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

New protection measures will help blue collar workers in particular if their company collapses, but the move would also cap the amount an employee could expect to claim

Dubai, Jan 16th, 2012 --  DIFC STOCK -  Businessmen and a businesswoman walk across a bridge in DIFC. Photo by: Sarah Dea/ The National
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The mandatory Dh3,000 deposit that companies must pay when they hire each employee will be reduced significantly from October 15.

The country's labour ministry on Wednesday said businesses will pay just Dh60 to comply with new requirements that are intended to make it cheaper to recruit new staff.

The changes have also been made to improve the rights of employees, particularly blue collar workers.

In June, the government said that some Dh14 billion was held in employee deposits, which will be released back to companies this month in a major boost to cash liquidity.

The deposit scheme is in place to ensure that workers receive some of the gratuity, holiday or notice period payments if their company is unable to pay because, for example, the business collapses.

But until now it has meant employers have had to cover significant sums upfront, in addition to the cost of paying for visas and medical insurance.

And it has meant that payouts were typically limited to just Dh3,000, whereas the new system will entitle employees to up to Dh20,000 in payouts.

The changes were first set out by Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, in June and on Wednesday, Nasser Al Hamli, Minister of Human Resources and Emiratisation, confirmed the changes will take effect from October 15.

He said the move would "secure" workers’ salaries by raising the coverage, in addition to reducing the "financial burden on businesses, particularly the employment costs".

The new deal was put in place following an agreement with the Dubai Insurance Company.

It will be responsible for the management of the electronic insurance policies through a group of national insurance companies.


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Speaking in June, when details of the insurance scheme were first set out, Sara Khoja, from the law firm Clyde & Co in Dubai, said blue collar workers, who are often in a weak bargaining position if laid off or left without pay, were expected to gain most.

"This new scheme is designed to provide some cover for these entitlements in the event the employer cannot pay these” she said.

She also pointed the downside of the move — that payouts are capped at Dh20,000, which could see some professionals lose out significantly if they're laid off.

“The risk for employees is that there is a maximum cap on the pay out, so if their entitlements are more than they will not recover it all,” she said.

According to a news release on Wednesday, the ministry appeared to make a distinction between "private workers" and "assistant workers" — thought to mean domestic employees such as maids, nannies and gardeners.

No further information was available, but the ministry said the insurance policy of the assistant worker "covers the cost of replacement (in case he desires to terminate the employment), health inadequacy, unpaid wages, financial benefits such as the end of service gratuity, paid leave, overtime hours, air return ticket, and work injury cases".