Companies in the UAE are failing to take the appropriate steps to safeguard employees’ end of service benefits, a new report has found.
The survey by End of Service Benefit (EoSB) provider SEI Investments was based on 110 senior executives – around 85 of whose companies have UAE-based employees.
It found that 50 per cent of the companies polled are leaving the funds for end of service benefits sitting on the balance sheet as opposed to being invested separately.
Meanwhile, 23 per cent said that they have no idea how the funds for end of service benefits are managed.
Only 10 per cent have set up a trust account to hold and ring-fence assets required to pay out employees, the research showed.
“Where companies have not taken steps to ring-fence their EoSB funds, they open themselves to multiple risks including credit, legal, operational, business and reputational,” the report said.
“Ultimately they may not be as attractive to new employees and may struggle to attract staff with the appropriate skill levels.”
The situation could be exacerbated by employees staying longer in their jobs, thereby exposing companies to larger payouts.
Forty five per cent of those surveyed reported attrition rates below 5 per cent per annum.
UAE Labour Law stipulates that 21 days remuneration is paid for each complete year of service for the first five years. This then increases to 30 days for each complete year of service over five years, with a cap at two years remuneration.
“As employment tenures, salaries and benefit payouts grow, this 5-year threshold, at which point the EoSB liability immediately increases, represents an ever more important factor that companies should take into consideration,” the report said.
A survey conducted earlier this year by Zurich found that the majority of UAE residents used their gratuity payment for a holiday, to pay off debt or for a property deposit, rather than putting it towards retirement.
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