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A new low-cost insurance policy for private sector employees took effect on 15 October 2018, following recent initiatives by the UAE Government to lower the business costs of operating in the region.
Historically, private sector employers have been mandated to submit bank guarantees of AED 3,000 for new employees to the Ministry of Human Resources and Emiratisation (MOHRE). Under the new policy, employers will have the option to pay AED 60 to insure an employee for a year, under which the maximum pay-out from the MOHRE will be AED 20,000.
From 15 October 2018, employers who purchase insurance under the scheme will also be able to recover earlier deposited bank guarantees upon the cancellation or renewal of a work permit, provided that they are free from any wage-related violations for at least six months prior.
Employee entitlements such as notice, gratuity and holiday will be covered by the new scheme, whereas they were not included under the previous AED 3,000 bank guarantee policy. While AED 20,000 may not be adequate to cover high-income employees, or serious workplace injuries, this increase is expected to go some way in enhancing protection; particularly for lower-income employees in the region.
It remains to be seen how the policy will operate in practice. If there are a high number of pay-outs by the MOHRE, employers may see the cost of the policy rise in future. In the short term, the policy will enable employers to recoup money from earlier bank guarantees, which could constitute significant cash injections for some companies. The total amount to be reimbursed to the private sector is estimated to be in the region of AED 14 billion.
As the largest dedicated employment & incentives team in the Middle East, we have built a reputation for providing the most relevant and comprehensive legal advice available, for the most thorough regional coverage and for a celebrated track record. Our clients include a large number of multinationals, government owned entities, local companies and other law firms both locally, regionally and internationally. Learn more about our Employment & Incentives practice here.
Associate, Employment & Incentives