The mandatory programme, scheduled to be introduced in January 2023, is aimed at Emirati and foreign employees working in both the private and public sectors.
The new federal law was announced on Thursday by Dr Abdulrahman Al Awar, Minister of Human Resources and Emiratisation.
The law says that every employee will pay into an insurance company initiative, although officials have not yet said how the contributions will be made and whether they will, for example, be paid through their employer or taken out of their pay.
Employees will be able, however, to select from different insurance packages provided by different companies in the country.
Those who lose their jobs will receive 60 per cent of their basic salary each month — up to Dh20,000 — for a limited period of time to help with living costs.
If the unemployed person does not find employment within a certain period, financial support will end. The time period for this has not been made clear.
In the UAE, employees are paid a lump sum every month. But salaries are commonly broken down into “basic”, “housing” and “transport”, with the “basic wage” earned by an employee typically 50 to 65 per cent of the total amount received.
“The Emirates is demonstrating once again that it has an ambitious vision for the future of its citizens and residents,” Mohamed Seghir, chief executive of Hayah Insurance Company, told The National.
“By introducing such a scheme, the economic resilience of the community will be highly improved and employees will feel safer about their future and hence more productive, contributing in return to an improved labour ecosystem.”
Mr Seghir said his company planned to launch a workplace savings product called "employee secure saver" for workers in the UAE to help them prepare for future pension and end-of-service benefits.
Experts said the decision to introduce the unemployment insurance programme will draw and retain talent in the country across the private and public sector.
“It means that we become world class,” said Shahram Safai, partner Afridi and Angell legal consultants.
“With the impending introduction of unemployment benefits, the UAE moves towards the tier-one jurisdictions of this world in relation to labour laws and protection of employees.
“This is beneficial for employees for sure, but also for businesses because it enables businesses to recruit and attract the best employees by offering world-class protections.”
The right to live in the UAE was previously predominately linked to employment or owning a business in the country, as is the case in many nations in the Gulf.
A series of recent policy decisions have changed that, however, with the introduction of new job-seeker and long-term visas so people do not have to leave the UAE immediately if they lose their positions.
Zahra Clark, head of Tiger Recruitment, Middle East and North Africa region, spoke of the buffer the new unemployment pay would offer families.
“It’s reassuring to know that the scheme will act as a security blanket in the future, providing vital protection to workers,” she said.
“During the pandemic, we have seen how people can lose their jobs without any warning and the devastating impact this can have on them and their families.
“Imagine suddenly finding yourself without an income when you have spiralling rent, bills and even school fees to pay.”
She said the key would be in the implementation of the plan.
“With the cost of living rising and people’s budgets shrinking, it will need to be affordable,” Ms Clark said.
The government said more specifics on the new system will be made available at a later date.