The UAE’s drive toward comprehensive financial inclusion is not merely a corporate social responsibility initiative; it is rapidly becoming a matter of mandatory legal compliance for all companies operating across the mainland and Free Zones. The introduction of new digital saving tools and, crucially, the Voluntary Alternative End-of-Service Benefits System (the ‘Savings Scheme’), signals a permanent shift in how employers must manage employee entitlements.
Key Legal Instruments Driving the Change
The shift is anchored in amendments and new frameworks issued by two primary regulatory bodies:
- Ministry of Human Resources and Emiratisation (MoHRE): The Savings Scheme, launched in 2023, provides an alternative to the standard End-of-Service Gratuity (ESG). While currently voluntary for the employer, the regulatory push is clearly toward its adoption. Legally, the scheme operates as a regulated substitute for the existing liability, transferring the custody and management of the fund from the employer’s balance sheet to licensed, third-party financial custodians.
- Central Bank of the UAE (CBUAE): The CBUAE’s planned Digital Saving and Investment Products and the operational Open Finance System reinforce the regulatory environment. These initiatives ensure that all employees, including domestic workers and those in a workers village, have legally protected access to regulated financial products, preventing them from falling victim to unlicensed schemes or excessive fees.
Legal Risk and Compliance for Employers
The transition to these new models carries specific legal responsibilities and risks:
- Transferring End-of-Service Liability (The Savings Scheme)
- Contractual Amendment: Implementing the Savings Scheme requires explicit agreement and formal amendments to the employee’s contract of employment, clearly detailing the shift from the traditional lump-sum ESG to the monthly, invested contribution model.
- Compliance with Contributions: Failure to make the mandated monthly contributions to the approved investment scheme is a breach of the employment contract and can be subject to fines and legal action under MoHRE’s regulations, similar to a violation of the Wage Protection System (WPS).
- Fund Selection Due Diligence: Employers must exercise due diligence in selecting the approved fund manager, ensuring they are licensed by the Securities and Commodities Authority (SCA) or the CBUAE. Any failure to select a compliant provider could leave the employer legally exposed.
- Adherence to Financial Inclusion Mandates
- Anti-Money Laundering (AML) & Know Your Customer (KYC): The new Open Finance framework facilitates remote account opening for workers. Employers must ensure their internal onboarding processes align with the enhanced KYC and AML requirements set by the CBUAE to prevent the misuse of these financial channels.
- Data Protection: The CBUAE’s move towards a digital financial ecosystem, including the use of AI-Enabled Multilingual Financial Guidance, requires robust data security protocols from both the financial service providers and the employers providing worker data. Compliance with the Federal Data Protection Law (Federal Decree Law No. 45 of 2021) is critical.
Proactive Legal Strategy for Your Clients
For businesses in the UAE, the key is to move from reactive compliance to proactive strategic adoption:
- Audit Current ESG Liabilities: We advise an immediate legal audit of all existing end-of-service liabilities to assess the financial and administrative benefits of transitioning to the Savings Scheme.
- Drafting Compliant Contracts: New employment contracts and staff handbooks must be drafted to legally reflect the alternative end-of-service provisions.
- Regulatory Alignment: Ensure HR and Finance systems are equipped to integrate with the new digital reporting requirements of MoHRE and the CBUAE-licensed financial providers.
The UAE’s financial inclusion efforts are not optional—they are the new standard for corporate governance and employee management. Legal counsel is essential to navigate this regulatory landscape and integrate these mandatory best practices.
