The DIFC has launched a public consultation on the proposed amendments to the Employment Law, DIFC Law No.2 of 2019 (Current Law) and has issued new draft regulations relating to the replacement of the end-of-service gratuity regime under Article 66 of the Current Law (Proposed Amendments). The consultation period ends on 18 November 2019.
Earlier this year, the DIFC announced end-of-service benefits will migrate from a defined benefit scheme to a professionally managed defined contribution plan for all DIFC entities. The proposed implementation date remains as 1 January 2020 (DEWS Commencement Date).
The Proposed Amendments, available to review here, provides clarification on the DEWS scheme and the requirements for an acceptable alternative scheme approved by the DIFC.
Some of the key changes under the Proposed Amendments are:
- Mandatory requirement for all DIFC employers to make monthly contributions into the DEWS scheme or an alternative qualifying scheme for non-GCC national employees (Qualifying Scheme).
- DIFC employees have the option to make additional voluntary contributions.
- Employees will continue to have a right to accrued gratuity payments prior to the DEWS Commencement Date. This effectively means the accrued gratuity will be untouched as per the Current Law and the eventual gratuity payment will be adjusted to ensure the amount payable to employees will be calculated on the last Basic Wage (not less than 50%) of the Employee's Annual Wage at the employment termination date.
- The Core Benefits (as defined under the Proposed Amendments) funded by the employer from the DEWS Commencement Date will replicate the existing ESG accrual calculation - 5.83% of an employee's monthly basic wage if the employee has accumulated up to the first five years' service or 8.33% of an employee's monthly basic wage for each additional year of service– continuing the basic protection of gratuity payments under Article 66 of the Current Law. The main difference with DEWS from the existing regime is the removal of a qualifying period of service, as contributions will start from the first day of employment (rather than employee having to first complete twelve months of service).
- Employers will have the option to transfer accrued gratuity payment on behalf of employees, which crystallise at 31 December 2019, into DEWS or a Qualifying Scheme. The transfer can be effected without prior consent of employees.
- Employers can opt-out of participating in DEWS by selecting an alternative Qualifying Scheme which meet the mandatory requirements set out in the Employment Regulations (Qualifying Scheme requirements under Article 66 of the Law). Qualifying Schemes must have a certificate of compliance (issued only after consultation with DFSA) and will need to be applied for prior to DEWS Commencement Date.
The conditions the employer must comply to operate an alternative Qualifying Scheme are:
- the scheme must be an Employee Money Purchase Scheme (as defined by the Proposed Amendments);
- the operator, administrator, investment manager or fund manager to be regulated by a recognised regulator (if not the Dubai Financial Services Authority (the “DFSA”);
- the scheme must be a DIFC Trust, if the Qualifying Scheme is established in the DIFC.
We invite your feedback on the Proposed Amendments and Employment Regulations to consolidate in our response to the DIFC.
It is important that employers in the DIFC review the Proposed Amendments, and consider the following steps in preparation of the DEWS Commencement Date:
- offer feedback to the proposed amendments before the consultation ends on 18 November;
- consider current accrued liabilities, whether funded or not, and determine if they will transfer to DEWS or remain on the employer's balance sheet;
- consult with your HR, finance and legal functions on the incoming changes and implementation process;
- undertake an employee consultation process to communicate changes;
- explore options for establishing an alternative Qualifying Scheme;
- consider changes to employment contracts, amend policies and employment handbooks to incorporate the changes to DEWS or Qualifying Scheme.
With the narrow implementation date (1 January 2020), contact our employment team for advice and support in the introduction of the DEWS regime and how the Proposed Amendments will impact your business.