Employee Benefits: End of Service Gratuity for Expatriates


Employee Benefits: End of Service Gratuity for Expatriates

Dubai Raj (PERSONAL FINANCE)

28 December 2009 DUBAI – Abu Dhabi and Dubai are where people elect to come to live due to the benefits of tax free living, diversity of life and year long sun.

What one needs to understand about coming to work here is that, despite your circumstances, the reason why you should be employed here is because you bring skills to the table and that is what you are being compensated for.Having said this, if you are willing to take a certain salary, you can work away with minimal skills.

There is clear evidence that the increasing expat population in the UAE is fuelling demand for Western-style remuneration practices, reflecting the growing importance of benefits, long-term incentives and lifestyle products. The traditional focus here has been on basic salaries and cash allowances, but we are now experiencing an increased interest in other benefits, such as supplemental pension plans.

Source: Mercer’s Middle East Survey 2007-2008.

End of Service Award

Currently, under the UAE Labour Law, employees are entitled to a lump sum, payable at the end of service, known as Terminal Gratuity, that falls due only when an employee leaves service.

There are essentially three elements of severance pay under the Labour Law:

* An end-of-service gratuity;  Outstanding holiday pay;  The costs of repatriation.   

  • Under Article 132, an employee is entitled to an end-of-service gratuity only if he or she has completed at least one year of continuous employment. In this case, the employer is obliged to pay the equivalent of 21 days’ wages for each of the first five years of employment, and 30 days’ wages for each additional year, provided that the total amount is no more than two years’ wages. Gratuities are calculated from the basic wage, excluding all allowances. Most companies apply a minimum service length of 12 months. Benefits are usually payable as a lump sum and are funded locally (in 50 per cent of cases) or through an offshore vehicle. In practice, employees in the free zones, such as the Jebel Ali Free Zone and the Dubai Airport Free Zone, are subject to the rules and regulations of the free zone concerned and maintain their own employment contracts. However, the Law will still apply and the provisions in the employment contract must be in accordance with the Law. Moreover, it should be noted that free zone employees are sponsored by the relevant free zones and not by 
their employers.Since there is no real retirement system per se, the labour law states that an end of service benefit must be paid after a year of service.

    Usually you are covered for being brought here and returning home, by means of an airline ticket. Above this, some companies pay for extra elements, including shipping of items, and tickets for the families. Obviously, if you do not return home after you finish your job, then this is not applicable. Since gratuity is calculated on an annual basis or part thereof provided that the employee has actually completed one year of employment with the employer or more, days of absence from work without pay are not included in calculating the length 
of service.

    However, he will be entitled to end of service gratuity for fractions of a year he spent in service provided that he has completed at least one year in continuous employment.

    Each and every employer within the UAE is required by law to pay service related severance gratuities to their employees, and the longer the employee has worked for a particular business the bigger the end of service gratuity payment will be.

    Consequently, employers are seeking to establish structures that will assist them in meeting these end-of-service liabilities as they fall due. Because of the way in which international retirement benefits schemes legislation works, the Isle of Man is one jurisdiction that is able to give UAE employers the ability to fund for end of service benefits in a flexible, secure and tax neutral manner in a fully regulated environment

    It is quite common for companies to have three or six-month probation periods written into employment contracts. Some companies may delay the residency process illegally until the probation period is up, which can make settling in difficult — no residency means then you cannot sponsor family members, buy a car or even get a bank loan.

    You may also not be eligible for sick leave or annual leave during your probation period. Trade unions do not exist here. In case of a dispute between employer and employee, the Ministry of Labour and Social Affairs will initially act as an adjudicator, in an effort to resolve matters. If a party wishes to appeal any such decision it can take its case to court. Strikes and lock outs are forbidden.

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19 comments on “Employee Benefits: End of Service Gratuity for Expatriates

  1. ako po ay isang ofw d2 s dominican republic at nagsisimula na pong magdemob ng mga worker dito. ano po pwede kong makuha na benifits?kahit na ako ay 7 months plang sa company ko.at ang contract ko ay 2 years kasi po ang sabi ng mga nauna ng nademob ay huling sahod lng ang makukuha at walang anumang benifits….at ang problema pa po ay hindi man lng kami binigyan ng working visa dito na tulad ng sabi ng aming agency…kya sa pag exit po ng aking mga kasama sa airport ay sila pa ang nagbabayad ng over staying due…sa pagkakataong ako naman po ang madedemob..may makukuha po ba akong benifits kapag nademob? at kung meron man at hindi ito ibigay ng aking employer,,maari ko po bang ireklamo ang aking agency pag uwi ko ng pinas..pati na po ang hindi pagbigay ng working visa namin dito at pagbayad ng overdue stay sa airport?…sana po ay matulungan nyo po kami.

    • Allen,

      Malinaw po na visit or tourist visa kayo. Kaya sa sasunod huwag nyo na pong tanggapin ang ganitong arrangement sa inyong agency. Ang lahat pong OFW na hindi po dumaan sa POEA ay mahirap lumaban or mag reklamo sa employer dahil nga wala kayong legal na working visa. Katulad ng nangyari sa inyo na wala pang two years ay pinapauei na at kayo pa ang mag shoulder ng dues dahil nga overstayer kayo. Kaya sa tanong mo malabo po na makuha ninyo ang benepesyong nais ninyong makuha dahil nga hindi po kayo legal na expatriate sa bansang Domnican Republic.

      Ganito po ang inyong gawin, pagdating nyo po sa atin, punta po kayo ng POEA, Legal Division at ireklamo po doon ang inyong recruitment agency.

      Regards.

      Bong

  2. hi,am asking only if household workers does have a gratuity from sponsor??is it mandatory?or depends upon the sponsors generosity if ever they are???thanks

    • Janet,

      Hindi po kasali ang Household workers sa ESB, End of Service Award or Benefits dito sa KSA. Depende lang po sa sponsor kung magbigay or hindi.

      Bong

      • Hello !

        First of all, I would like to thank you for such a helpful blog on ESB for expatriates in Saudi Arabia.

        Well, my situation is:

        I started working in a company in November 1994 and then finally in April 2009, I was asked to resign (a sort of forced resignation). I got SR 107,500.

        My Last Month Wage was SR 8,047 and an overtime payment of SR 2,500.

        Can you please advise whether the ESB of SR 107,500 was accurate.

        Many thanks.

        • HI Shun,

          Article 85 clearly says that If the work relation ends due to the worker’s resignation ….. and to the full award if his service amounts to ten or more years. .

          Iven if you resigned (by force or not), you are still entitled to a full award because your service to the company was more than ten years. So for me the amount you received was inaccurate.

          Regards,

          Bong

          • Hi Bong !

            Thank you for your kind reply.

            Yes, even I calculated it myself and I think I was underpaid.

            The calculation can set out as follows:

            For the first 5 years: Half of LMW (SR 8,047/2) x 5 years = SR 20,117.5
            For the remaining 9 years: Full LMW (SR 8,047 x 9 years = SR 72,423
            The remaining 139 days: [(SR 8,047 x 12)/365.25] x 139 days = SR 36,749

            Total ESB = SR 129,290 (approx.)

            Anyways, thanks for your feedback. Surely I will demand the remaining SR 21,790.

            Thanks

  3. Hello. Can you please show me how to compute (with figures) UAE gratuity:

    Basic Pay – 3500.
    completed – 2years without absences

    • Say,

      I am working in KSA not in UAE, that is the reason I am not familiar about the computation with regards to UAE severance pay. However, the below UAE Labor Law provisions can help you in determining the computation:

      Section II: Severance Pay

      Article 132
      A worker who has completed one or more years of continuous service shall be entitled to severance pay at the end of his employment. The days of absence from work without pay shall not be included in calculating the period of service. The severance pay shall be calculated as follows:

      1. 21 days’ wage for each of the first five years of service.
      2. 30 days’ wage for each additional year of service provided always that the aggregate amount of severance pay should not exceed two year’s wage.

      Article 133: A worker shall be entitled to severance pay for any fraction of a year he actually served, provided that he has completed one year of continuous service.

      Article 134: Without prejudice to the provisions of laws that grant pensions or retirement benefits to employees in certain firms, severance pay shall be calculated on the basis of the wage last due for monthly, weekly and daily paid workers, and on the basis of the average daily wage referred to in Article 57 hereof for those paid on piecemeal.

      The wage used as a basis for calculating severance pay shall not include whatever is given to the worker in kind, housing allowance, transport allowance, travel allowance, overtime pay, representation allowance, cashier’s allowances, children education allowance, allowances for recreational and social facilities, and any other bonuses or allowances.

      Hope the above provisions may help you.

      Thanks for dropping by.

      Bong

  4. My questions po ako I was demobilized by the company I supplied with on Feb. 14, 2011. Now my company/agency would try to find another job for me here in Saudi Arabia but I refused instead I just ask favor to exit legally and formally with benifits settlement, work certificate and free plane ticket in going back to the Philippines. They let me signed the Termination of Service Due to the Completion of Assigned Task indicating the last day in work in my supplied company is on Feb. 10, 2011 not coinciding the notice stated by my companyagency I supplied whis is on Feb. 14, 2011.Now Feb. 08, 2011 I have no ticket yet tomorrow is wednesday, and on thursday and friday no offices. They have still Feb. 12 and 13, 2011 to prepare all because they said the extension is up to Feb. 14, 2011 (last day of work in my supplid company), is this possible for them to prepare all with these 2 days remaining? maybe they forced me to be supplied to another company but i don’t want it anymore. I started working Dec. 12, 2009 – Feb. 14, 2011. Questions: 1. Do they have the right to forced me to be transferred to another company to be supplied with even if i refused already and signed the demobilization notice? 2. Can I receive all benifits, work certificate and free plane ticket. 3.) Can I really be going back to the Philippinnes on the exact date on Feb. 14, 2011 or they will extend me for additional days? Thank You.

    • Jun,

      Sorry for late reply and late approval of your comment/inquiry in our blog. Like you, I am also an OFW here in KSA and have personal matters to attend to.

      Today is February 14, I hope all the worries stated in your letter has been solved at this time. But if you still ask my opinion, then please note that they don’t ahve the right to transfer you to another employer without your consent. If you inform the company 2 months or month before the expiration of your contract, then they should send you home with all the benefits, certificates, ticket back home as per Saudi Labor Law.

      They can not extend you with additional days because you already signed the Termination of Service Due to the Completion of Assigned Task as per your letter.

      Best regards and hoping for the best.

      Bong

  5. thank you po sa paunawa po ninyo..sa ngayun po resigned n po ako kaso yung computations ng benfits ko po ay ginawa po nilang kalahati po sa present salary ko sa lahat ng years n naipagtrabaho ko po sa knila.ble 10 yrs n po akong ngtrabaho with present salary of 3679SR d ksali yung allowances, yung beninfits ko lng po ay 18395SR.i applied for complain sa region office nmin kso ang reply nila sa akin tama daw po yung computation nila.ngayun po sir saan po kaya ako pwede lumapit pra po mabigyang lunas po yung problema ko po.

    • Marifel,

      Matanong nga kita, naibigay naba sa iyo ang benfits mo ayon sa kanilang computation? May pinirmahan kabang dokumento na na-receive mo na ang ang iyong benepisyo?

      Bong

  6. sir good day! pano po yung calculations ng end of service gratuity ng Ministry of Health sa Saudi Arabia as per saudi labor law? tanx po n more power

    • Fel,

      Ang computation ng ESB ay sweldo (basic pay) + allowances = Actual Wage.

      Ibig sabihin ang computation ay dapat based on the your last actual wage Article 2: 14 and 15 of Saudi Labor Law.

      Basahin mo ito:

      Section Four: End-of-Service Award

      Article 84. Upon the end of the work relation, the employer shall pay the worker an end-of-service award of a half-month wage for each of the first five years and a one-month wage for each of the following years. The end-of-service award shall be calculated on the basis of the last wage and the worker shall be entitled to an end-of-service award for the portions of the year in proportion to the time spent on the job.

      Article 85. If the work relation ends due to the worker’s resignation, he shall, in this case, be entitled to one third of the award after a service of not less than two consecutive years and not more than five years, to two thirds if his service is in excess of five successive years but less than ten years and to the full award if his service amounts to ten or more years.

      Article 86. As an exception to the provision of Article (8) of this Law, it may be agreed that the wage used as a basis for calculating the end-of-service award does not include all or some of the commissions, sales percentages, and similar wage components paid to the worker which are by their nature subject to increase or decrease.

      Regards.

      Bong

    • Fe,

      They should pay overtime as per UAE Labor Law Articles 67, 68, 69, 70.

      Ngunit ang mga nakasaad sa baba ay salungat sa mga Artikulong ito.

      Article 72. The provisions of this Section shall not apply to the following categories: 1. Persons holding senior executive managerial or supervisory positions, if such positions confer upon the incumbents the powers of an employer over workers. The categories in question shall be specified by resolution of the Minister of Labour and Social Affairs. 2. Crew of marine vessels and seamen who serve under special conditions of service on account of the nature of their work, with the exception of port workers engaged in stevedoring and related operations.

      Paki kumusta sa mga kahanay natin diyan sa Dubai.

      Bong

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