DIFC Qualifying Employer Workplace Savings Scheme

DIFC Qualifying Employer Workplace Savings Scheme

In the early part of the year 2019, Dubai International financial Centre Authority (DIFCA) proposed in the consultation paper to revise the end of service gratuity (ESG) regime. ESG regime was proposed to be replaced with contributions-based-savings.

In February 2020, the DIFCA brought amendments to the DIFC Employment Law Number 2 of 2019 specifically with regards to Article 66 that governed erstwhile ESG. The DIFCA proposed qualifying scheme which is designed and revolves around concept of “employment money purchase scheme”, as DIFC follows common law or English Law principles. The qualifying scheme would be closely modelled on UK Pension Schemes 1993 that defines the term money purchase benefits as the benefits the rate or amount of which is calculated solely by reference to assets. Therefore, the qualifying scheme shall make provision for:

• Payment of monthly contribution by an employer with respect to employees i.e. core benefits
• Payment of the benefit to member or their legal heir, leaving their employment
• The administrator or fund managers should be under supervision of the recognized regulator.

The Qualifying Scheme that is promoted by DIFCA is termed as DIFC Employee Workplace Savings (DEWS). But, the DIFCA has given freedom to employers to choose any other Qualifying Alternative Scheme (QAS).

The salient features of the Qualifying Scheme are:

• ESG would cease to accrue from 31 January 2020 but the gratuity shall not be paid at this date but:

• Would be held by the employer until termination of employment, and be paid within 14 days of the termination.
• the employer pays it into a Qualifying Scheme after 31^st January 2020.

• The employer beginning from 1^st February 2020 is obligated to make employer contributions as per the following calculations:

• For every month 5.83% of the amount of the basic salary, unless the employee completes 5 years of service and
• For every month approx. 8.33% of the basic salary in case employee works for more than five years.

• The employer mandatorily must register each employee working in his organization latest by 31 March 2020 as well as the first payment into such qualifying scheme shall be made by 21^st April 2020.