By Dennis Varghese
On 17 October 2019, the DIFC issued a consultation paper proposing amendments to its Employment Law No. 2 of 2019 (DIFC Employment Law). The consultation is open to all stakeholders (including employers, employees and advisors) until 18 November 2019, after which the DIFC will review comments and finalise/enact the legislative amendments.
The new DIFC Employee Workspace Savings (DEWS) scheme will replace the existing End of Service Gratuity (ESG) regime. For a detailed overview of the new DEWS scheme, review our article here.
In short, the introduction of the DEWS plan will allow DIFC employers to account for their End of Service liabilities on a monthly basis. Meanwhile, employees will have secure benefits, irrespective of an employer going out of business, while having the option to earn a return on an employer’s monthly contributions and to make their own contributions in a very cost-effective and simple way.
The amendments are expected to come into effect on 1 January 2020 (Commencement Date). This short document sets out a summary of the main amendments.
Is the new DEWS plan mandatory?
Yes, the DIFC proposes to replace the current ESG regime with a DEWS plan, whereby all DIFC employers will be required to make mandatory monthly contributions.
An employer wishing to use an alternate Qualifying Scheme instead of DEWS will need to obtain a Certificate of Compliance. The requirements for the Qualifying Scheme are set out in the new employment regulations, which will be introduced under Article 66 of the DIFC Employment Law, and are as follows:
- it must be an Employee Money Purchase Scheme based on the definition provided in the UK Pension Schemes Act 1993;
- it must provide for the payment of contributions by the DIFC company for each eligible employee at no less than the core benefits. Under the current ESG scheme, employers have to pay 21 days of an employee’s basic wage for each year of the first five years of service and 30 days of the wage for each additional year of service. This now amounts to 5.83 per cent and 8.33 per cent respectively. These percentages will now be paid by the employer to the DEWS plan scheme or another Qualifying Scheme on a monthly basis;
- it must provide for the payment of benefits in the event that the employee leaves the company’s employment or service, or is otherwise entitled to withdraw their benefits (including where the individual reaches 65 years of age);
- it contains stipulations which require that each Operator, Administrator, Investment Adviser and Fund Manager of the Scheme in question be regulated by a ‘Recognised Regulator’ (Recognised Regulators are financial services regulators who have approved status with the DIFC Board); and
- the Qualifying Scheme must be a DIFC Trust, if the Qualifying Scheme is established in the DIFC.
What are some of the main features of the DEWS plan?
- The employer will be required to contribute to the DEWS plan on a monthly basis. The DEWS plan applies only to expatriates and does not include UAE or GCC nationals;
- The employee’s accrued ESG pursuant to the current DIFC Employment Law can either be paid to the employee on termination of their employment, or alternatively it can be transferred into a Qualifying Scheme in favour of the employee at any time following its Commencement Date;
- For any individual who commences employment with a DIFC company after the Commencement Date, they will need to be enrolled in a Qualifying Scheme by the 15th day of the month (for example, if an individual commences employment on 3 February 2020, their employer will need to enrol them in a Qualifying Scheme no later than 15 February 2020);
- Employees will have the option to make their own contributions to DEWS if desired and will be given a choice as to how their contributions are invested;
- Employees have the option to choose from five risk-profiled funds: low, low/moderate, moderate, moderate/high and high. The low/moderate risk fund will be the default fund. There will also be Sharia-compliant options available. The fee has now been settled at 1.33% per annum for the low and low/moderate options. It is still unclear whether the fee will be higher for the higher risk option and the Sharia-compliant option;
- The funds of the DEWS plan will be legally held by Equiom as Trustee for the benefit of the employees, as opposed to the funds remaining under the control of the employers;
- Zurich Middle East will be the administrator, whose role will be to facilitate employees enrolling into the DEWS plan.
What are the next steps?
It is advised that the DIFC employers undertake the following:
- review the consultation paper and submit feedback, which can be done by completing the comments template and emailing it to firstname.lastname@example.org. The deadline is 18 November 2019;
- determine their approach and enrol into the DEWS plan or consider a Qualifying Scheme;
- consider strategy regarding accrued ESG benefit to 31 December 2019;
- begin communicating any potential changes to employees at the earliest.
For a full review of the consultation paper and the relevant regulations, click here.
Al Dahbashi Gray can assist you. If you need any help in understanding the changes and the potential impact of the recent amendments, please contact us on email@example.com.