On the 15th of October, a sweeping new proposal in the hiring of employees for the private sector went live in the UAE.
This proposal revolves around the current method of hiring employees, wherein a bank guarantee of AED 3000 – per employee – is deposited by the employer with the Ministry of Human Resources and Emiratisation.
This guarantee is kept in place to cover employee-related costs such as the end of service benefits etc. in case the employer runs into financial difficulty.
The current legislation places a burden on employers as a major outflow of capital is required whenever an employee is hired.
The new proposal, which went live on the 15th, replaces the bank guarantee of AED 3000 with a low-cost insurance scheme of AED 60 per employee per year.
The decision was approved in UAE cabinet meeting held in June of this year which was chaired by Shaikh Mohammad Bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and Ruler of Dubai.
New low-cost insurance scheme proposal
The new insurance scheme will cover worker costs such as unpaid wages, overtime allowances and return ticket if this has not been paid by the employer. This scheme will also cover the cost of replacing the employee in case of employee health issues and the employee’s wish to cancel the contract.
With the removal of the bank guarantee under the old legislation, this releases an estimated AED14 Billion back into the private sector. This capital can then be used for further reinvestment in businesses which further fuels the growth of the UAE economy.
The Ministry would start refunding the bank guarantees to employers from the 15th of October onwards. This is an implementation of a cabinet decision made in June 2018.
The Ministry has already signed an MOU with a group of insurers led by Dubai Insurance Company to facilitate the new low-cost insurance scheme.
It is important to note that for employers to receive the refund of bank guarantees, there should have been no violations with regards to the failure of payment of salaries at least 6 months before the renewal of the work permit.
Part of the changes will also include a 6-month temporary visa given to individuals who have lost their jobs to enable them to find new employment. There will be no fees for this visa.
The changes above will be a positive step forward for job seekers as well as employers in the UAE.
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