The new end-of-service law in the UAE has changed how private-sector employers can manage end-of-service benefits. Introduced through the UAE’s Voluntary Alternative End-of-Service Benefits System, the End of Service Savings Scheme UAE lets participating employers make monthly contributions to approved investment funds for selected employees.
But does this mean the traditional gratuity system is gone? No. The New Gratuity Scheme UAE is a voluntary alternative, not a complete replacement. In this guide, we’ll explain how the scheme works, employer contributions, investment options, eligibility, and how it differs from traditional gratuity calculation under UAE rules.
Note: “New gratuity law in UAE” and “new end of service law in UAE” are commonly used search terms. The official legal framework is the Voluntary Alternative End-of-Service Benefits System, commonly referred to as the Savings Scheme.
What is the new gratuity law in UAE?
The new gratuity law in the UAE refers to the Voluntary Alternative End-of-Service Benefits System introduced through Cabinet Resolution No. 96 of 2023. It gives participating private-sector employers the option to enroll their entire workforce, specific employee groups, or selected professional categories in the UAE End of Service Scheme.
Under the scheme, employers make monthly contributions into approved investment funds for enrolled employees. When employment ends, employees can receive the employer's contributions along with applicable investment returns. The new end-of-service benefits UAE framework is voluntary, so employees who are not enrolled continue to be covered by the traditional gratuity rules. HR software can help businesses track employee enrolment, contributions, and end-of-service records more efficiently. Further subscription requirements are set out under Ministerial Resolution No. 668 of 2023.
How is the new gratuity law different from the existing end of service law in UAE?
Before understanding the Savings Scheme, it is important to know how the traditional system works. Under the traditional UAE end-of-service rules, an eligible foreign worker generally becomes entitled to gratuity after completing at least one year of continuous service, subject to the applicable employment pattern and legal provisions.
The general gratuity calculation is:
- 21 days of basic wage for each of the first five years.
- 30 days of basic wage for each year after five years.
- Partial years after completing one year are calculated proportionately.
- Unpaid absence is generally excluded from the service period.
This Gratuity Calculation in the UAE remains applicable to employees who are not enrolled in the Savings Scheme. Employers generally need to settle outstanding wages, other entitlements, and gratuity within the applicable 14-day period following termination.
The UAE End of Service Scheme works differently. Participating employers make monthly contributions into approved investment funds for enrolled employees. When employment ends, the employee receives the employer's basic contributions along with applicable investment returns for the period covered by the scheme.
Traditional gratuity vs Savings Scheme
Feature | Traditional Gratuity | Savings Scheme |
|---|---|---|
Participation | Applies where the employee is not enrolled in the alternative scheme | Voluntary for participating employers |
Calculation | Based mainly on basic wage and service period | Based on monthly employer contributions |
Investment | No investment component under the statutory gratuity formula | Contributions are invested through approved funds |
Employer Contribution | No fixed monthly percentage under the traditional model | 5.83% or 8.33% for full-time employees, depending on service period |
Previous Gratuity | Calculated under applicable Labor Law | Must be calculated and settled before enrolment |
Investment Returns | Not part of statutory gratuity calculation | Applicable investment returns may be added |
Payment | Statutory end-of-service settlement | Basic contributions and applicable returns are payable within 14 days after termination, subject to applicable rules |
What happens to gratuity earned before an employee joins the scheme?
This is an important part of the UAE's new end-of-service law that employers and employees should understand. When an employer enrolls an employee in the Savings Scheme, the employer must first calculate the gratuity that the employee has already accrued before joining the scheme. The employer must account for that accrued entitlement under applicable law.
After enrolment, the Savings Scheme applies to the employee going forward. The employee does not lose the gratuity accumulated before joining the scheme. This means employers need to keep a clear record of the employee's previous service period and accrued gratuity before moving them to the alternative system.
How much does the employer contribute?
For full-time employees participating in the Savings Scheme, the employer's basic monthly contribution is:
Employee's Service Period | Employer Contribution |
|---|---|
Up to 5 years | 5.83% of monthly basic salary |
More than 5 years | 8.33% of monthly basic salary |
These percentages are based on the employee's basic salary, not the total salary. Using a salary calculator can help HR teams verify salary components and ensure the applicable contribution rate is calculated correctly based on the employee's continuous service period.
The employer must transfer the monthly contribution to the investment fund within 15 days from the beginning of each calendar month. This makes the new end-of-service benefits system in the UAE different from traditional gratuity, where the employee's final basic wage and length of service are used to calculate the statutory entitlement.
What happens to the money after it is contributed?
The contributions are placed into investment funds approved by the Securities and Commodities Authority. These funds provide investment options through which the employee's contributions can generate returns.
The UAE framework provides for different investment categories, including:
- Capital Guarantee Portfolio
- Risk-based investment options
- Sharia-compliant investment options
The Capital Guarantee Portfolio is designed to preserve the invested capital. The applicable investment choices depend on the employee's category and the options offered by the approved fund manager.
Risk-based options can provide the potential for higher returns, but their value can fluctuate with investment performance. Sharia-compliant options are available for employees who prefer investments that follow Islamic finance principles. Therefore, when discussing the New Gratuity Scheme UAE, it is better to describe these as investment options available through approved fund managers rather than suggesting that every employee receives the same three investment products.
Is the new end of service law compulsory?
No. The new end-of-service law in the UAE is not a compulsory replacement for the traditional gratuity system. The Savings Scheme is a voluntary alternative. It is available to participating private-sector establishments, including establishments operating in free zones, subject to the applicable rules. Employers that join the scheme can decide whether to enroll all employees, particular groups, or selected professional categories.
This means employees should first check whether their employer has enrolled them in the Savings Scheme. If an employee has not been enrolled, the traditional end-of-service gratuity rules continue to apply.
If the employee has been enrolled, the employer's basic monthly contributions and applicable investment returns form the employee's end-of-service benefits for the period covered by the scheme. Therefore, it would be incorrect to say that the New Gratuity Law in the UAE has completely abolished the traditional gratuity system.
Can employees make additional contributions?
Yes. Employees participating in the Savings Scheme can make voluntary additional contributions in addition to the employer's basic contribution. These additional contributions may be made through salary deductions arranged by the employer or through direct lump-sum payments to the investment fund. Performance management software can also help HR teams maintain accurate employee records and manage related payroll information.
According to UAE Government guidance, voluntary contributions are subject to an applicable limit of 25% of the employee's total wage. This gives participating employees another way to build their investment balance during employment.
Which sectors is the new gratuity law for?
The Savings Scheme is available to participating private-sector establishments, including establishments operating in free zones, subject to the applicable rules. Employers within this scope can voluntarily participate in the scheme and select the employees they want to enroll.
This means the new labor law for gratuity in the UAE should be discussed primarily in the context of private-sector employment and participating free-zone establishments. Employers that choose to participate must submit the required request to MoHRE and select an investment fund approved by the Securities and Commodities Authority.
Employers can choose to enroll:
- All employees
- A specific group of employees
- Employees belonging to selected professional categories
Once an employee is enrolled, the employer must stop applying the traditional gratuity system to that employee for the period covered by the Savings Scheme and account for the gratuity accrued before enrolment.
The current UAE framework specifically identifies private-sector establishments, including free zones, within the scope of the Savings Scheme. Government employees should not be described as automatically covered by the employer-funded Savings Scheme under Cabinet Resolution No. 96 of 2023.
When does the new end of service law come into effect?
The Savings Scheme is already in effect. It is not a future law waiting for a new implementation date.
The UAE introduced the voluntary alternative system through Cabinet Resolution No. 96 of 2023, and MoHRE provides registration and guidance for employers participating in the Savings Scheme.
Therefore, statements that the UAE government has "not yet announced an implementation date" are outdated and should not appear in a 2026 article. For employers that choose to participate, the process includes submitting a request to MoHRE, selecting an approved investment fund, choosing the employees to be enrolled, and meeting the applicable contribution requirements.
When does an employee receive the money?
Under the Savings Scheme, an employee is entitled to the basic subscription amounts paid by the employer and applicable investment returns within 14 days after termination of the employment relationship. The employee may also choose to keep the funds invested rather than withdraw them immediately, subject to the applicable scheme and fund rules.
This is another important difference between the End of Service Savings Scheme UAE and the traditional system. Under the traditional system, employers must also settle the employee's outstanding wages, other entitlements, and gratuity within the applicable 14-day period following termination. Payroll software can help HR teams track these payments and manage final settlements accurately.
What are the investment options?
The new end-of-service benefits UAE framework allows contributions to be invested through approved funds.
The main categories include:
1. Capital Guarantee Portfolio
The Capital Guarantee Portfolio is designed to preserve the invested capital. Its availability and applicability depend on the employee category and the approved fund arrangements.
2. Risk-based investment options
These funds carry different levels of investment risk and may offer the potential for higher returns. The value of the investment can change depending on market performance.
3. Sharia-compliant investment options
Employees who prefer investments that follow Islamic finance principles can select applicable Sharia-compliant funds offered through approved providers.
The investment options available to an employee depend on the approved fund and its offering terms. Employees should review the relevant fund information before selecting an investment option.
How is Gratuity Calculation in UAE different under the two systems?
The easiest way to understand the difference is to compare the traditional system with the Savings Scheme. Under the traditional system, eligible employees receive gratuity based on the applicable statutory formula, including their basic wage and service period.
Under the Savings Scheme, the employer makes regular contributions into an approved investment fund. The employee's benefits for the period covered by the scheme are linked to those contributions and applicable investment returns.
This means Gratuity Calculation in the UAE depends on which system applies to the employee. For employees who remain under the traditional system, the statutory gratuity calculation continues to apply for employees enrolled in the Savings Scheme, the employer's contribution history and investment performance become important when determining the end-of-service amount.
What happens if an employee changes jobs?
If an employee leaves their job while enrolled in the Savings Scheme, they are entitled to the employer's basic contributions along with applicable investment returns for the subscription period. Depending on the scheme and fund rules, the employee may receive the amount after termination or choose to keep the funds invested, subject to the applicable scheme and fund rules.
If the employee remains under the traditional system, their end-of-service benefit is calculated under the applicable Labor Law. This makes understanding End of Service Benefits Calculation UAE rules important when changing jobs, while HR and payroll teams should also check the employee's enrolment status, accrued gratuity, and contribution records before processing the final settlement.
Why was the UAE Savings Scheme introduced?
The scheme provides an alternative way to manage end-of-service benefits while giving participating employees access to investment opportunities. The Savings Scheme can help protect end-of-service entitlements, provide the potential for investment returns, and encourage longer-term savings.
For employers, regular contributions can provide a more structured way to manage future end-of-service obligations. For employees, the main difference is that contributions made under the scheme can be invested during employment rather than simply remaining part of an employer's future gratuity liability.
However, investment returns are not guaranteed for risk-based options, so employees should understand the risks and terms associated with their selected fund.
What should employees check?
Employees should not assume that the New Gratuity Scheme UAE automatically applies to them.
Instead, they should confirm:
- Whether their employer has joined the Savings Scheme
- Whether they have personally been enrolled
- Their basic salary used for employer contributions
- The amount contributed each month.
- The investment fund selected.
- Any investment risks or fees
- The gratuity accrued before enrolment.
- The process for receiving their benefits after termination
Employees who remain under the traditional system should also understand how their statutory gratuity is calculated.
Conclusion
The new end of service law in the UAE gives participating private-sector employers a voluntary alternative to the traditional gratuity system through the UAE End of Service Scheme. The End of Service Savings Scheme UAE allows employers to make regular contributions into approved investment funds, while enrolled employees may benefit from applicable investment returns when their employment ends.
For HR teams and employees, knowing which system applies is essential for accurate Gratuity Calculation in the UAE and final settlements. Whether an employee remains under traditional gratuity rules or joins the New Gratuity Scheme UAE, keeping clear records of enrolment, contributions, and accrued benefits can help ensure end-of-service payments are handled correctly. Employee engagement software can also help HR teams maintain employee records and improve communication around benefits and workplace policies.
