End-of-Service Gratuity For DIFC Employees

Figuring out your end-of-service gratuity for DIFC employees can be tricky, especially with the recent switch from the old gratuity system to the new DEWS plan. Whether you’re an employee planning for the future, an HR manager keeping things compliant, or a finance professional managing the books, it’s essential to know exactly where you stand.

This guide is here to clear up the confusion. We’ll walk you through the old gratuity system, explain the new DEWS plan in plain English, and show how they work together to secure your savings.

What is End-of-Service Gratuity?

End-of-Service Gratuity is a statutory payment that companies were required to give to departing employees as a token of appreciation for their service. It was the primary end-of-service benefit in the DIFC for many years.

However, it’s essential to understand that End-of-Service Gratuity is now a legacy system. Its calculation and accrual apply only to the period of an employee’s service before February 1, 2020. For all service after this date, the DIFC Employee Workplace Savings (DEWS) Plan has taken its place. Therefore, a long-serving employee’s final benefits package will consist of two parts: the gratuity accrued before the cut-off date and the savings accumulated in their DEWS pot since.

Calculating the End-of-Service Gratuity for DIFC Employees (For Service Before Feb 2020)

For any employee who worked in the DIFC before February 1, 2020, calculating their accrued gratuity is a critical step in determining their final settlement.

Calculation Methodology Explained

The gratuity calculation is based on the employee’s last-drawn basic salary, excluding any allowances such as housing, transport, or other bonuses. The formula is tiered based on the length of service:

For the first five years of continuous service: You are entitled to 21 days’ basic wage for each year.
For each additional year of service beyond five years: You are entitled to 30 days’ basic wage for each year.

The total gratuity payment cannot exceed the equivalent of two years’ total wages.

Manually calculating this can be complex, especially when factoring in partial years of service or different contract types. To ensure accuracy and get a precise breakdown of your entitlement based on your specific service dates and salary, using a free online gratuity calculator can be an invaluable tool for both employees and employers.

Provisions for Partial Years of Service

For any incomplete years of service, the gratuity is calculated on a pro-rata basis. For example, if you served for three and a half years, the calculation would be precise to the day.

Scenarios Affecting Gratuity Calculation

Unpaid Leave: Periods of unpaid leave are typically excluded from the service period when calculating gratuity.
Limited vs. Unlimited Contracts: The distinction between these contract types was more relevant under older regulations, but under the current DIFC Employment Law, the calculation principles for gratuity remain consistent.

The DEWS Plan: The Modern Approach to Employee Savings

Effective February 1, 2020, the DEWS Plan replaced the old gratuity system with a more secure, transparent, and forward-thinking approach to employee savings.

What is the DIFC Employee Workplace Savings (DEWS) Plan?

DEWS is a mandatory defined contribution plan. Instead of a lump-sum payment calculated at the end of service, employers now make regular monthly contributions into a professionally managed savings plan for their employees. This new system is designed to provide employees with greater control and visibility over their savings, which are invested on their behalf to grow over time.

Mandatory Contribution Rates

Employers are required to contribute a percentage of the employee’s basic salary each month:

For employees with less than 5 years of service: The contribution is 5.83% of the basic salary (equivalent to 21 days’ pay per year).
For employees with 5 or more years of service: The contribution rate increases to 8.33% of the basic salary (equivalent to 30 days’ pay per year).

Voluntary Contributions and Employee Empowerment

One of the key benefits of the DEWS plan is that it allows employees to take an active role in their savings. Employees can choose to make additional voluntary contributions from their salary, boosting their savings pot and taking advantage of the plan’s investment options.

Accumulation, Investment, and Payout

The contributions are held in the employee’s name and invested in a fund portfolio based on their risk appetite. Upon leaving the company, the employee receives the total accumulated amount in their DEWS account, which includes all employer contributions, any voluntary employee contributions, and the investment returns generated over the period.

Handling Termination and Resignation: Key Scenarios

An employee’s entitlement to their end-of-service benefits can vary depending on the circumstances of their departure.

Resignation: An employee who resigns is entitled to their full accrued gratuity (for the pre-DEWS period) and the entire balance of their DEWS account.
Termination by Employer (with notice): If an employer terminates the contract with proper notice, the employee is entitled to their full gratuity and DEWS benefits.
Summary Dismissal (Termination for Cause): Under specific articles of the DIFC Employment Law, an employee who is dismissed for gross misconduct may forfeit their right to the accrued gratuity payment. However, the funds within the DEWS plan legally belong to the employee and cannot be withheld by the employer under any circumstance.

Why Accurate ESOB Calculations are Critical for Business Functions

For a business operating in the DIFC, managing ESOB is not just an HR task; it’s a critical function that impacts finance, legal, and overall corporate governance.

For HR Professionals and Managers: Accurate calculations ensure fair treatment of departing employees, maintain morale, and guarantee compliance, making the offboarding process smooth and professional.
For Finance Managers and Payroll Specialists: Precise ESOB management is vital for accurate financial forecasting, managing company liabilities, and ensuring seamless payroll operations without last-minute complications.
For Legal and Compliance Officers: Strict adherence to the DIFC Employment Law mitigates legal risks, prevents costly disputes, and upholds the company’s reputation as a compliant and ethical employer.

Best Practices for Employers in Managing ESOB Compliance

The Role of Automation: Modern HR and payroll systems can automate DEWS contributions and gratuity calculations, significantly reducing the risk of manual errors and ensuring timely compliance.
Maintaining Clear and Accessible Records: Keep meticulous records of employee start dates, basic salary evolution, and contribution statements. This transparency is key to avoiding disputes.
Regularly Reviewing and Auditing Processes: The regulatory landscape can change. Regularly auditing your ESOB processes ensures you remain fully compliant with the latest DIFC regulations.

Frequently Asked Questions (FAQs)

Your continuity of service is preserved, and your end-of-service benefits should transfer to the new entity.

Currently, these payments are not subject to income tax in the DIFC.

No, the funds are locked in until you end your employment with the DIFC-based company.

Upon visa cancellation, the employer will notify the DEWS plan administrator to process the payout, and any accrued gratuity will be paid as part of the final settlement.

Conclusion

Understanding your end-of-service benefits is a cornerstone of sound financial planning. For anyone employed in the DIFC past February 2020, the system is a hybrid one: a fixed gratuity entitlement for the service period before that date, combined with a dynamic, growing savings pot under the DEWS plan for service thereafter.

For employees, this knowledge empowers you to plan for the future. For employers, robust compliance is not just a legal obligation but a hallmark of a trustworthy and well-run organization.

End-of-Service Gratuity for DIFC Employees

What is End-of-Service Gratuity?