The UAE cabinet recently introduced an alternative way for private sector employers to deliver the End of Service Gratuity (EOSG) to their expatriate (non-Emirati) employees in the UAE and its free zones. The new government-sanctioned option involves externally funding a gratuity savings plan through monthly contributions that would replace the lump-sum payment calculation under the existing EOSG system. Implementation details of the new voluntary EOSG are yet to be released by the UAE government.


In the UAE and most of its free zones, excluding the Dubai International Financial Centre (see Lockton Compliance Alert), employers are not legally obligated to provide expatriates with pension and savings funds. Employers are however mandated to provide expatriates with a lump-sum EOSG at termination based on salary and years of service.  With the existing EOSG, employees face the risk of an incomplete payment upon termination, as there is no statutory obligation for employers to externally fund EOSG obligations in a secured account or create opportunities for employees to benefit from the investment of funds. Employers are exposed to the risk of litigation over gratuity claims and breach of Director’s duties.

Key details

The UAE government has not released the implementation details of the new voluntary EOSG, and the timeline remains uncertain. It is expected that the new scheme will involve the creation of investment and savings funds that will be managed by the Securities and Commodities Authority in collaboration with the Ministry of Human Resources and Emiratisation.

The new scheme will give employers the option to make monthly contributions to external accounts, enabling employees to invest their gratuity in savings schemes with a risk-free capital guarantee option, a risk-based investment option, or an investment option compliant with Islamic Sharia law. Employees would then receive the accrued savings and investment returns at the end of their employment contract.

As expatriates continue to extend their years of service in the UAE, the new voluntary EOSG would enable employers to reduce their cash risk, better manage their balance sheet liabilities, and provide their employees with a sense of security in their long-term savings plan for retirement.

Transitioning to a fully-funded system would put the UAE on par with global best practices and eventually help them to attract and retain talent.

Next steps

Lockton Global People Solutions Compliance Practice will publish an update once the new laws are released.