TMF Group's new workplace savings structure could unlock strategic employee benefits opportunities for Gulf employers.
Dubai International Finance Centre (DIFC) is replacing its end-of-service gratuity regime with a mandatory workplace savings scheme known as the DEWS plan. Within the DIFC, some 1200 companies and 30,000 employees will be affected. Neighbouring jurisdictions are expected to follow suit, involving another seven million international employees across the UAE. TMF Group's new DEWS-compatible structure not only lets employers develop their own compliant scheme, it is flexible enough for cross-border employers to create a single scheme for employees in multiple jurisdictions.
Gulf regulators are signaling the end of the current mandatory end-of-service gratuity (EoSG) regime. New schemes are being developed across the region to provide more secure, flexible and fully-funded employee benefits. The first among them will be the DIFC Employee Workplace Savings Plan (DEWS), linked to an officially-approved investment platform. Implementation is now set for 1 February 2020, a delay of one month.
Time is now very short and DIFC employers need to act promptly. Detailed rules are awaited but we already know quite a bit about how the DEWS Plan will work (see checklist below). Importantly, employers will be allowed to opt out of the official plan by creating or joining another 'qualifying scheme', providing an opportunity to realise significant additional business benefits from the changes.
Mark Lindsay, TMF Group's global solutions director for employee benefits, explains: "Gulf employers want to give their employees more security, portability and visibility. The DEWS Plan is a big step in the right direction but it is a simple, single jurisdiction scheme. Given the proposed cost structure there may also be limited opportunities for members to interact with their investments. And when other Gulf jurisdictions introduce something similar – as they surely will – employers could face a complicated, inefficient and costly patchwork of these schemes.
"The TMF Group structure solves all this. An ADGM master trust model is more flexible than the mandatory scheme. It can easily accommodate specific business needs and multiple individual schemes for different jurisdictions. Better still, it can easily form the basis of a single, strategically-sound scheme for employees in multiple Gulf jurisdictions, reducing the burden on HR departments. Our mobile technology platform also provides a customizable, state-of-the-art experience for members, with 24/7 account oversight and investment management functionality, all from a smartphone."
The introduction of the DEWS Plan is a big change with a small window before implementation. All DIFC employers should be looking closely at how it works and what it will mean for their businesses. But the DEWS Plan could be the first of many such schemes – a glimpse into the future of employee benefit provision across the Gulf region. The wise employer will be thinking strategically about the issues DEWS raises.
What we know so far about DEWS:
- Employers must fully-fund DEWS via monthly contributions broadly in line with standard EoSG rates1 or face a maximum fine of US$2,000 per employee each time the Employer fails to pay the monthly contribution.
- A recently-announced grace period means employer contributions (whether to the official DEWS Planor an alternative qualifying scheme) can be delayed up to 31 March 2020 but must then be backdated (probably to 1 February 2020).
- Employees can top-up their employer's contributions through payroll (up to 100% of salary and other benefits).
- Employers (and employees who make top-up contributions) can set an investment risk profile with the scheme administrator.
- Employee entitlements begin on day one of employment (EoSG provides no benefits for the first year) and are unaffected by the reasons employment ended.
- Withdrawals are permitted when employment ends or the member reaches age 65, whichever is the sooner ( unless the rules of the qualifying scheme allow payment deferrals).
- Payment can be made to a bank account anywhere in the world (ending the EoSG requirement for UAE residency).
- When employment ends, employee contributions cease and any remaining funds may attract management fees.
- Qualifying scheme rules must provide certain information to members without charge.
- Sums owed to employers (such as housing loans) cannot be taken automatically from DEWS Plan accruals without the scheme administrator's agreement.
- By 31 January 2020 employers and
employees have the option to either:
- Transfer accrued EoSG entitlements into the DEWS Plan, extinguishing the employer's EoSG liability. (This must have the employee's consent or else the employer's EoSG liability could persist.)
- Freeze EoSG entitlements accrued on or before 31 January 2020 and start contributions to a new qualifying scheme. When employment ends at some future date employees receive benefits from the new DEWS Plan and the old EoSG. The EoSG calculation will reflect duration of service up to 31 January 2020 and 'basic wage' on the day employment ends.
- To reflect the delayed implementation (now set for 1 February, not 1 January 2020) employees with less than 12 months service at 31 January 2020 will retain their EoSG entitlements if they go on to complete a full 12 months service, calculated pro-rata.
- Each year employers will have a 30-day window (ending midnight 31 December) during which to opt out of the official DEWS Plan and into an approved qualifying scheme.
- A qualifying scheme
- be an employee money-purchase scheme;
- at least match the contribution rates stated in law;
- enable members to receive their benefits as the legislation requires;
- have a trustee, administrator, investment adviser/fund manager regulated by a recognized authority;
- be based on a DIFC trust if (but only if) it is established in the DIFC; and
- have a supervisory body representing members and participating employers with a suitably-qualified, independent chair. (It is unclear how this provision will work for a scheme with one master trust and a number of otherwise-unconnected participating employers.)
What DIFC employers need to do next?
In readiness for the DEWS legislation employers in the DIFC must:
- communicate the changes with employees
- look at their options for establishing a qualifying scheme
- consider what changes to contracts of employment and employment handbooks might be needed
- consider changes to payroll and accounting and
- consider how seconded employees are to be dealt with and what issues that might arise between employees in the DIFC and mainland Dubai.
1. approximately 5.83% of 'basic salary' for employees with less than five years of service and 8.33% for those with five years or more.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.