As the economies of the Middle East evolve, and move towards more congruence with global market demands, and international standards, there have been a number of encouraging legal developments in labor laws. For example, workers in the UAE can obtain a 6 month visa if they lose their job, to assist them in finding new employment. There are similar schemes in other GCC countries such as Bahrain as well. These immigration law developments are quite progressive and encouraging for workers in the region, who previously had only 30 days to exit the country.
Another very encouraging sign for workers, particularly low income and vulnerable employees, is the new Labor Insurance Scheme. Under the previous system in the UAE, employers had to make a AED 3,000 deposit with the Ministry of Human Resources and Emiratisation. This would be utilized if any of the employee’s dues were not paid by the company, when the employee decided to leave the company as a result.
The New System
If a company was unable to pay their debts previously, the employee who was owed money often left their company with pending amounts payable due. The previous deposit scheme structure was limited to a deposit value of only 3000 AED, and those who were owed more on their termination were left with a big shortfall if their employer failed to pay. Employers would make a deposit of AED 3,000 with the Ministry upon hiring an employee, and would use this to pay off dues owed upon termination of the employment agreement.
Under the new scheme, this deposit is no longer required. It is replaced with an insurance premium of only AED 60 per year per employee. If the company then fails to pay their dues to the employee, such as end of services gratuity or salaries, the insurance policy will provide the payment. The payment is capped at AED 20,000.
Not only does this reduce the deposit burden for employers, but it also provides a much higher level of security for employees, particularly low income earners and manual laborers or construction workers. Under the new system, employees are protected up to a much higher amount, being AED 20,000, in case they are left with shortfalls in income upon termination.
The new insurance scheme came into effect on October 15, and it will drastically reduce the deposit payable by employers for each new employee as well as reduce the upfront costs of recruiting staff. It also releases cash deposits tied up in the Ministry of Labor.
As with any insurance policy, a large amount of claims with the provider for unpaid dues may lead to a rise in the premium. However, given its current cost, being quite low on an annual basis, it is unlikely to rise to detrimentally high levels in the near future.
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