Gratuity Funding / End of Service Benefit

What is End of Service Benefit?

Gratuity or end of service benefit is part of UAE Labor law. Employees who meet certain conditions are paid a lump sum on leaving the company. Gratuity funding has the cause of many court cases.

What Is The Problem?

Companies with long serving staff can have very high gratuity liabilities. Many employers seek to fund their gratuity liability via cash flow.

This has resulted in many employees not being paid their dues and unnecessary litigation. The main reason being that employees are usually laid off when times are tough and consequently there was no cash to pay them their salaries let alone their gratuity.

As a consequence, UAE is looking at ways to separate the liability to employees and the trading success of the company.

What Is The Solution?

There are several potential solutions. The company’s needs will determine what is most appropriate. Each solution separates the funding from the sponsoring company. The liability increases each year for most businesses. This means there must be a funding strategy in place. This approach:

  • smooths out the impact of the gratuity liability on company profits;
  • results in employees being paid on time; and
  • avoids unnecessary legal expenses for the company.

There is also the added possibility that the gratuity arrangement will become self-funding over time with favourable investment performance.

What Service Do I Provide?

Initially, there is an assessment of gratuity liability based on employee tenure and salaries. Consideration is then taken of:

  • staff turnover during the last 3 to 5 years;
  • foreseen events whereby gratuity will be payable, for example, the end of a project
  • retirement of a long-serving member of staff.

Due to the short period of time before these events are to occur, we fund them differently.

The sponsoring company decides what level of funding is required. Next, a schedule of payments and an investment strategy decided.

We review the scheme annually to ensure it remains fit for purpose and adjustments are made in accordance with changes in staff numbers.

How do I calculate my Gratuity?

We can do this for you or you can visit the Dubai Government website.

What Should I Do Next?

Please contact us to discuss your gratuity liability funding needs.

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