03 Jan 2023

Insurance for Involuntary Unemployment

Authored by: Rachel Hill

In Brief:

  1. The UAE Government has introduced a new unemployment insurance scheme to provide employees within both the public and private sectors with employment protection insurance in the event of redundancy.
  2. The Scheme is similar to globally recognised ‘employment-protection insurance’ or ‘redundancy insurance’ schemes.
  3. The Scheme, coupled with the newly introduced 6 months ‘job seeker visa’, is another positive step in the UAE’s commitment to attract and retain the best international talent.

Why was the Scheme introduced?

The UAE Government has introduced a new unemployment insurance scheme (“Scheme”) to provide employees with employment protection insurance against job loss, subject to the employee paying a monthly subscription. The Scheme is similar to globally recognised ‘employment-protection insurance’ or ‘redundancy insurance’ schemes.  While worldwide redundancy insurance is ordinarily a private and optional scheme for employees, used to complement varying statutory entitlements, the UAE has made the Scheme mandatory for all employees working in the region who fall within the Scheme’s remit. This is likely connected to the recent change in the labour law which effectively limits employees’ entitlement to the historic ‘arbitrary dismissal compensation’ of up to 3 months’ gross salary upon termination of employment.

The Scheme’s aim is to provide Emiratis and residents working in the public and private sectors, with interim financial support in the event of termination of their roles by their employers. It aims to ensure continuity of income for the unemployed and to facilitate the attraction and retention of the best international talent in order to further enhance the competitiveness of the UAE’s economy.

Who must contribute?

The Scheme applies to all employees in the private and public sector except:

  • Investors; business owners who own and manage their business themselves;
  • domestic workers;
  • temporary employees;
  • juveniles under the age of 18; and
  • retirees who receive a pension and have joined a new employer.

How does it work?

Employees are required to make contributions depending on their current basic salary.

Employees with a basic salary of AED 16,000 or less will pay a monthly insurance premium of AED 5 or AED 60 annually. This may result in the employee receiving 3 monthly payments of up to AED 10,000 per month as compensation following the involuntary termination of their employment.

Employees with a basic salary exceeding AED 16,000 will pay a monthly insurance premium of AED 10 or AED 120 annually. This may result in an employee receiving 3 monthly payments of up to AED 20,000 per month as compensation following the involuntary termination of their employment.

To be eligible for the above compensation, the employee must have been paying the monthly premium for at least 12 consecutive months. No compensation will be payable in the event the termination arose following any kind of disciplinary investigation or as a result of a violation of Federal Decree Law No 33 of 2021 (as amended) or the Human Resources Law, as applicable.

Employees should subscribe through the Scheme’s appointed insurance website www.iloe.ae or any other channel announced by the Ministry of Human Resources and Emiratisation in due course.

An employee may, in coordination with the insurance company, subscribe to additional benefits in addition to the above basic package. The value of the insurance policy is subject to VAT.

All employees must subscribe to the scheme from 1 January 2023. Fines will be issued against employees who fail to subscribe to the Scheme (AED 400) or who default on a Scheme payment (AED 200). Any fines accrued are to be deducted from an employee’s wage as paid via the Wages Protection System or from any end of service gratuity accrual. The practical implementation mechanics of this deduction will be seen in due course.

Conclusion/Recommendation:

Access to an income protection insurance policy will be welcomed by employees generally since it provides stability and a degree of financial security when unplanned terminations occur. The Scheme, coupled with the newly introduced 6 months ‘job seeker visa’, is another positive step in the UAE’s commitment to attract and retain the best international talent.

For more information, please contact Rachel Hill, Partner, Head of Employment, r.hill@hadefpartners.com or any of our Employment team.

 
 

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.