DIFC Employee Workplace Savings Plan
Sajin Rasheed, Director
Dubai International Financial centre, a special economic zone in Dubai, has introduced a workplace savings scheme, which replaces the existing end-of-service gratuity benefits. The new plan titled DEWS (DIFC Employee Workplace Savings) requires employers to make compulsory monthly contributions to a savings plan which will commence from February 1, 2020; and this will have an impact on the payroll process in UAE. All DIFC employers must opt for this funded defined contribution plan or any other qualifying plan approved by DIFC.
The amendment is in line with the DIFC employment law No 2 of 2019, that was passed few months back and it states that the employer contribution towards an investment or pension scheme should not be less than the monthly gratuity accrual.
This plan is set to be launched with effect from 1st February 2020. The deadline for employers to enrol into a qualifying scheme is 31st March 2020 and the initial contribution must be made on or before 21st of April. The first payment should include the contribution starting from 1st February, 2020 onwards. Even though the mandatory contribution is calculated as a percentage on basic salary, there won’t be deductions of any sort from the salary of the employee.
The contribution percentage for Employees with service period less than five years is 5.83% of basic salary and 8.33% of basic salary for service period more than five years. Minimum basic salary should be 50% of total fixed monthly salary.
What happens to End of Service Gratuity (EOSG) accrued up to the Changeover Date i.e. 31st January 2020?
At the changeover date, employers have the following options with regard to their accrued EOSG
- Employer can continue to manage it
In this case, Employer will keep the accrued amount of Gratuity from the employees’ joining date till 31st January 2020. At service termination the employer will be liable to pay the accrued End of service Gratuity in line with the service period as at the changeover date (31st January 2020) and to be recalculated based on the employees last drawn salary
- Employer can transfer the accrued EOSG with employee consent to DEWS
The employer can transfer an agreed amount into the DEWS plan, with the written permission of the employee. The amount should not be less than the entitlement calculated by reference to a termination payment under DIFC Employment Law. Upon termination of the employment, the employer need not have to pay the accrued EOSB to the employee, even if there are any future salary increases or changes in the length of service. The employee will also be ready to take care of the ongoing investment risk.
- Employer can transfer the accrued EOSG without employee consent
The amount can also be transferred without the permission of the employee. But in doing so, the employer will be responsible for settling the employee’s accrued EOSB entitlement when they leave their job. The accumulated benefit will be held as a pooled fund under the employer’s name and it’s up to the discretion of the employer on how to invest the amount.
An example for better understanding
Options for Employers
Employer can continue to manage it
Employer will have to pay an amount of AED 46,361.10/- to the employee at the time of final settlement
Employer can transfer the accrued EOSG with employee consent to DEWS
Employer needs to transfer an amount of AED 37,088.88/ to DEWS Account on or before 21st April 2020. No gratuity to be paid by the employer at the time of final settlement.
Employer can transfer the accrued EOSG without employee consent
Employer needs to transfer an amount of AED 37,088.88/ to DEWS Account and an amount of AED 46,361.10/- to the employee at the time of final settlement. Employer can claim the amount from DEWS account including the return for the period.
Employers must upload a file onto the DEWS portal, that consists of information related to employees who are part of DEWS plan. The file should have details about the contributions made, and also if there are any new joiners or leavers, it must be included in the file. The next step involves, transferring the total contribution amount from the registered bank account of employer to the bank account of master trustee.
- Plan- DEWS (DIFC Employee Workplace Savings)
- Applicable Companies- All Companies registered in DIFC (Dubai International Financial Center)
- Not applicable: UAE nationals or GCC nationals who are accruing a social security benefit separate from the requirements of the Employment Law
- Mandatory or optional- Mandatory
- Effective start date – 1st February 2020
- Last date for Company registration with DEWS- 31st March 2020
- Last date for Employee registration -31st March 2020
- Last date for submitting first contribution – 21st April 2020
- Date for submitting monthly contribution- 21st of following month
- Minimum Basic Salary: 50% of total fixed salary
- Employer Contribution Percentage per month
- Service period less than five years – 5.83% of Basic Salary
- Service period five years and above – 8.33% of Basic Salary
- Employee contribution percentage per month – Not Applicable
Monthly contribution calculation
Few scenarios for better understanding
- What is DEWS?
It is an Employee Workplace Savings plan that requires employers to make compulsory monthly contributions to a savings plan.
- Is the plan voluntary?
All DIFC employers will be obliged to enroll as a participating employer with the DEWS Plan or another Qualifying Plan (as defined in the Employment Law). A Qualifying Plan will require a Certificate of Compliance from the DIFC Authority and shall have to adhere to the Qualifying Plan requirements that will be set out in the Regulations to the Employment Law.
- What is the commencement date of the plan?
February 1, 2020.
- What is the deadline for employers to enrol into a qualifying scheme?
March 31, 2020
- Is the plan applicable to UAE nationals?
No, it is only for expatriate workers
- How are mandatory contributions calculated?
Employees with service period less than five years is 5.83% of basic salary and 8.33% of basic salary for service period more than five years.
- Do partners in a business have to be enrolled into DEWS?
Only if their remuneration structure includes basic salary.
- Can an employee make voluntary contributions into DEWS?
Yes; employees have the option to pay a certain amount of their salary as voluntary contribution into the DEWS plan.
- How can employers submit data to the DEWS platform on a monthly basis?
A file that carries information about all the employees enrolling into the DEWS plan, along with details of their contributions, will have to be uploaded onto the portal in a standard template.
- What currency will be used for DEWS plan?
US Dollars is the currency for DEWS; contributions can be made in USD or AED. A standard exchange rate of USD1: AED3.675 will be applicable if the amount is transferred in AED.
- Which bank account will used for DEWS contributions?
The account of the Master Trustee, Equiom, will be used for DEWS contribution. Once employers enrol into DEWS, they will be given details regarding the bank account and a dedicated Virtual Bank Account Number (VBAN). The account is with Standard Chartered Bank UAE.
- In the case of employees on probation, should employers make contributions?
An employer need not have to pay the contribution amount if the employee is on probation. Upon successful completion of the probation period, the employer must make the back payment from the start date. Cases wherein the probation was not successful, there won’t be any due payment. If the payment was done initially, but the probation turned out to be an unsuccessful one, the employee will still receive the amount from DEWS.
- Do employers need to pay any fees as processing charges?
Employers won’t be charged any fee as processing charge. However, an all-inclusive charge that ranges between 1.26% and 1.33% based on the selected fund, will be applicable.
The members are liable to pay the charge, which will be built into the unit price of the funds into which the contributions are made. There aren’t any extra charges such as entry or exit fees, switch charges or fixed annual fee.
Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subjected to change and not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.
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