End of Service Savings Scheme UAE: A Guide for Employers

For most companies in the United Arab Emirates, the end-of-service liability is the obligation that sits quietest on the balance sheet and lands hardest when it falls due. It accrues year after year, often unfunded, and then arrives as a single payment on the day an employee leaves. The end of service savings scheme UAE employers can now adopt changes that picture: instead of carrying an unfunded promise, you fund the benefit as it is earned, month by month, in a regulated investment fund.

This is one of the more considered shifts in UAE workforce policy in recent years. It does not replace the statutory gratuity for the wider private sector — that remains the default under federal law. But it gives founders, CFOs and HR leaders a credible, government-backed alternative to managing a growing liability with cash they may not have set aside.

This guide explains how statutory gratuity works, what the voluntary alternative scheme offers, how DIFC's DEWS plan fits in, and which approach suits which kind of employer.

This article is general information, not legal or financial advice. Confirm the position for your business with a qualified adviser before acting.

How statutory end of service gratuity UAE works

End-of-service gratuity is the lump sum a private-sector employee in the UAE receives when their employment ends. It is governed by Federal Decree-Law No.of 2021, the country's principal labour law for the private sector.

The core mechanics are straightforward. An employee who has completed at least one continuous year of service is entitled to gratuity. The calculation is based on the basic wage stated in the employment contract — not the gross package. Allowances for housing, transport and the like, along with bonuses and overtime, are excluded.

The accrual rate has two tiers:

• 21 days' basic wage for each of the first five years of service.

• 30 days' basic wage for each year of service beyond five years.

The total gratuity is capped at the equivalent of two years' wages, regardless of how long the employee has served.

One feature of thelaw deserves emphasis, because it changed the planning maths for many employers. Under the current regime, resignation no longer reduces the gratuity. An employee who resigns, having completed a year of service, is entitled to the full accrued amount on the same basis as one whose contract is terminated. The old sliding-scale deductions for early resignation are gone. The practical effect is that the liability is larger, more certain, and harder to assume away than it once was.

If you want to see what a specific tenure and salary produce, our UAE gratuity calculator works the figure for you against the current rules. We also set out the wider statutory picture in our guide to UAE labour law changes for employers.

A short note: the rules above describe the standard full-time position. Part-time and flexible arrangements are calculated on a pro-rata basis, and gratuity may be forfeited in cases of dismissal for gross misconduct as defined in the law. The detail matters, so check the specific case.

The problem with an unfunded lump sum

The gratuity rules are clear enough. The difficulty is not the calculation — it is the funding.

Under the traditional model, the employer carries the gratuity as a provision and pays it from cash when the employee departs. Many companies, particularly younger ones, never set the money aside. The liability grows silently on the balance sheet while the cash is deployed elsewhere in the business.

This creates three problems.

The first is concentration risk. A long-serving senior employee can represent a six-figure AED obligation that crystallises in a single afternoon. If several such departures cluster — after an acquisition, a restructuring, or simply a difficult year — the cash demand can be severe and badly timed.

The second is the absence of returns. Money held as an internal provision, or not held at all, earns nothing for anyone. The employee's benefit does not grow; the employer's capital is tied to a future obligation without working in the meantime.

The third is portability and trust. From the employee's perspective, an unfunded promise is only as sound as the employer's future solvency. For a workforce that is largely expatriate and mobile, a benefit that is genuinely set aside and ring-fenced carries more weight than a line in someone else's accounts.

Funding the benefit as it is earned addresses all three. The cost is recognised and paid monthly rather than deferred. The contributions are invested, so they have the chance to grow. And the money sits outside the employer's balance sheet, protected for the employee. This is the logic behind both the federal alternative scheme and DIFC's DEWS.

The alternative end of service benefits scheme

In 2023, the UAE Cabinet approved a voluntary alternative to the traditional gratuity for the private sector. The alternative end of service benefits scheme — often called the savings scheme — was introduced under Cabinet Resolution No.ofand came into effect in November that year. It is administered by the Ministry of Human Resources and Emiratisation (MOHRE) in partnership with the Securities and Commodities Authority (SCA).

The design is deliberately simple for employers to understand.

An employer that joins the scheme stops accruing the traditional gratuity for the enrolled employees from the date of enrolment and instead makes a monthly contribution into an approved investment fund, calculated on the employee's basic wage. The contribution mirrors the statutory accrual logic, so the benefit the employee builds is at least equivalent to what the gratuity would have produced. Crucially, contributions are based on the basic wage at the time of payment, which is recognised and funded as you go, rather than calculated against a higher final salary at the end of a long career.

Participation is voluntary and flexible. An employer applies to MOHRE through its service channels, contracts with one of the SCA-approved funds, and may enrol the whole workforce, specific groups, or selected professional categories. Employees may also, if they wish, make their own additional voluntary contributions to grow their savings further.

The fund choices matter for UAE employers, and the scheme accommodates a range of risk appetites. Approved funds are offered in both conventional and Shari'ah-compliant structures. They also span a spectrum from risk-free, capital-guaranteed options — where the principal is protected — to risk-based investment portfolios that seek higher returns over time. All funds are licensed and regulated by the SCA, and MOHRE has accredited a set of providers to operate them. This means an employer can offer a benefit that respects both fiduciary prudence and the values of a diverse workforce.

You can read MOHRE's own guidance on the scheme on the Ministry's awareness and guidance pages.

DEWS: the DIFC funded savings plan

The federal scheme was not the first funded model in the UAE. The Dubai International Financial Centre — the financial free zone in Dubai — moved first.

With effect fromFebruary 2020, DIFC replaced the traditional end-of-service gratuity for its employees with a funded workplace savings plan, the DIFC Employee Workplace Savings scheme, known as DEWS. Within the DIFC, this is not optional: employers must make monthly contributions into DEWS or another qualifying, regulated scheme. Gratuity accrued up toJanuary 2020, and from Februaryonwards the funded model applies.

The contribution rates were set to broadly track the statutory gratuity an employer would otherwise have carried. The minimum employer contribution is 5.83% of monthly basic wage for employees with fewer than five years of service, rising to 8.33% for those with five years or more. As with the federal scheme, employees can make voluntary additional contributions, and the plan offers a range of investment options.

DEWS has now operated for several years and is, in effect, the proof of concept for funded end-of-service provision in the UAE. Its track record helped build confidence in the model that the federal alternative scheme later extended to the wider private sector. You can find the official position on the DIFC website.

For employers operating across both a DIFC entity and a mainland or other free-zone entity, the two regimes sit side by side: DEWS for DIFC employees, and the choice between statutory gratuity and the federal alternative scheme for the rest. Mapping which population sits under which regime is exactly the kind of exercise an HR audit is built to resolve.

Which option suits which employer

There is no single right answer. The sound choice depends on the size, stage and structure of the business.

Early-stage and growth companies often benefit most from funding as they go. These are the businesses least likely to have a gratuity provision genuinely set aside, and most exposed to a sudden cash demand when an early employee leaves. Converting an unpredictable future liability into a known monthly cost improves cash discipline and makes the benefit visible to the people earning it.

Established firms with strong balance sheets may reasonably prefer to retain the statutory gratuity, particularly if the liability is already fully provided and the cash is available. For them, the alternative scheme is less about solving a funding gap and more about offering a benefit that grows and that the workforce values.

Employers competing hard for talent — in technology, professional services, healthcare — will weigh the retention argument heavily. A funded, portable, potentially growing benefit is a more persuasive proposition to a mobile professional than an unfunded promise.

DIFC-based employers have the question settled for them: DEWS, or a qualifying alternative, is required.

Whatever the structure, the decision should be made deliberately and documented at board level, not left to drift. It touches cash flow, accounting treatment, employee communications and fiduciary responsibility. This is properly a matter of people strategy and board governance, and it sits naturally alongside the wider obligations set out in our UAE HR compliance checklist for employers.

Getting the governance right

Adopting a savings scheme is not only a finance decision. It carries governance obligations that are easy to underestimate.

Enrolment must be handled cleanly: the cut-over from accrued gratuity to funded contributions has to be calculated and recorded accurately for each employee, so that nothing earned under the old basis is lost. Employee communication matters, because people need to understand what is changing and why. Fund selection should be made on a documented basis, with the risk profile and Shari'ah preference of the workforce considered rather than assumed. And the position should be reviewed periodically as the business grows and the workforce changes.

Done well, the shift to a funded scheme is one of the more straightforward ways to strengthen both the balance sheet and the employee proposition at the same time. Done carelessly, it creates exactly the kind of record-keeping gap that surfaces, awkwardly, when someone leaves.

Frequently asked questions

Is the alternative end of service benefits scheme compulsory? No. For the mainland private sector it is voluntary. An employer may continue with the statutory gratuity under Federal Decree-Law No.of 2021, or apply to join the alternative scheme. Within DIFC, however, the funded DEWS model (or a qualifying alternative) is mandatory.

If we join the savings scheme, what happens to gratuity already accrued? Gratuity accrued up to the point of enrolment is generally preserved and settled separately, while contributions to the fund begin from the enrolment date forward. The cut-over must be calculated and recorded carefully for each employee. Confirm the precise treatment for your case with a qualified adviser.

Are there Shari'ah-compliant fund options? Yes. The approved funds are offered in both conventional and Shari'ah-compliant structures, and they range from risk-free, capital-guaranteed options to risk-based portfolios. All are licensed and regulated by the Securities and Commodities Authority.

Does an employee still receive their full benefit if they resign? Under the current law, resignation no longer reduces statutory gratuity, provided the employee has completed at least one year of service. Under a funded scheme, the contributions made on the employee's behalf belong to them according to the scheme's vesting terms.

How is gratuity calculated if we stay on the statutory model? The benefit isdays' basic wage for each of the first five years of service anddays' basic wage for each year thereafter, calculated on the contractual basic wage and capped at two years' wages. Our gratuity calculator works the figure against the current rules.

Book a diagnostic with Element

Deciding between statutory gratuity, the federal alternative scheme and a DIFC plan is a decision worth making with clear numbers and clean records. Element works with founders, CFOs and HR leaders across the UAE to quantify the end-of-service liability, map which employees sit under which regime, and put the governance in place to support the choice.

Book a diagnostic with Element, and we will help you turn an unfunded promise into a funded, well-governed benefit.

Sources

• Federal Decree-Law No.of(full text): https://uaelegislation.gov.ae/en/legislations/1541/download

• UAE Government — End of service benefits for private-sector workers: https://u.ae/en/information-and-services/jobs/employment-in-the-private-sector/end-of-service-benefits-for-employees-in-the-private-sector

• MOHRE — Alternative End-of-Service Benefits System (Savings Scheme): https://www.mohre.gov.ae/en/media-center/awareness-and-guidance/alternative-end-of-service-benefits-system-savings-scheme.aspx

• MOHRE — Voluntary alternative scheme goes into effect (Cabinet resolution): https://mohre.gov.ae/en/media-center/news/1/11/2023/voluntary-alternative-end-of-service-benefits-scheme-goes-into-effect-by-cabinet-resolution-aiming-t

• DIFC — overview: https://www.difc.com

• EY — UAE introduces voluntary alternative end-of-service benefits scheme: https://www.ey.com/en_gl/technical/tax-alerts/uae-introduces-voluntary-alternative-end-of-service-benefits-sch

• Al Tamimi & Company — DIFC Employee Workplace Savings Scheme (DEWS): https://www.tamimi.com/law-update-articles/the-new-difc-employee-workplace-savings-scheme-replacement-of-end-of-service-gratuity/