In recent years, there has been a conscious push towards attracting UAE nationals to the private sector workforce, with the Ministry of Human Resources and Emiratisation (“MoHRE“) setting strict quotas for the number of UAE nationals that must be employed by private companies that are not registered in freezones and who employ 20 individuals or more.

Indeed, private employers based in the UAE mainland (i.e. not in any of the financial or commercial free zone areas) with 50 or more employees have had an obligation to increase the number of UAE nationals that they employ by 2% each year since 2022.

The MoHRE expects employers in this category to approach such targets on a semi-annual basis, increasing the number of UAE national employees by 1% every six months, with deadlines to increase the number of UAE nationals in the workforce falling on June 30th and December 31st each year.

As the law currently stands, failure to meet this target will result in fines of AED 8,000 per month for each vacancy in the company’s quota that should have been filled by a UAE national in 2024 but is not. The fines are due to increase by AED 1,000 per month each year after 2024. 

Smaller employers engaging 20 to 49 employees are also subject to Emiratisation targets and are required to employ at least one UAE national in 2024. 

The MoHRE notify relevant establishments of the need to comply through its digital channels.

Pension 

A defining feature of the employment relationship between companies and UAE nationals is the fact that UAE nationals who meet certain criteria are eligible to benefit from employer contributions towards their pension.

Given the expanding Emiratisation requirements, many employers will be engaging UAE national employees for the first time and, accordingly, will be subject to pension obligations which they have not had experience in dealing with previously.

The obligation to make pension contributions does not apply to expatriate employees in the UAE other than those who are nationals of the Gulf Cooperation Council (“GCC“) countries.
WIth the exception of those in the Dubai International Financial Centre (“DIFC“), non-GCC expatriate employees are entitled to an end of service lump sum payment (known as end of service gratuity) if they meet the minimum service threshold or, once the scheme is functioning, they will be entitled to receive monthly contributions into the new alternative end-of service benefits saving scheme if their employer has signed up to participate in it on their behalf, which is voluntary at present. 

The most recent significant development in pension legislation within the UAE is the commencement of the Federal Decree-Law No. 57 of 2023 (the “2023 Pension Law“).

The 2023 Pension Law only applies to UAE nationals who are new to the labour market and have not previously been registered with the General Pensions and Social Security Authority (“GPSSA“), which is the federal authority responsible for the administration and enforcement of statutory pension benefit for UAE nationals in Dubai and the northern emirates.

UAE national employees who have previously been registered for pension contributions with the GPSSA at any stage of their career will continue to have the operation of their pension governed by UAE Federal Law No. 7 of 1999 (the “1999 Pension Law“). 

The Abu Dhabi Law No.2 of 2000 (as amended) (the “Abu Dhabi Pension Law“) governs the pensions of UAE nationals employed in Abu Dhabi and was also amended in 2023. The Abu Dhabi Pension Fund (“ADPF”) is the body that manages pensions on behalf of those UAE nationals and some provisions of the Abu Dhabi Pension Law only apply to UAE nationals who have had their employment registered with the fund since 1 December 2023. 

Employer pension obligations: The process

Dubai and the Northern Emirates

The 2023 Pension Law has broadly kept the process of managing the pensions of employees in Dubai and the Northern Emirates unchanged. The process outlined in the 2023 Pension Law is set out below:

1. An employer must register an eligible UAE national with the GPSSA within 30 calendar days of the start of their employment. 
2. The employer must provide the GPSSA with any relevant documents it requests, including details of salaries, within 10 days of such a request in order to assist it in calculating the required pension contributions. The GPSSA will then confirm the contributions that must be made from the employer and by the employee (made via deductions from salary) on a monthly basis. 

Monthly contributions are currently fixed in the 2023 Pension Law at: 

1. 11% from the employee (deducted from their salary); and 
2. 15% from the employer. 

2.5% of the employer contributions will be paid by the Government when an employee earns less than AED 20,000 per month (inclusive of basic salary and allowances).

1. On termination of the eligible individual’s employment, the GPSSA must be notified within 15 calendar days from the termination date so they can undertake the appropriate administrative procedures of de-registering the employee from the employer’s account. 

Abu Dhabi

The administrative procedure for employees whose pension is managed by the ADPF is similar. 

1. Eligible employees must be registered with the ADPF within 30 calendar days of the start of their employment.
2. The pension fund managed by ADPF is maintained by a variety of contributions, including returns on the fund’s investments and donations, as well as contributions from the employee and employer. 

Employers must provide ADPF with a statement of information containing details of their workforce including their salaries and wages at the beginning of each year.

Employer and employee contributions for eligible employees who have first been enrolled in a pension with the ADPF since 1 December 2023 are the same as the 2023 Pension Law and are: 

1. 11% from the employee; and 
2. 15% from the employer. 

The actual contributions may differ, for example, if employees opt to add to their length of service for the purpose of pension calculations or purchase additional pension, each of which may impact the contribution amount. 

On termination of the eligible individual’s employment, the ADPF must be notified within 30 calendar days from the last date of employment. 

Cap on pension contributions

Pension contributions governed by the 2023 Pension Law should only be made in respect of the first AED 70,000 of an employee’s salary (increased from AED 50,000 in the 1999 Pension Law) and if the employee is earning above that amount, the excess should not be taken into account for the purpose of calculating pension contributions.

The 2023 Pension Law does not change the existing provision applicable to those governed by the 1999 Pension Law, which is that if the individual earns above the pensionable cap, they are entitled to payment of end of service gratuity on termination of their employment in addition to the pension contributions they have been entitled to throughout. 

In Abu Dhabi, contributions for those whose first registration with the scheme has been since 1 December 2023 should be calculated with respect to the first 100,000 AED of their salary per month.

Contributions are calculated with respect to the employee’s salary in January of each year. 

Payment dates

Contributions must be made on a monthly basis and by the 1^st of the calendar month following the month in respect of which the contributions are being made.

In Abu Dhabi, this can be extended to the 20^th of each month.  

Consequences for failure to comply

Prudent employers will strictly comply with their obligations given that failing to do so can result in penalties including daily fines that accrue and one-off lump sum fines.

Additionally, failure to notify the GPSSA or the ADPF of the termination of an individual’s employment may of course result in the employer appearing on the record as being liable for pension contributions (and potentially incurring fines for non-payment) in respect of an individual who is no longer their employee and no longer entitled to the contributions.

DIFC employers 

It is prudent for DIFC employers to be aware that those GCC nationals who are eligible to be registered for pension may also need to be enrolled in the DIFC Employee Workplace Savings Scheme (“DEWS Scheme“), which is a scheme that replaced end of service gratuity for non-GCC employees and requires employers to make monthly contributions into the DEWS Scheme on their behalf.

Employers will need to make contributions for GCC employees to the DEWS Scheme if their pension contributions are at least 1,000 AED less than they would have received if the employer had been obliged to make payments to the DEWS Scheme on their behalf.

The difference between their pension contributions and the theoretical DEWS Scheme contribution must be made directly into the DEWS Scheme. 

How will the 2023 statutory changes affect a company’s process? 

• Registration/de-registration: Generally speaking, the process for registering and de-registering eligible employees from the pension scheme is similar, regardless of the pension law any employee is subject to. Employers should be mindful of the strict period for de-registration in the 2023 Pension Law and Abu Dhabi Pension Law. 
• Employment dates: The 2023 Pension Law prescribes that pension contribution is not pro-rated if the employee works only for parts of a month. This may impact the decision on the date that an employer chooses to hire relevant employees and whether to pay them in lieu of their notice period upon termination. 

In Abu Dhabi, pension is due in respect of the full month when the employee begins employment and is not due at all for the part of the month when their employment ends. It is also worth remembering that, in Abu Dhabi, pension contributions are calculated with regard to an employee’s salary in January each year. This may impact when employers want to make salary increases, if that is generally an annual process.

• Maintaining contributions during periods of reduced pay: The 2023 Pension Law specifies that an individual remains subject to it during leave periods, assignments, secondments or transfers. Therefore, it is broadly assumed that contributions should continue to be made during such periods, but that is not specified. At present, under the 2023 Pension Law, most leave, including periods of sickness absence, secondments and study leave count towards the qualifying length of an employee’s service when calculating pension payments made to an individual, even where such periods of absence have been unpaid. It is notable to mention that the administrative impact of maintaining the requisite pension contributions is generally reduced by the 2023 Pension Law. However, if an employee is not entitled to salary because of a period of unpaid leave or because they have been suspended without pay, then contributions do not need to be made during that time.  

In Abu Dhabi, employees continue to be governed by the rules of the Abu Dhabi Pension Law while they are on leave although the required contribution, including who must make it, varies depending on the reason for their leave.

Editor’s Note: This article provides general information and should not be considered as legal advice. The laws commented on may change or be subject to amendment at any time. For specific legal guidance, please consult the author or any other qualified legal professional in the UAE.