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

Prime Minister says the reform will create a Dh14 billion stimulus for economy and lower costs for doing business in the country

Sheikh Mohamed bin Rashid, Prime Minister and Ruler of Dubai, overseeing a Cabinet meeting in 2018. Wam

Sheikh Mohammed bin Rashid, Prime Minister and Ruler of Dubai, announced new legislation approved by the UAE cabinet which includes doing away with bank guarantees for the recruitment of labour in the private sector, creating a Dh14 billion stimulus for the economy and lowering the cost of doing business in the country.

The Cabinet approved the adoption of a "low-cost insurance" system as an alternative to the monetary guarantee provided by employers, which costs Dh3,000 per worker. In contrast, the insurance will be priced at Dh60 per year per employee. The insurance policy in the new system covers the workers' end of service benefits, vacation allowance, overtime allowance, unpaid wages, return air ticket and cases of work injury, in which the insurance coverage amounts to Dh20,000 a person. The scheme is aimed at securing workers' rights in the private sector and reducing the burden on employers, allowing businesses to recover about Dh14 billion in guarantees, freeing up capital for other purposes such as reinvestment.

The new labour insurance system is aimed at helping to create a more competitive environment. Visas will also be able to be renewed without the need for leaving and re-entering the country, under the legislation approved by the Cabinet.

Sheikh Mohammed said the new legislation will support the UAE's goal of remaining in the the highest global rankings in the ease of doing business, through an attractive economy based on flexibility, openness and in line with changing trends.

The reforms also include no fee, six-month temporary visas to help those who have lost their jobs to find new employment.

The Cabinet approved 48-hour visas without charge for transit tourists and two-year visas for “talented and outstanding” students to stay after graduation.

It also approved granting those who have stayed beyond the expiry of their visas to depart the country voluntarily and without incurring a ban.

Last week, Abu Dhabi announced a massive Dh50 billion stimulus package for the emirate as well as 10 initiatives to transform the ease of doing business. They include allowing people to officially work from home for the first time, with a new licencing system that drops the current requirement for an office or work space for two years.

The Cabinet last month announced sweeping changes to its residency system in which key workers will be offered visas of up to 10 years, to attract sought-after professionals. There are also plans to allow 100 per cent foreign ownership of businesses outside of free zones to spur foreign direct investment.