund. The DIFC has not yet indicated, among other key points, what the mandatory employer contribution will be, or confirmed the transition details from the current DB to the new DC arrangement, but it is expected to release draft legislation during the course of the summer. The key features are expected to be:

  • The proposed reform would affect future service benefits only. End-of-service benefits earned up to the date of change would continue to be paid out as employees leave service. At this stage it’s not expected that there will be a requirement to pre-fund the legacy end-of-service benefits earned up to the date of change.
  • The mandatory contribution is expected to be at least equivalent to the current end-of-service gratuity accrual.
  • The DEWS plan will be a master trust-based arrangement. Employers will be required to use the DEWS plan unless they already provide an alternative qualifying savings plan, requirements of which are still to be announced.

Employer implications

The new Employment Law includes a variety of changes and clarifications that employers based in the DIFC should prepare for in advance to ensure that their employment practices remain compliant. While draft legislation for the DEWS plan has yet to be issued, the proposal represents a substantial departure from the current employer mandate and would effectively create one of the very first retirement savings funds for employees in the U.A.E. DIFC employers should continue to monitor the situation as more detailed information is released.

Contact

Steve Clements
Head of Health and Benefits

Steve joined Willis Towers Watson (WTW) in 2014 as a Director of the Health & Benefits business, responsible for brokering and consulting across the Middle East. With more than 25 years of experience in health and benefits, he specialises in medical plan design and management, and advises both multinational and local clients on employee benefits plans. Steve also heads WTW's carrier relationship and proposition development across the Central & Eastern Europe, Middle East & Africa (CEEMEA) region. Developing a data-driven consultative brokering proposition and the region's first full flexible benefits programme are at the core of his work, as well as establishing a centre of excellence for employee benefits consulting. Steve travels the globe as a guest speaker on employee benefits.


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