Reforming end-of-service pay

A recent case in Dubai highlights the need to change how final payments are handled

Businessmen and a businesswoman walk across a bridge in Dubai (Photo by: Sarah Dea/ The National)

The full story of the collapse of the Dubai-based food distributor Pal International Foodstuff (PIF) is a complex one. For now, the 83 workers at the company are in limbo, after the group’s owner fled to India.

But one detail stands out – as the creditors moved in, the owner apparently forced his employees to resign, and denied them their end-of-service gratuities. Elsewhere on our business pages yesterday, we reported on the suggestion that these gratuities could be reformed to the benefit of employees, employers and even the country.

Regular readers will have heard our basic argument before. Gratuities are problematic for both employers and employees. For employers, they are an unknown liability. If a group of workers decide to resign in the same month, the company could find itself paying out thousands or tens of thousands of dirhams.

En masse resignations are not implausible – to take one extreme example, many Nepalese returned home after last year’s devastating earthquake. Far better for companies to put aside the correct percentage every month, accurately budgetting for it.

Similarly for workers. Having what could be a significant part of their total remuneration tied up with their employer is a serious risk – if the company goes, so does their money.

So having a government-administered public fund into which these gratuities are placed is a plausible solution that removes the risk. It also allows that money to be used for the benefit of the UAE – it could be loaned to businesses here or used for government projects. The fund could be devised in a way that takes into account the changing nature of people’s lives in the UAE. If employees changed jobs, the fund would adapt. Those who wanted to use a percentage of the funds for a big purchase in the UAE – say a down payment on a house – could be accommodated.

And for employees, having a regular statement detailing their exact holdings would aid transparency. Instead of having their gratuity tallied at the end of their job, they would see it grow over time.

Gratuities are long overdue for reform. A third-party fund would be an immensely useful reform of a scheme that few even think about until it is too late.