The End of Service Gratuity: is it the beginning of the end?
Type
E-journal
Date
3 May 2016
Jurisdiction
United Arab Emirates
Taxonomy
General Employment & Labour Law
Copyright
LexisNexis
Relevant company
Al Tamimi & Company
Analysis
End of service gratuity (“ESG”) is a topic that is currently stirring much debate. In particular, it was recently reported that after conducting a study into the ESG system, the World Bank recommended the establishment of a pension fund for expatriate employees to replace or supplement ESGs.
Whatever your opinion of the ESG, it is important to be aware of the ongoing discussions surrounding the gratuity payment scheme as any decision to reform the ESG model will impact on the majority of employees and employers in the UAE.
The ESG explained
ESG is a sum of money that an employer is lawfully required to pay an employee upon the termination of the employment relationship, subject to the employee satisfying certain conditions that are set out in the UAE Labour Law. The ESG scheme was introduced 40 years ago to ensure that when employment relationships were terminated, employees without pension benefits received a lump sum payment to assist them during the period following termination or for them to put towards their savings.