DIFC’s New Gratuity Scheme (DEWS) – All You Need To Know

DIFC has recently rolled out a set of regulations and a new workplace savings scheme named “DEWS” that effectively change the end of service gratuity system in this zone. The new DWES scheme is considered by many experts as a move in the right direction of establishing the UAE as a central hub for talent. Also, a much anticipated shift in the landscape of private sector corporate governance and a push towards sustainability.

This article has all the details that you should be aware of about these new regulations, the problems these regulations solve, and underlying challenges.

How Did DIFC Reform The End Of Service Gratuity For Expats?

The Dubai International Financial Center (DIFC) is a special economic “free zone” in Dubai.

In 2016 the DIFC began to examine how to overhaul the gratuity scheme for expats and, in line with the global best practice, replace it with a new, “employer-funded” defined-contribution savings scheme. From February 2020 onwards, all employers in the DIFC are now required to register for the DEWS, a new scheme of defined contributions.

The new workplace savings scheme, which the DIFC launched in January 2020, will be funded by monthly employer contributions that would be a) segregated from employer’s cash flow, and maintained with an independent custodian, and b) invested on behalf of employees according to their personal choice. At the end of the employment period, the employee would have the option to receive their gratuity savings in cash or continue to invest it in the savings plan.

DIFC is the first free zone in the UAE to embrace a defined contribution plan to replace the current underfunded end of service gratuity schemes, and this reform could be a catalyst for pension reform in the UAE’s other free zones and the broader mainland.

What Are The Advantages Of The New DEWS Scheme?

The new workplace savings scheme is considered a major upgrade when it comes to protecting employee rights while maintaining a healthy financial position of employers. No wonder why, it was well received by both employers and employees who both stand to benefit from such an upgrade.

For employers, the key benefits include:

• A stronger incentive for attracting talent to and retaining talent in the DIFC.
• Higher level of transparency and predictability of future cash flows.
• Little or no end of service gratuity funding liability when an employee leaves the organization as employer contributions are not deferred.

For employees, the benefits are more prominent:

• Safety of gratuity savings as contributions are managed not by an employer but by an independent third-party administrator.
• Employee contributions are voluntary, giving enough room for employees to add more to the workplace savings scheme.
• Optional rollover of existing end of service gratuity benefit (The amount that an employee has already accumulated before beginning of the new scheme) into the new scheme.

What Are The Possible Challenges For The New Scheme?

The new end of service gratuity scheme is a step in the right direction as it protects the interest of the employees. However, it comes with its own set of challenges:

• It has somewhat a complex governance and oversight structure with several parties involved in its management. While this tiered management structure can ensure transparency in the running of the scheme, it can also create conflicts of interest amongst the various parties. For example, a complex management structure can create additional unforeseen costs that lower the total returns for employees
  
• The scheme intends to charge employee members an annual management fee of approximately 1.25%-1.5% of invested funds with no hidden fees. While this fee seems low, some of the scheme’s fixed-income investments may not even make this much in annual returns. On top of that, the underlying funds the scheme invests in may not have a clear structure, and this complexity may increase management fees
  

At FinFlx, we made it our mission to help SMEs all over the UAE to navigate uncertainty when it comes to End of Service Gratuity. We provide an out of the box solution that helps SMEs forecast, manage and report their EoSG liabilities on autopilot. Offering a flexible, transparent, and sustainable solution.

Even better, we made very easy for businesses of all sizes to start today, and build a sustainable workplace savings plan to cover their gratuity liability and protect their employees savings all at no extra cost.

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