Latest update: The UAE government recently updated the scope of the mandatory unemployment insurance scheme to include employees working in freezones companies and semi-governmental enterprises (government owned commercial enterprises). Employees are legally required to enroll themselves in the new insurance scheme by 30 June 2023. Employees hired after 1 January 2023 must register onto the scheme within four months from their start date. Employees who fail to subscribe to the new insurance scheme on time will risk a fine of AED 400, and potentially the inability to renew their work permit until they have paid their fines.
Objectives of the Scheme
The new UAE unemployment insurance scheme aims at attracting and retaining employees and strengthening the competitiveness of the UAE job market by providing financial security to employees who lose their jobs.
Who does the scheme apply to?
The new scheme applies to UAE nationals and expatriate employees employed in the Government and private sectors. The new scheme does not apply to employees on temporary employment agreements, investors, domestic workers, individuals under age 18, pensioners who have joined a new employer, or those dismissed for disciplinary reasons. Employees at the UAE free zones will not qualify for the new scheme at the initial stage but might do so at a later time.
Obligation to register
The scheme came into effect from 1 January 2023. Qualifying employees are legally required to enroll themselves in the new insurance scheme by 30 June 2023. Employees hired after 1 January 2023 must register onto the scheme within four months of obtaining their initial work permit approval, receiving their entry work permit, or changing their status (as applicable).
Employers are not required to enroll their employees in the new insurance scheme, as the sole responsibility to register and pay the premiums sits exclusively with the individual employee. However, according to Dubai Insurance, employers are able to register on behalf of their employees if they wish to do so.
How to enroll
Employees can subscribe to the insurance scheme online through Dubai Insurance. Employees can pay their insurance premiums on a monthly, quarterly, semiannually, or annually basis using various subscription channels, including online, banks ATM, kiosk machines, money exchange companies among others. The premiums will be subject to Value Added Tax (VAT).
Policy costs
The insurance plan premiums are divided into two categories:
Category 1: AED 5 monthly premiums for employees who earn monthly basic salaries up to AED 16,000; and
Category 2: AED 10 monthly premiums for employees who earn monthly basic salaries above AED 16,000.
Employees on commission-based salaries can choose the subscription category. Additional benefits may be negotiated between the insured and the insurance service provider.
Compensation
To claim compensation employees:
- have contributed to the insurance scheme for a minimum of 12 months; and,
- have not been dismissed for a disciplinary reason or resigned.
Compensation is payable for a maximum period of three consecutive months per claim, subject to a maximum of 12 months compensation in aggregate during the insured period of service in the UAE. Compensation will be at rate of 60% of the insured employee’s monthly basic salary and capped at:
- AED 10,000 per month for category 1 employees; and,
- AED 20,000 per month for category 2 employees.
Employees must submit claims within 30 days of unemployment using the insurance e-portal, mobile app or via a dedicated call center. Insurance compensations will be paid within two weeks of submission of eligible claims.
Non-compliance
Employees who fail to subscribe to the new insurance scheme on time will risk a fine of AED 400. Additionally, AED 200 will be charged to employees who fail to pay the insurance premiums within 3 months of their due date and will risk being removed from the scheme and forced to resubscribe and purchase a new policy. Finally, employees will not be granted new work permits until they have paid their fines.
Next steps
Even though the legal obligation to obtain unemployment insurance sits with the employee, employers should educate their employees and direct them to subscribe and pay their premiums on time, noting that failure to comply may result in fines and a loss of employee work permits. It is plain that compliance is in the interests of both the employer and the employee and employers are recommended to update their HR policies and practices, employment contracts and unemployment related benefits and policies as applicable.
In collaboration with:
Ruth Stephen
Senior Associate
for Pinsent Masons LLP
And,
Luke Tapp
Partner
Operations Partner for the Middle East Region
for Pinsent Masons LLP
