The DIFC Law No. 1 of 2024 introduced important amendments to the Employment Law (Law No. 2 of 2019), enacted on 1 March with a commencement date of 8 March 2024 (the “Amendment Law”). This legislation encompasses modifications to contributions payable to Qualifying Schemes (whether DEWS or otherwise) and the introduction of end-of-service gratuity accrual for sanctioned persons, among other adjustments.
Enhancements to Qualifying Scheme Contributions for UAE/GCC Nationals
The Amendment Law marks a significant shift in the treatment of UAE and GCC national employees within the DIFC with respect to Qualifying Scheme contributions. Previously exempt from the mandatory Qualifying Scheme contributions, the revised legislation mandates DIFC employers to ensure top-up contributions into a Qualifying Scheme for eligible UAE/GCC national employees. This rectification targets the disparity experienced by certain employees due to statutory pension caps.
For each UAE/GCC national employee, the Amendment Law requires that DIFC employers compare the Core Benefits that would be payable to a non-UAE/GCC national and deduct the applicable pension contributions being paid on the UAE/GCC national’s behalf to the General Pension & Social Security Authority (GPSSA). To the extent that there is an underpayment (i.e. the calculation of Core Benefits that would be payable exceed the applicable pension contributions being made to GPSSA), a top up payment must be remitted to a Qualifying Scheme. This effectively ensures that UAE and GCC nationals are not being disadvantaged and contributions are being made on their behalf in respect of their full salary. The Amendment Law also stipulates a minimum top-up contribution threshold of AED 1,000 for eligible employees. Non-compliance with this mandate exposes employers to penalties up to USD 2,000 per impacted employee.
End of Service Gratuity for Sanctioned Persons
A noteworthy inclusion in the Amendment Law is the specific guidance for handling end-of-service gratuity contributions in scenarios involving ‘Sanctioned Persons’. The Amendment Law defines a Sanctioned Person as an individual or entity identified on any sanctions list recognized by the United Nations Security Council, the UAE Federal Cabinet, or any other sanctions that may apply to a Qualifying Scheme or its trustee or administrator. The legislation stipulates the obligation for DIFC employers to accrue end-of-service gratuity for any employee affected by such sanctions until such a time when either the employee or employer is no longer classified as a Sanctioned Person or until the employee’s termination – whichever comes first – at which stage the employer is obligated to transfer any accumulated end-of-service benefits either into a Qualifying Scheme or directly to the departing employee, as appropriate.
Employers are not liable for any financial gains or losses that might have occurred by reason of the non-investment of proceeds in a Qualifying Scheme due to the above requirement to separately accrue end-of-service benefits.
Conclusion
The DIFC Law No. 1 of 2024 marks an important step towards enhancing the legal framework governing employment within the DIFC, emphasizing fairness and compliance. It is imperative for employers to (i) promptly assess the eligibility of their UAE/GCC national workforce for the enhanced benefits by conducting a review of current pension contributions assessed against ‘Core Benefits’ that would be payable if the individual was not a UAE/GCC national to identify any shortfalls, and (ii) accrue end-of-service gratuity for employees impacted by sanctions (noting that they are exempt from liability for any financial performance of the accrued amounts within a Qualifying Scheme) in order to comply with the updated legal framework.
How can Al Tamimi help?
At Al Tamimi & Company, they recognise the importance of compliance and fairness in the workplace. Their team of legal experts is committed to helping you navigate the recent amendments to the DIFC Employment Law with confidence and ease. Don’t hesitate to reach out to Al Tamimi for guidance and support tailored to your organisation’s needs.
Key Contacts
Gordon Barr, Partner, g.barr@tamimi.com