UAE’s Alternative End-of-Service Benefits Scheme: Transforming Gratuity into Growth Through Strategic Investments

Dubai: In the UAE, gratuity is no longer a fixed sum received at the end of employment. Instead, it can be transformed into a dynamic investment opportunity through the Alternative End-of-Service Benefits scheme (EOSB), also referred to as the Voluntary Savings Scheme. This initiative allows both employers and employees to benefit from strategic investments that enhance financial growth over time.

What is the Alternative End-of-Service Benefits Scheme?

On October 10, 2023, the UAE Ministry of Human Resources and Emiratisation (MOHRE), in collaboration with the Securities and Commodities Authority (SCA), issued Cabinet Resolution No. (96) of 2023. This resolution introduces an alternative End-of-Service Benefits scheme specifically designed for private sector employers and employees.

The legislation outlines the Voluntary Savings Scheme, stating that employers will make monthly contributions to an investment fund. This fund enables employees to receive their entitlements upon completion of their employment, derived from both the basic subscription amount and any investment returns generated.

Navandeep Matta, a senior associate at Kochhar & Co. Legal Consultants in Dubai, noted that traditional gratuity, as defined under Article 51 of Federal Decree-Law No. 33 of 2021, is a lump sum paid only when employment ends. The EOSB savings scheme, however, shifts this model to a funded monthly obligation. Employers will contract with a licensed investment fund and contribute a monthly “basic subscription” of 5.83% of the basic salary for employees with less than five years of service, increasing to 8.33% thereafter. This approach allows the gratuity to grow through investment returns rather than remaining a static liability.

Differences Between EOSB Savings Scheme and Traditional Gratuity

Traditional gratuity is a one-time payment based on an employee’s basic salary, disbursed upon job termination. In contrast, the EOSB scheme mandates that employers contribute monthly to professionally managed investment funds. The final payout to employees occurs upon the conclusion of their employment.

By channeling end-of-service benefits into high-performing investment funds, the EOSB savings scheme ensures that employees’ money is actively working for them, fostering growth rather than stagnation.

Benefits of the EOSB Savings Scheme

According to MOHRE, several key advantages exist for establishments that enroll in the Voluntary Savings Scheme:

• Cost Savings: The scheme offers medium-term cost reductions compared to traditional end-of-service benefits.
• Proactive Financial Management: It encourages a proactive approach to managing financial obligations, supporting long-term financial health.
• Enhanced Reputation: Participating in the scheme can improve an establishment’s standing in the national labor market.
• Increased Employee Loyalty: The scheme fosters employee loyalty, aiding in the attraction of top talent and promoting overall well-being.
• Boosted Productivity: By enabling employees to grow their financial assets, productivity is likely to increase.

Eligibility and Restrictions

Both employers and employees should be aware of specific aspects of the EOSB scheme:

Scope: The EOSB scheme applies to private sector employers and employees, including those in free zones. There is also a subscription-only tier for self-employed individuals, expatriate employees of government entities, and UAE nationals whose employers maintain contributions to the General Pension and Social Security Authority (GPSSA).

Employer’s Prerogative: Participation in the EOSB scheme is at the employer’s discretion. Once an employer opts in, subscription becomes mandatory for selected employees. Employers must submit a request to MOHRE to participate.

Lock-in: Basic subscriptions and returns cannot be withdrawn before employment termination. Employers may reclaim their contributions if an employee leaves within one year of enrollment.

Employer’s Minimum Term: Employers must adhere to a minimum participation term of one year, with early exit permitted only with MOHRE approval under specific circumstances, such as license cancellation or proven insolvency.

Enforcement: Authorities impose penalties for missed payments, including a work-permit freeze after two months and a fine of Dh1,000 per employee for each month missed after four months.

How Basic and Voluntary Subscription Works

Basic Subscription: This is the monthly amount paid by the employer to implement the alternative system. Employers select and contract with a licensed investment fund for the EOSB savings scheme. They determine which employee categories will participate and discontinue the traditional gratuity system for those selected. Gratuity accrued before enrollment is frozen and paid separately at exit; the scheme takes effect from the enrollment date forward.

Fund managers must offer beneficiaries various investment options, including:

• A risk-free capital guarantee portfolio, ensuring capital maintenance
• Risk-based options with varying risk factors (high, medium, low)
• A Sharia-compliant option

Matta explained that unskilled workers default to a capital-guarantee fund, while skilled laborers earning Dh4,000 or more per month may choose risk-based portfolios but must bear any losses incurred.

Voluntary Subscription: This amount is contributed from the beneficiary’s wages, either monthly or annually, at their discretion. According to Article (7) of the Resolution, employees can retain their funds in the alternative system even after employment termination.

Employees may also contribute an additional percentage of their salary or a lump sum, alongside the basic subscription payment. They can select their preferred investment fund for voluntary subscriptions. If no specific choice is made, their investment defaults to the capital guarantee portfolio or risk-free fund.

As reported by www.emirates247.com.

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Published on 2026-07-11 20:14:00 • By FAME Delivered News Desk