Discover how end of service gratuity is related to your company’s growth

Studies have shown that a bit of stress is usually good for someone’s productivity and plays an important role in taking the best out of a person. That being said, imagine someone always being stressed about the financial situation and not knowing where to resort to in case of a financial emergency – does this sound like the mental state of an employee whom you expect to be at his productive best at your company? Probably not! If an employee has financial worry, he is expected to be distracted at work. Therefore, it will affect productivity adversely.

Look Forward

At the time of writing this article (May 2020), things are extremely difficult in the UAE and the entire world, due to the Covid-19 situation. Though we don’t know the exact timeframe needed for recovery yet, remember, just like any other bad phase in life, this too shall pass! When your company gets past this, what will be one of the most important things that will take you ahead of your competition? Having a good cash flow is vital, but that alone will not make things work for you. You need hard-working, devoted, talented individuals to take your company to the next level.

The idea is simple! You need to keep your best employees and hire the best talent out in the market. What will make employees stick to your company? If they like what they do and they have the assurance that during bad times, their company will provide the much-required support. Similarly, what can be the differentiator factor for your company to hire a talented individual in comparison to your competitor?

Well, a good salary helps, but the associated benefits play an equally, if not more important part (Actually, surveys across various geographies point towards workplace benefits being more important than salary). In this regard, a well-defined gratuity solution can come handy for both existing and new employees.

Why employee end of service gratuity is important?

A retirement or job loss both are similar in one way – all of a sudden, the cash inflow that has kept you going month on month stops. An employee is now on his own to pay for the expenses that won’t stop anyway – from rent to food. A gratuity can help in those difficult times. Often gratuity is not enough to pay for expenses during the entire retirement, but it can still provide relief for some months. When an employee signs up to work for you and knows that he will be covered with the gratuity money anyway when he leaves the job, his financial stress will be lessened to some extent and his performance will be as good as possible – something that will help your business. 

Employee end of service gratuity is available in the UAE anyway – what is the problem then?

You are right! As per UAE law, companies are mandated to pay gratuity to any employee when they leave the organization starting from 2nd year of employment (DIFC laws are different). However, the problem is with the execution, not the rule. There is no official timeline for companies to complete the gratuity payments and they can continue to defer the payments as long as they would like to. However, a laid-off employee’s expenses won’t wait. Gratuity payment is becoming a huge problem even during the current Covid-19 situation as the companies, despite showing gratuity liability in the balance sheet, didn’t accommodate for this expense for real.

But will keeping employee end of service gratuity gratuity money aside not impact my business’s cash flow?

You are right! If you start keeping money aside for all of your eligible employees’ gratuity every month, that will become an additional expense that you will possibly like to avoid. Things get even more complicated when you think of employees who have been with the organization for a long time. A quick suggestion is to start doing it for existing employees and try to accommodate previously unaccounted gratuities slowly every month. You have to start at some point to complete all these backlog gratuity accommodations anyway!

Alternatively, there are creative ways to start keeping money aside for employees’ gratuity without affecting your cash flow. The current law also will come into aid for sustainably managing things. If you are interested in learning more such creative ways, get in touch by filling this form.


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