The new year has brought with it changes in the legal landscape in the UAE, especially in relation to employment and governance of labour relations. This Article deals specifically with two laws that employees and employers need to ensure they are compliant with, starting this year.
Part I: Mandatory subscription to the Involuntary Loss of Employment Scheme
A significant development for employees is the introduction of an insurance scheme to provide relief against involuntary loss of employment. The governing legislation is the Federal Decree Law No. 13 of 2022 Concerning Unemployment Insurance Scheme (the “Unemployment Insurance Law”), further supplemented by the Cabinet Decision No. 97 of 2022 Concerning the Mechanisms and Controls for Implementing the Unemployment Insurance Scheme.
The subscription to the Involuntary Loss of Employment (ILOE) scheme was commenced on January 1st, 2023. The Unemployment Insurance Law has a broad scope of application, and is mandatory for all employees, both for government and private sector. This includes UAE citizens as well, except for categories that are specifically exempted.
The following categories of persons are exempted and will not be eligible to the benefits under the ILOE scheme:
- Investors (Business owners who own the entire business and manage it themselves);
- Domestic Workers;
- Contractual workers/employees on a temporary basis;
- Juveniles under the age of 18;
- Pension-receiving retirees who have joined a new employer; and
- Employees working in the Free Zones.
Employees failing to subscribe to the scheme within 30th June 2023, are subject to a fine of AED 400. An additional fine of AED 200 is applicable on employees who do not pay contributions for more than 3 months. An employee who fails to pay the premiums for a period of 3 months from the due date, is not entitled to the benefits of the scheme and must re-subscribe to a new insurance policy along with payment of applicable fines. These amounts can be collected by deducting from the insured’s account designated for receiving salary as per the Wage Protection System (WPS), from their end of service gratuity or any other alternative systems. It must be noted that the obligation to register and contribute to such scheme is on the employees. The employer is not required to either contribute into the scheme or register employees.
Compensation
A monthly compensation of 60% of the average basic salary over the past 6 months prior to unemployment is provided for a period of 3 months from the date of unemployment, up to a maximum amount of AED 20,000 per month. The compensation must be paid within 2 weeks from the date the claim is submitted.
A compensation of maximum 3 months is provided for each claim. Additionally, the maximum period for benefitting from the compensation during the Insured’s entire period of service in the UAE must not exceed 12 months, regardless of the number of claims.
The insurance scheme has two subscriptions, based on the basic salary of the employee:
First Category– Basic salary of AED 16,000 or lesser: Contribution of AED 5 per month and eligible for a monthly cash compensation of up to AED 10,000.
Second Category– Basic salary higher than AED 16,000: Contribution of AED 10 per month and eligible for a monthly cash compensation of up to AED 20,000.
Premiums may be made on monthly quarterly, half-yearly or yearly basis. In order to be eligible to receive compensation under the scheme, certain additional conditions have to be met.
- A minimum subscription period of 12 consecutive months is applicable.
- The unemployment must not be a resignation by the employee.
- The insured must not be dismissed for disciplinary reasons under the applicable Labour Law.
- The loss of job shall not be the result of strikes or on-peaceful work stoppages.
- There must be no fraud involved in the employees claim nor should the establishment be fictitious.
- The insured must be physically present in the UAE.
The term of the policy can be for a minimum of 1 year and a maximum of 2 years. The insurance policy only remains active as long as there is continuous employment. Hence, if the employee resigns and joins another employer, the existing policy will lapse, and the employee would have to subscribe to a new policy.
An interesting point to note is that the Law permits for additional benefits which may be negotiated between the insured and the service provider. This leaves the window open for employees who wish to have a higher compensation amount in turn for payment of a higher premium.
Part II: Fines for breaching Emiratization rates
Though the Emiratization Law (Ministerial Decision No. 279/2022) has come into effect in 2022, the imposition of fines on non-compliant entities has come into force this year. The Emiratization Law obliges entities employing more than 50 skilled workers to emiratize a fixed percentage of their skilled jobs annually, starting from 2% in 2022, to reach 10% by 2026.
The MOHRE has now announced that the Emiratization targets will be applicable semi-annually, implying that entities are required to increase the percentage of Emiratis by 1% every six months. [1] Accordingly, the fines will be imposed semi-annually, instead of at the end of each year. Thus, the effective due date for imposition of penalties for 2023 will be 1st July 2023. This does not change the existing compliance requirements of entities, but merely modifies the enforcement of the existing obligations.
Further to this, the Cabinet Decision No. 95 of 2022 On the Violations and Administrative Penalties related to the Initiatives and Programmes of the Emirati Talent Competitiveness Council was issued in October 2022, to support the objectives of Emiratization and tackle practices that aim to circumvent the Emiratization Law including fake Emiratization whereby entities fraudulently show that Emiratization targets have been met.
The Ministry of Human Resources and Emiratization (MOHRE) will work alongside the Emirati Talent Competitiveness Council (ETCC) to ensure compliance with Emiratization requirements and impose penalties for violations. MOHRE has confirmed that fines of AED 6,000 per month, per UAE National who has not been employed in accordance with the Law, have been imposed on all non-compliant entities.[2] The fine will be increased annually by AED 1,000 per month until 2026. A failure to pay the fines may lead to suspension of new work permits.
If establishments falsify the Emiratization percentage or provide inaccurate documents to obtain benefits under Nafis (federal program to support Emiratization) or evade the Emiratization process, an administrative fine of minimum AED 20,000 and a maximum of 100,000 per employee will be imposed on the business entity. The consequences for the Emirati employee will be termination of support and refund of all amounts spent by the ETCC.
If the establishment terminates the Emirati’s employment and reassigns them in order to receive support from the ETCC, an administrative fine of not less than AED 20,000 and not more than AED 100,000 per case will be imposed. If the establishment fails to report changes to the terms of benefit to the ETCC, an administrative fine of AED 20,000 per case will be imposed on the establishment. The Emirati employee is also subject to penalties by the ETCC, including termination of support and refund of all amounts spent by the ETCC.
Upon committing more than one violation, multiple penalties may be imposed. The imposition of fines and penalties is not the only consequence faced by the defaulting parties. In matters where it is proven that the establishment acted intentionally and fraudulently, the matter may be referred to the Public Prosecution, who may take legal action against either or both establishment and beneficiary.
A further consequence of non-compliance with Emiratization targets is the classification of entities into 3 categories with differing benefits and fees applicable to each category. This categorization would determine the fees payable for work permits by the establishments.
With a wide range of consequences for non-compliance, establishments have to be careful to comply with Emiratization rules in the manner prescribed by law.
Should you require further information on employment matters in UAE, please contact us at info@fichtelegal.com.
[1] Ministry of Human Resources announces amendments to mechanism of achieving Emiratisation targets, available at https://www.wam.ae/en/details/1395303126060 (last accessed on 10.02.2023 at 9.45 AM)
[2] MoHRE applies financial contributions to companies failing to raise Emiratisation rates by 2% during 2022, available at http://www.wam.ae/en/details/1395303116868 (last accessed on 09.01.2023 at 2.45 PM)
