22 Jan 2020

Are ‘DEW’ Ready? – DIFC Employee Workplace Savings regime Update

Authored by: Rachel Hill

Introduction

Historically, all expatriates employed within the Dubai International Financial Centre (“DIFC”), who are not required to be registered with the General Pension and Social Security Authority (“GPSSA”), and who complete a year’s continuous service, are entitled to a gratuity payment on the termination of their employment (“ESG”). However, as we embrace the dawn of a new decade; the DIFC Authority (“DIFCA”) is replacing the gratuity payment approach with a new regime referred to as DIFC Employee Workplace Savings (“DEWS”), which is a funded workplace saving plan for expatriate employees.

Following a public consultation process during October 2019 in respect of DEWS, the legislative changes to the DIFC Law No. 2 of 2019, as amended (“DIFC Employment Law”) were formally enacted on 14 January 2020 by way of the following:

  1. Employment Law Amendment Law (DIFC Law No.4 of 2020); and
  2. Employment Regulations (Qualifying Scheme requirements under Article 66 of the Law) (“Employment Regulations”).

This is the second time that changes have recently been made to the law addressing employment in the DIFC. Please refer to our recent article “Are you ready?” here regarding those changes.

Accordingly, accrual of ESG will come to an end from 31 January 2020 (save for the exemptions outlined below) and, as of 1 February 2020, DIFC employers will be obliged to make contributions into either DEWS or a Qualifying Alternative Scheme (“QAS”).

Any QAS is required to provide the same benefits as those provided through DEWS and the QAS plan must be implemented in a regulated jurisdiction by a recognised regulator. The Employment Regulations also have a number of minimum design and operational requirements that must be adhered to, which can be found here.

This initiative has been launched by the DIFC to ‘attract and retain the best professional talent into the region by offering employees the ability to earn returns on their benefits from a regulated and reputable plan administrator’.

Key Issues

The following are among the key developments arising from the legislative changes:

  1. Impact on ESG – As outlined above, accrual of ESG will come to an end from 31 January 2020, after which employers will need to consider whether they wish to:
    1. hold the ESG, i.e. “stay on the books”, until termination of employment, at which point it must be paid within 14 days of the termination date in accordance with the DIFC Employment Law. The value of ESG will be adjusted so as to accurately reflect any increases in salary; or
    2. transfer the ESG accrued into the DEWS scheme or a QAS.

It is important to note that provided, at the time of termination, the employee has completed at least one year of continuous service (to include before and after the DEWS or QAS commencement date), the employee will be entitled to ESG in relation to their period of employment prior to the DEWS or QAS commencement date. Employees who complete one year service ‘straddling’ the old ESG regime and the implementation of DEWS, will be entitled to a prorated ESG payment from their commencement date up to, and including, 31 January 2020.

  1. QAS – in order for an employer to opt for a QAS it must:
    1. satisfy the requirements as defined in the Regulations;
    2. obtain a valid certificate of compliance issued by the DIFCA; and
    3. ensure payment of employer contributions are no less than those specified in the DIFC Employment Law.
       
  2. Grace period for registration into DEWS or a QAS – two month grace period to register employees into DEWS or a QAS or, for a new employee, within two months from the commencement date of employment unless an exemption applies as detailed in point 7 below.
     
  3. Contributions/payment into DEWS or a QAS – the first payment into DEWS or a QAS must be made by 21 April 2020 and employers will need to backdate all payments for eligible employees to 1 February 2020.
     
  4. Employer contributions – as of 1 February 2020, minimum employer contributions into either the DEWS or QAS are to be calculated as follows:
    1. 5.83% of monthly basic salary, for each month until the employee reaches five years’ continuous service; and
    2. 8.33% of monthly basic salary, for each month in excess of five years’ continuous service.
  5. Employee contributions – in addition to the above minimum employer contributions, an employee may opt to make voluntary contributions, which require deduction from payroll and are paid via the employer.
     
  6. Exemptions – parties cannot agree to opt out of making contributions into DEWS or QAS, and any agreement (written settlement agreement or otherwise) to this effect will be null and void, unless a specific exemption applies. As confirmed by the DIFC Authority, such specific exemptions include:
    1. An employee on probation, subject to such provision being clearly written in the employment contract. Employers may defer the employer contributions during the probation. Should the employee not pass their probation, no contribution will be due. However, should the employee pass their probation, the employer must make contributions back-dated to the date of commencement of employment;
    2. An employee on a fixed term contract that will end within 3 months of 1 February 2020;
    3. An employee serving their notice as at 1 February 2020;
    4. An Equity Partner as defined in the DIFC Employment Law;
    5. An employee on a qualifying secondment; and
    6. An employee registered with the GPSSA for the state government pension.
       
  7. Fines for non-compliance – the legislative changes direct that employers may be subject to a fine of USD 2,000 for non-compliance with the ‘Core Benefits’ requirements as defined by the DIFC Employment Law and Regulations.

Let us help you

We are available to advise and assist on the following practical considerations:

  • Deciding whether DEWS or a QAS is best suited for your business;
  • Verifying whether any existing scheme is compliant and, if so, obtaining a certificate of compliance from the DIFCA;
  • The signing of the Deed of Participation with DEWS or QAS;
  • Where necessary, making amendments to employment contracts and employee handbooks to align with any new scheme implemented;
  • Identifying employees who may be exempt or whether any other exemption may apply generally;
  • Re-evaluating payroll systems to ensure employer contributions are accurately paid;
  • Internal consultation with Finance / HR / Legal departments; and
  • Employee consultation.

Key dates

  • 14 January 2020 – legislative changes formally enacted.
  • 31 January 2020 – accrual of ESG will come to an end.
  • 01 February 2020 – DIFC employers obliged to make contributions into DEWS or a QAS.
  • 31 March 2020 – DIFC employers must register each employee into DEWS or a QAS (for new employees within two months from commencement date of employment). For QAS, a certificate of compliance must be obtained by this date.
  • 21 April 2020 – the first payment deadline for DEWS or a QAS.

It is important to note that the above applies only to expatriate employees employed within the DIFC by a DIFC registered employer.

If you would like to discuss any aspect of the new legislation, we are ready to assist. Please reach out to any of our employment specialists.

 
 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.