The new Alternative Scheme involves the creation of Savings and Investment Funds that will be regulated by the Securities and Commodities Authority (SCA) in partnership with the Ministry of Human Resources and Emiratization (MoHRE). Employers subscribing to the new Scheme, will be able to save and invest the employees' end of service gratuities through the created Funds according to various investment options.

Scope and Objectives. Except for Free Zones that have their own regulations, the provisions of the new scheme will apply to employers and employees of private sector establishments include those set up in free-zones.

The new scheme aims to save the employee's gratuity and preserve from any financial risk on the employer's side such as insolvency and bankruptcy, as well as rising inflation rates, which may impact the payout upon termination. In addition, it aims to enhance the attractiveness of the UAE employment market and provide savings and investment options of the gratuity that employers and employees could explore. The new Scheme offers employees with an option to hedge their gratuities and make returns.

Employer's Obligations. Employers opting to subscribe their employees in the new Scheme, will be required to fulfill certain obligations, which include:

1. Conclude an agreement with a licensed fund manager for the purpose of registering employees in the new Scheme.
2. Determine the category and number of employees who will be subscribed to the new Scheme.
3. Suspend the application of the EoSG for the subscribed employees. Nonetheless, the EoSG will be calculated for the period prior to the subscription. However, the gratuity will only be paid upon termination.
4. Pay the required monthly subscription premium without deducting it from the employee's salary.

Subscription Premium. Employers who opt to subscribe to the new Scheme, will be required to make monthly contributions to the Fund calculated as a percentage of the employee's monthly basic salary and depending on the years of service. Whether the employee is full-time or part-time employee, the percentage remains the same.

Savings and Investment Options. Fund managers are required to provide different investment options to beneficiaries. However, the options shall be one of the following categories:

1. Capital Guarantee Portfolio: A risk-free option that preserves the original capital (EoS amount). This category of investment options is mandatory for unskilled employees.
2. Risk-Based Investment: An option that carries varying degrees of financial risks in proportion to the expected returns.
3. Sharia Compliant Investment Fund.

If the skilled employee choses option (2), he/she will not be to claim the losses from the employer or from the fund service provider unless it is proven that the latter has acted in bad faith, was grossly negligent, or intentionally breached the prescribed obligations.

General Provisions. A lot of the detailed procedures and requirements, necessary for the implementation of the new scheme, are yet to be issued by the concerned authorities. However, below are the general provisions that govern the new scheme:

• Subscription to the new scheme is completely voluntary for employers. But once subscribed, employees are required to abide by it.
• The paid premium will not be subject to liquidation, bankruptcy, or execution proceedings against the employer.
• The SCA, in partnership with MoHRE, is the authority entrusted with regulating the new Scheme and competent to provide the necessary licenses/authorizations for funds' establishment.
• Funds service providers will be asked to comply with AML requirements and procedures.

Although the new Cabinet Resolution (on the Alternative EoS Scheme) has been published in the official gazette, it is not yet clear when the actual implementation of the scheme will happen. Further details and regulations are awaited.