Private sector employers may be considering taking the steps outlined under Ministerial Resolution No. 279 of 2020 (“the Resolution”) to restructure their workforce. In this circumstance, the implications pertaining to end of service benefits (“EOSB”) should not be overlooked.
Ministerial Resolution no. 279 of 2020
The UAE government is taking several precautionary measures to limit the spread of the Covid-19. The UAE’s Ministry of Human Resources and Emiratization (“MOHRE”) issued the Resolution (effective 26 March 2020) outlining measures that private sector employers may take with regards to their expat employees during this period. Broadly, the Resolution outlines the procedures for making employees redundant and confers upon employers the ability to amend employment terms and conditions (e.g. working from home, granting paid and unpaid leave, and reducing salaries temporarily and permanently).
Under UAE Labour Law, employers are obliged to pay EOSB to non-Emirati employees who have completed at least one year of continuous service, at the end of their service. Generally, the amount of EOSB is based on the last basic salary (excluding allowances) that the employee is entitled to, as well as the duration of the employee’s service. Employees terminated due to financial pressures resulting from the Covid-19 pandemic would most likely be entitled to their full EOSB payment, depending on the employment contract and the length of service. Maximum EOSB are capped at two years’ basic salary.
Employers are liable for EOSB payment when their employees have been made redundant. From a cash flow perspective, it is important to factor in any EOSB payments upon making employees redundant. Depending on the amount of EOSB payments due, it may be more favorable from a cashflow perspective to retain the employee. Where temporary and permanent reduction of salaries involves a reduction in an employee’s basic salary, this would correspondingly reduce the employee’s future EOSB.
Businesses contemplating the option of restructuring their workforce to ease cash flow pressures would be well advised to undertake a full cost benefit analysis, which includes an estimate of EOSB payments.
We can provide assistance in calculating EOSB and support your organization in ensuring that your obligations in this regard are met.