Domestic workers and employers in UAE to benefit from new low-cost employee insurance policy

A new low-cost insurance policy for private sector employment - set to be rolled out this month - will give employers a ‘significant’ financial boost and increase job security for all vulnerable low-income employees, including domestic workers, analysts said.

The Dh60 annual policy payable by employers to protect their staff’s benefits will go into effect from October 15 and will replace the Dh3,000 bank guarantee companies are currently mandated to deposit for each new hire. It can also be applied to domestic workers, such as housemaids, cooks and gardeners, said Sara Khoja, a partner in the employment team at law firm Clyde & Co in Dubai.

“It will potentially return significant amounts of money to large employers who are currently providing Dh3,000 in cash deposits per employee. It also provides more protection for employees in terms of final payments if their employer refuses to pay or is declared bankrupt,” said Ms Khoja. “Employers will benefit from greater liquidity and employees will have more protection in the event of an employer failing to pay a court judgment or being insolvent.”

The new UAE Cabinet-approved legislation was first unveiled by Sheikh Mohammed bin Rashid, Prime Minister and Ruler of Dubai, in June. Then on Wednesday, Nasser Al Hamli, Minister of Human Resources and Emiratisation (MoHRE), confirmed the changes will take effect from October 15.

The insurance policy protects all UAE employee's workplace perks - such as end of service benefits, holiday allowance, overtime allowance, unpaid wages, return air tickets and cases of work injury – in the event a business collapses or refuses to pay a staff member what they are due. Under the new rules, the maximum payout is capped at Dh20,000 per person.

Marcin Kubarek, manager of knowledge and content at Fragomen Worldwide, said while the insurance premium costs Dh60 per year, the work permits issued by the MoHRE are valid for two years, meaning employers must pay Dh120.

___________

Read more:

UAE labour ministry: low-cost hiring insurance system for employees to take effect this month

New labour insurance policy to protect workers from job loss

UAE Cabinet approves new labour insurance system to replace bank guarantees for workers

Weighing up the cost of hiring a maid in the UAE

____________

The scheme will particularly benefit low-income workers, who previously had little or no protection in the event of redundancy or a salary being withheld.

“The guarantee was only Dh3,000 and that was usually a nominal amount that could cover a ticket home,” says Ms Khoja. “The 20,000, whilst a cap, is a significant improvement in providing some cover where there was none before.”

Ms Khoja said the scheme also covers domestic workers, who had their benefits upgraded in August 2017 when the UAE introduced the UAE Domestic Workers Law. That put in place a number of minimum statutory requirements including a 14-day end of service gratuity for each year of service, one day off a week, 30 days’ leave a year and a return flight home every two years. The domestic workers law applies to 19 occupations including housemaids, cooks, gardeners and drivers.

The new insurance is also expected to offer families sponsoring maids cover in case a maid absconds.

"Those who employ domestic helpers will be able to get compensation in case of the worker's sickness, absence from work or desire to change the employers," said Mr Kubarek.

Experts were divided on whether the cost of sponsoring a domestic worker will stay the same. Mr Kubarek said domestic worker employment falls under the purview of the MoHRE, therefore the overall costs of recruitment "will drop significantly, making the sponsorship more affordable for local and foreign families".

However, Ms Khoja said the cost of sponsoring a domestic worker will remain the same, but from October 15 sponsors will have the same option as other employers of either paying the Dh3,000 deposit or paying 60 per year for the scheme.

For employees looking to file a grievance, Ms Khoja said employees cannot make a direct claim on the policy. Instead, an employee must file a claim at the Labour Court or complain to their local labour officer.

“The Ministry can then draw on the insurance policy to pay the employee,” said Ms Khoja.

Keren Bobker, a senior partner with financial advisory Holborn Assets and a consumer columnist for The National, said while Dh20,000 sounds like a large sum, “it will not cover the full amount owed in all cases” – particularly for higher earners.

“It should however, be sufficient for the lower paid who are often the ones who lose out under the present system,” she said.

Mr Kubarek said the capped coverage would also not be enough to cover serious work-related injuries, or instances where employers owe greater amounts of money to their workers.

"However some of these may be covered by alternative insurance policies the employers have in place," he said.

Concerns were also raised over whether the Dh60 will be enough to fund the insurance scheme, which will be managed by Dubai Insurance Company.

“Employee protections depend on the funding of this insurance scheme and so it is important to see how the scheme operates in practice and how well funded it is,” said Ms Khoja. “It remains to be seen how often the scheme will have to be called upon to fund employee's final entitlements.”

_________

Read more:

Is the UAE's new five-year visa a game changer for expat retirement?

UAE nannies earn an average Dh1,830 per month, study says

The rise of an app that helps UAE nannies save, invest and borrow

MaidMe: the app that lets you rate your maid

__________

Those who will definitely benefit financially are any employers that have already deposited a bank guarantee for their staff. A Wednesday statement from the MoHRE said about Dh14 billion was held in employee deposits, which will be released back to companies.

"Employers will be able to recover earlier deposited bank guarantees only upon the cancellation or renewal of a work permit, and after the payment of an insurance premium," said Mr Kubarek. "They must be free from any wages-related violations for at least six months before the renewal date of the work permit."

Ms Bobker says the cost difference per employee from Dh3,000 to Dh60 could be substantial for larger employers.

“It should enable them to take on more staff with lower overheads and I hope it will reduce the number of companies that still try and illegally charge their staff for arranging their visas.”

David Mackenzie, managing director of the GCC recruitment consultancy Mackenzie Jones Group, said injecting Dh14bn back into the economy will be a huge stimulus.

“Companies can use that money to invest into other elements of the business. It also encourages people to set up and hire people without having a big upfront cost," he said, adding that companies hiring new staff this month are still paying the Dh3,000 bank guarantee fee.

Once that stops, business owners such as Matt Stuart, the chief commercial officer of hotel room wholesaler Stuba, based in Jumeirah Lake Towers Dubai, will benefit.

“Anything that reduces the upwards pressure on costs of doing business in the UAE, or improves cash flow, is a positive step."