DIFC Law No.4 of 2020 (the DIFC Employment Amendment Law) and the Employment Regulations (Qualifying Scheme requirements under Article 66 of the Law) have been enacted by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai.
The DIFC Employment Amendment Law, which came into force on 14 January 2020, amends DIFC Law No.2 of 2019 (the DIFC Employment Law) with the principal purpose of replacing the existing end of service gratuity regime with the DIFC Employee Workplace Savings Plan (DEWS) or a qualifying alternative scheme (QAS).
Although the introduction of DEWS has received widespread coverage in the media, there have been some important changes made to the draft legislation which was issued by the DIFC Authority for consultation in November 2019.
In this bulletin, we have explained what you need to know about changes introduced by the DIFC Employment Amendment Law. We will also shortly be releasing a summary of the criteria prescribed in the Employment Regulations for QAS, which comes into force on 1 February 2020.
Employers who fail to prepare for the changes introduced by the DIFC Employment Amendment Law will be exposed to potentially significant fines and other penalties – if your company requires any assistance with understanding its obligations, please get in touch.
DIFC Employee Workplace Savings Plan
Gratuity Payment pre-DEWS (or QAS)
Employees who accrue more than one year’s service with an Employer will be entitled to receive a Gratuity Payment for their period of service with their Employer prior to the Qualifying Scheme Commencement Date.
For most Employees, their Qualifying Scheme Commencement Date will be 1 February 2020, and so any Gratuity Payment should be calculated by reference to the period of service prior to this date. However, the Gratuity Payment for Exempt Employees (please see below for further details) who are (i) serving a period of notice at 1 February 2020; or (ii) employed under a fixed-term employment contract which expires prior to 1 May 2020, should be calculated up to the Employee’s Termination Date.
An Employee’s Gratuity Payment should be calculated by reference to the Employee’s Basic Wage at their Termination Date (which may be different from the Basic Wage the Employee received at their Qualifying Scheme Commencement Date).
Given the financial penalty that may be imposed on Employers who fail to pay all of an Employee’s Remuneration within 14 days of the Employee’s Termination Date, it is extremely important that Employers calculate Gratuity Payments correctly.
Gratuity Transfer Amount
At any stage subsequent to an Employee’s Qualifying Scheme Commencement Date, their Employer may transfer an amount equal to the end of service gratuity accrued by the Employee into DEWS (or QAS) – this is referred to in the DIFC Employment Amendment Law as the “Gratuity Transfer Amount”. For the purposes of calculating the correct amount to be transferred, the Employer should use the Employee’s Basic Wage at the time of the transfer.
If the Employee consents in writing to the transfer of the Gratuity Transfer Amount, the Employer will be relieved of any obligation to make a Gratuity Payment to the Employee on the termination of their employment.
If the Employee does not consent in writing to the transfer of the Gratuity Transfer Amount, on the termination of the Employee’s employment the Employer will under an obligation to make up any negative difference between:
- the value of the Money Purchase Benefits acquired in DEWS (or a QAS); and
- the Gratuity Payment the Employee would have been entitled to receive had the Employer not undertaken the transfer of the Gratuity Transfer Amount.
Employers will not be required to make contributions into DEWS (or QAS) for an ‘Exempted Employee’.
An Exempted Employee is an Employee who:
- is required to be registered with the UAE General Pension and Social Security Authority;
- is on Secondment or employed by a local or federal government entity;
- is serving a period of notice at 1 February 2020;
- is employed under a fixed-term employment contract which expires prior to 1 May 2020; or
- is an Employee who:
- owns a partnership interest, membership interest or shares in their Employer; and
- takes drawings from the partnership, equity, capital or profit account of their Employer or receives profit distributions or dividends from their Employer.
An Employer may obtain approval from the DIFC Authority to be exempt from the requirement to make contributions for an Employee into DEWS (or QAS) if it can show that:
- it is under a statutory duty in another country to make pension, retirement, saving or any substantially similar contributions into a scheme for the Employee in that country; or
- with the prior written consent of the Employee, the Employer is paying defined benefits to an Employee under a scheme where the defined benefits are in excess of the contributions required by the DIFC Employment Amendment Law and the person undertaking the function of operating the scheme is subject to regulation and supervision by either the DFSA or a regulator in a Recognised Jurisdiction which applies an equivalent level of regulation as is applicable to an Operator in the DIFC.
Registration of Employees
Employers must register all Employees who are not Exempted Employees with DEWS (or QAS) within two months of the Employee’s Qualifying Scheme Commencement Date – most existing Employees will therefore need to be registered by 1 April 2020.
Employers will be required to back-date the requisite contributions for an Employee to the Employee’s Qualifying Scheme Commencement Date - for most existing Employees, this will be 1 February 2020.
For most Employees commencing employment after 1 February 2020, their Qualifying Scheme Commencement Date will be the date on which the Employee commences their employment.
The requisite contributions for Employees who are not Exempted Employees are:
- 5.83% of an Employee’s Monthly Basic Wage during the first five years of an Employee’s service; and
- 8.33% of an Employee’s Monthly Basic Wage during each additional year of the Employee’s service.
Where an Employee’s Termination Date occurs part-way through a month, the contributions payable for that month must:
- be calculated on a pro-rata basis; and
- be paid directly to the Employee within 14 days of their Termination Date.
For the purposes of calculating the requisite contributions for an Employee:
- the Employee’s Monthly Basic Wage should be the Employee’s Basic Wage at the time the contribution is due, divided by twelve (12);
- the Employee’s Monthly Basic Wage must not be less than fifty percent (50%) of the Employee’s Monthly Wage; and
- the daily rate of the Employee’s Monthly Basic Wage should be calculated by dividing the Employee’s Basic Wage by 365;
Timing of contributions
An Employer must make the requisite contributions for an Employee into DEWS (or QAS) by no later than the 21st day of the month following the month in respect of which the contributions are due.
For example, an Employer must make the requisite contributions for an Employee for May 2020 by no later than 21 June 2020.
An Employer will not be required to make any contribution into DEWS (or QAS) during any probation period agreed in an Employee’s Employment Contract.
If the Employee fails to pass their probationary period, the Employer will not be required to register the Employee with DEWS or make any contributions for the Employee into DEWS (or QAS).
If the Employee passes their probationary period, the Employer will be required to back-date the Employee’s contributions to the date on which the Employee commenced their employment with the Employer.
An Employee may elect to contribute all or part of their Remuneration to DEWS (or QAS) by notifying their Employer in writing.
Fines for non-compliance
An Employer who breaches its obligations under the DIFC Employment Amendment Law is exposed to a fine of US$ 2,000 for each breach in respect of each Employee.
Other amendments to the DIFC Employment Law
- The DIFC Employment Amendment Law confirms that Articles 16(1)(f), (g), (h) and (i) of the DIFC Employment Law (which prescribe the information to be recorded by Employers on payroll records), do not apply to Short-Term Employees.
- The definition of “Allowances” has been simplified by the removal of the reference to “benefits-in-kind”, which was included in the DIFC Employment Law.
- Erroneous cross-references have been corrected in Articles 61(6) and (7).
- The definition of “Daily Wage” has been amended to reflect the fact that Part-Time Employees will often work less than 260 days in a year.
 Any defined terms which are not defined in this article shall have the meanings ascribed to them in the DIFC Law No.2 of 2019, as amended, and the Employment Regulations (Qualifying Scheme requirements under Article 66 of the Law) .