DIFC Employment Law Amendments: Changes to DEWS and End of Service Gratuity

At a glance

The DIFC has recently introduced legislative changes to Part 10 of the DIFC Employment Law (Law No. 2 of 2019, as amended) by way of DIFC Law No. 1 of 2024 (Amendment Law). The Amendment Law was enacted on 1 March 2024.

Unless defined in this summary, the capitalised terms have the meaning given to them under the DIFC Employment Law or the Amendment Law, as applicable.

 

What has changed?

Qualifying Scheme contributions for UAE/GCC national employees

Prior to the enactment of the Amendment Law, DIFC employers were not required to make monthly payments into a Qualifying Scheme (i.e. DEWS) on behalf of any UAE or GCC national employee who was registered with the GPSSA. In practice, it was recognised that this often caused an imbalance for certain GCC national employees, who because of statutory pension caps, received less by way of pension contributions than they would otherwise have received had they been enrolled in DEWS. The Amendment Law seeks to address this imbalance.

Under the new Amendment Law, DIFC employers are now required to make “top-up” payments into a Qualifying Scheme for eligible UAE/GCC national employees where there is a shortfall between their monthly pension contributions, and what they would otherwise have received by way of monthly contributions into DEWS (had the employee not been a UAE or GCC national), provided that the contribution is no less than AED1,000. Where applicable, DIFC employers must pay the positive difference into a Qualifying Scheme, in addition to making the usual GPSSA contributions.

The provisions of the Amendment Law are now in effect and fines may be levied (up to USD2,000 per employee) for non-compliance. It is therefore important that all DIFC employers take proactive steps to ascertain whether currently any of their UAE/GCC nationals would be eligible to receive a “top-up” payment.

 

End of service gratuity accrual – sanctioned persons

The Amendment Law has expressly introduced statutory provisions to deal with a situation whereby a DIFC employer is prohibited from contributing into a Qualifying Scheme on behalf of an employee, or where an employee is prohibited from receiving monthly contributions, due to being a Sanctioned Person.

The term “Sanctioned Person” is defined under the Amendment Law as “any individual, entity, body or organisation listed on a sanctions list issued and passed by the United Nations Security Council, any consolidated list of financial sanctions issued by the Federal Cabinet of the UAE or any other sanctions that may apply to a Qualifying Scheme or its trustee or administrator.”

In these circumstances, DIFC employers are required to accrue end of service gratuity on behalf of any affected employee until the earlier of:

• the Employer or Employee (as applicable) no longer being deemed a Sanctioned Person; or
• an Employee’s Termination Date, at which time, the Employer is required to transfer any accrued Gratuity Payment into a Qualifying Scheme or, directly to the Employee (depending on the circumstances).

An Employer will not be responsible for any profit or loss that may have accrued in a Qualifying Scheme had it not been for the need to accrue end of service gratuity on an employee’s behalf due to sanctions.

If you have any questions about how the above changes may affect your business, please get in touch with your DLA Piper contact.