Tim Elliot: Welcome to Lawgical, this is the U.A.E.’s first, and as far as we’re aware, the only regular legal podcast. My name’s Tim Elliot. Lawgical comes to you from the Dubai-based legal firm, HPL Yamalova & Plewka. As ever, here is the Managing Partner, Ludmila Yamalova. It’s so good to see you.
Ludmila Yamalova: So good to see you too, Tim. Thanks for being here, as always.
Tim Elliot: Now, Ludmila, today we’re going to use this recording as an opportunity to offer an update on the current state of play when it comes to unemployment insurance in the U.A.E. This is new. It is probably not completely understood yet. But it’s something that everybody’s talking about. Let me backtrack. We have U.A.E. Federal Decree Law #13 of 2022 that is all about insurance for unemployment. It came into effect at the end of September 2022. We have also got U.A.E. Ministerial Decision #604 of 2022 about the system for unemployment insurance, and what that did was further clarify certain aspects of the law. That came in at the end of November 2022. I suppose it’s good to set that, as it were, in stone. But if you would just talk me through those two legal decisions to start with, if you would.
Ludmila Yamalova: As you rightfully said, there are two main legal authorities that set out the unemployment insurance legal framework in the U.A.E. The main law, as you said, was introduced at the end of last year in September, and it set out just the general framework for what unemployment insurance in the U.A.E. would mean. Remember, this is a brand-new law and a brand-new concept. Nothing like this has existed before. We knew it was coming, but there were a lot of questions about how it was going to take shape and what it meant for companies versus employees. Was this going to be the obligation of the companies or was it going to be the obligation of the employees? Is it going to be mandatory or optional given that it is an insurance policy and in many cases an insurance policy isn’t optional.
The main law that was introduced in September of 2022 set out a few parameters, the objective of the law, and at a high level, how it was going to take shape. Then later in the year, in December, the Ministerial Resolution was issued that further clarified and provided specifics of the mechanism of how this insurance would actually be applied and how you register, along with also the fines that would be applicable in the event people either don’t register or register late. That is basically, in terms of legal authorities, how they stack up.
One of the most notable provisions in the main law was the objective of the unemployment insurance, the purpose of it. As per that main law, the state objective was ultimately to ensure income during unemployment.
Tim Elliot: Right.
Ludmila Yamalova: And then provide a form of social security, and this is important, because let’s not forget in the U.A.E. the majority of the residents here are expats. Social security does not really attach to the majority of the social security benefits as they would be perceived in other countries and usually are granted to citizens. Those kinds of benefits are not usually available to expats. One of the objectives of this law was ultimately to introduce a form of social security that would become available for the majority of the population in the U.A.E., if you will, and also one of the other stated purposes was to attract and retain the world’s best talent to the country.
As we have discussed many times on this podcast, a number of recent laws that were introduced in the U.A.E., including the U.A.E. residence laws, the immigration law that is, cumulatively, all of those laws seem to have a stated objective in terms of attracting some of the best talent into the country. This is just yet another law towards that overall goal. Truly, for all of the reasons we are about to discuss, and as we have discussed before on other podcasts, in particular regarding employment laws, you can see how this new legal protection would certainly have the effect of attracting more people here and also allowing them to stay here longer without having to either exit the country for immigration purposes or even for employment or financial reasons because they cannot financially support themselves.
The main law ultimately provided the state objective and then how it would work at a high level in terms of compensation. The purpose of the unemployment insurance is that when a person loses their job, then they will have temporary unemployment compensation that would be a percentage of their previous salary.
Tim Elliot: The thing here, Ludmila, you mentioned the different visa categories, and there are a number now, but you can legally be in the U.A.E. now and looking for work. You can get a visa for that. But what this now offers is breathing space, isn’t it, if you do lose your job, for whatever reason, you do have time, and that really wasn’t legally the case before.
Ludmila Yamalova: Exactly. As we have discussed before, under the previous immigration laws, expats had very limited ability to stay in the country once they lost their job, and that was both from an immigration standpoint and even from employment standpoint because often employers would not necessarily cooperate in assisting employees to cancel their visas promptly and allowing them to switch over to another visa, for example, of a new employer. From an immigration standpoint, the grace period is only one month or 30 days. All these previous laws made it more difficult for people to look for a proper job.
What would end up happening, and we have talked about this before, is that people would just jump on any job just to be able to stay here because once you are here and particularly if you have either relocated your family here or built a family here, it is not so easy to just leave, but equally so, it is not so easy to find a job within just the 30 days. Often what happens is people will take any job just so they could stay here legally and also financially to have some kind of bridge to be able to support themselves. Then, as a result, obviously if you take a job too hastily, it’s not necessarily going to be your long-term ideal job, and so often that means that people would resign shortly thereafter and the companies suffer, employees suffer, and so it goes. There was a whole sort of chain of events, if you will.
Now in the last two to three years, there have been so many positive laws that now have created a lot more flexibility and introduced a level of flexibility into the U.A.E. job market and also the immigration market. This is just an add-on to that.
Now from an immigration standpoint, you can stay in the country a lot longer. There are so many options to extend the visa, to extend your grace period, to obtain a probation visa, a job seeker’s visa. There are so many different types of visas that allow people to stay in the country legally and continue looking for a job or come here and look for a job.
Also, from the employment standpoint, a lot more types of jobs are available, part time, contract based, hourly jobs, so once again, there is a lot more flexibility for people.
Now, on top of that, now you have this unemployment insurance that further gives people the ability to tap into some kind of financial compensation while they are looking for their ideal job.
Tim Elliot: So many changes over the last few years. This is social security. This is about retaining the best talent. It’s the march of progress, but it applies to everyone employed in the U.A.E. It’s effective on January 1, 2023. The deadline for compliance is June 30, 2023. It is mandatory, but it’s up to employees, is it?
Ludmila Yamalova: Yes. That wasn’t the big question. When the insurance was first introduced, especially for businesses, the big question was, does that mean now the businesses will have to pay for this for their employees because the presumption was it was going to be the obligation of the company or the employer. Well, it isn’t so. In fact, (1) it is an obligation of the employees to subscribe to this insurance, and (2) it is mandatory. It is not optional.
That was another big question. Was this just a benefit that people could opt into? But in particular, the Ministerial Resolution made it clear, it is not optional, and it is mandatory.
It is an obligation for employees to ensure (1) that there is a convenient and efficient system and (2) that there is an enforceable mechanism. The authorities have come up with multiple methods that are very nifty to make it easy for people to subscribe and also for the authorities to monitor.
The law we are talking about is a federal law, but in terms of its implementation, it is being implemented on an individual emirate level. For the time being, the Ministry of Human Resources & Emiratisation (MOHRE) in Dubai has appointed the Dubai Insurance Company to be the insurance provider for this particular policy, and as part of it, it is very easy to go onto the Dubai Insurance Company’s website and subscribe, but also you can subscribe from ATM kiosks, through SMS, through various exchange houses, and in so many other different ways. There is almost no excuse not to subscribe.
Because it is also going to be linked to employees, and I will talk about that later, employees will file with the MOHRE and those that do not pay or do not subscribe will also be penalized through their MOHRE file. It will be very easy, ultimately, for the government to enforce the application of this insurance plan and also to reprimand people in the event they do not subscribe.
Tim Elliot: So, Ludmila, the natural next question is, what does it cost? Because as soon as I hear cost to employee, obviously, I start tingling.
Ludmila Yamalova: Indeed. We know insurance is rarely cheap to subscribe, but this particular insurance policy, I would like to suggest is rather affordable.
Tim Elliot: Okay.
Ludmila Yamalova: There are two categories of policies, if you will. They are based on the individual’s or the employee’s monthly salary. The first category is those who make less than 16,000 dirhams per month. In dollar values, that is less than $4,000 a month. The other category is those who make over 16,000 dirhams a month, which would be $5,000 and up. For those who are in the first category, below 16,000 dirhams, their subscription fee for the unemployment insurance is 5 dirhams per month or 60 dirhams per year.
Tim Elliot: Okay.
Ludmila Yamalova: Those who are in the second category, who earn more than 16,000 dirhams per month, their subscription fee is 10 dirhams per month or 120 dirhams per year. Rather affordable.
There is a third category of employees, those who are either on a project basis, commission basis, or bonus basis, or who do not have a basic salary. They get to choose which one of these policies they want to subscribe.
You can pay the 60 dirhams or the 120 dirhams yearly, or 5 dirhams or 10 dirhams per month, however you want to look at it, you can pay either monthly, quarterly, every half year, or a whole year upfront. As I mentioned earlier, to pay it is very easy because you can pay it at all sorts of mobile kiosks, on the website, through the call center, through ATMs, through exchange houses, through SMS. It is really easy to pay.
There are two steps to this, (1) to subscribe, first of all, as an employee, and then (2) to pay. You can subscribe and then you can choose to pay every month, but you need to make sure that you continue to pay. There are penalties that are attached to both of those requirements. The laws were introduced at the end of 2022, the commencement for subscription kicked in on January 1, 2023. Now there is the obligation to subscribe and now the system to subscribe is available, but we have until June 30, 2023 to actually subscribe and to pay.
Those who fail to subscribe by June 30, 2023 then will be subject to fines. That is a 400 dirham fine, which is about $120, for failing to subscribe by June 30, 2023. But those who have subscribed, but do not pay, because that too can happen. If you can subscribe, for example, in January, you pay for the first three or four months, and then you stop paying, you have a three-month grace period to pay, and then after that if you continue to fail to pay for the subscription there is a 200 dirham penalty. Basically, that is it in terms of what it would take for you to subscribe to this insurance and how much it would cost.
Now in terms of the benefits, it is important to outline how it works and when it works. First of all, in terms of compensation, if you have to call on your insurance coverage you will have 60% of your monthly salary paid. Let’s say if you are making 10,000 dirhams a month and that is your basic salary, when you have lost your job and you cannot find a job, then you will have 6,000 dirhams per month available to you as part of this unemployment compensation. But there is a limit. It is only up to three months.
Tim Elliot: Is that on basic salary or salary with additional benefits? How does that break down?
Ludmila Yamalova: It’s interesting because the law says basic salary, but as we have said on this podcast many times before, the way the courts define basic salary is all of your monetary take home, your regular take home. If your salary, for example, every month is 5,000 in the contract but you actually take home 10,000 because the remaining 5,000 is paid by bonuses, by regular bonuses or commissions, then at least in legal terms, all those amounts do comprise the basic salary, as far as at least end-of-service entitlements are concerned. How it is going to be viewed for the purposes of this insurance policy remains to be seen. But so far the suggestion is that it will be based more on the salary stated in the contract. But perhaps this is one area that we will have to monitor and see how it develops because you can see the argument for the basic salary to include your bonuses and commissions for purposes of this unemployment insurance and not just for purposes of end of service. But that is one particular area we will have to closely observe, and then we will share along the way.
Now there are a few other important caveats to this insurance. We will not be able to tap into it until we have paid into the fund for at least one year.
Tim Elliot: Okay.
Ludmila Yamalova: Although we start subscribing and start paying as of January 2023, if you lose your job, let’s say, in June or August, you will not be able to avail yourself of the benefits yet. The requirement is to be paying and subscribing into the insurance policy for a year before you are able to call on the benefits.
Furthermore, let’s say if you have lost your job and you tapped into the insurance policy, and then you have exhausted it. Then you get a new job, you work for a new company, and then you lose your job again. If you want to apply again, basically it restarts the clock, and you will need to again pay into the fund for a year before you are able to tap into it again. I guess the idea here is also to avoid potential abuse. Because if you know that every time you lose your job you can tap into the three extra months of unemployment insurance coverage, then it is easier to leave your job and not to rush to find a new one.
Tim Elliot: You don’t want to create a 12-months-on and three-months-off culture.
Ludmila Yamalova: Exactly. Yes, but at least you have 12 months, but if you are able to tap into without limitation, then you can see how people would take a job, work for three months, leave and then tap into the insurance for three months and so on and so forth. At least here there will be at least this one-year period. You made in interesting comment because there are some exemptions or limitations in terms of who can benefit from this insurance.
There are some exclusions. While the unemployment insurance is mandatory and applies to both private and public sector employees, there are some exclusions in terms of who cannot avail themselves of this benefit.
The business owners. If you are a shareholder of a business, as a shareholder you will not be eligible for these benefits. (1) Business investors or shareholders are excluded, as are (2) part-time employees, and (3) domestic employees. Domestic employees do not qualify. This is important. We can talk about it perhaps in a different podcast. There could be other benefits that will ultimately be available for domestic employees for the time being. This particular unemployment insurance expressly excludes domestic employees from this particular benefit.
Also, there are a few other exceptions such as minors who are below 18, if they work, they will not qualify, and also retirees who decide to work and officially maybe they are retired, but they work as well. There are some limitations there too. These are in terms of designations of employees that are excluded, but also across the board, this only applies to those employees who are terminated and not those who resign.
Your earlier point, it is perhaps less prone to abuse because you don’t have this benefit in the event you decide every 12 months to resign, so you need to have been terminated and not have voluntarily resigned to avail yourself of these benefits.
Tim Elliot: It also doesn’t apply to misconduct either, does it?
Ludmila Yamalova: Exactly.
Tim Elliot: It’s not like you can get yourself fired and think, oh, I could have three months off here.
Ludmila Yamalova: Exactly. Yes. Correct. That is the other exclusion. That is that if you are terminated for gross misconduct, and it has to be obviously documented properly, but if you are terminated for just bad behavior, then you also do not qualify. Now I am sure there will be some questions about what that means and how it is going to be interpreted, and that remains to be seen, but when we have really done something terrible, if I were to link it to the employment law, it would be termination without notice. There is a provision in the current U.A.E. employment law that allows companies to terminate employees basically without notice in the case of gross misconduct. I would say it would be those employees who were terminated without notice that ultimately would not be able to tap into this insurance.
Tim Elliot: Okay. But if you’re eligible for this, this is not just the public sector. This is the public and private sector, isn’t it? This is all of us.
Ludmila Yamalova: Well, yes and no. Yes, the law clearly makes it applicable to both the public and private sector, and it is a federal law. However, in practice, for the time being, employees of free zones do not have the option to subscribe. That would exclude many people, particularly as we know in Dubai, there are so many free zones, and there are so many employees that are based in free zones, for example, the DMCC free zone is one of the largest free zones in the world and Jafza is a massive free zone. For the time being, employees in free zones cannot subscribe.
Now, we do think that this is not so much because of the law because the law does not exclude free zone employees, but more in practice. This is because, as I mentioned earlier, there are mechanisms for enforcing subscription and ultimately penalties for failing to subscribe into the unemployment insurance. It is basically through what the system calls the WPS, which is a wage protection system. For the time being, historically the wage protection system, or the WPS, has only been available to mainland employees and not free zone employees, with one exception being Jafza.
This is a matter of speculation, but we think it is because of this mechanism that free zone employees do not have the WPS system as part of their employment arrangement, and therefore, until such time, perhaps unemployment insurance cannot in practical terms be made available to them because from what we can tell for the time being, the unemployment insurance and enforcement of it is heavily reliant on the WPS platform. But today, it is towards the end of January, as things stand right now if you are a free zone employee you can go on the Dubai Insurance Company’s website and try to subscribe, and there is a clear provision there that free zone employees are not eligible to subscribe right now. As things stand right now, I would say the exclusion is of these free zone employees. Until things change, that is basically a fairly large category of employees in the U.A.E.
Also, one of the other practical factors, and we can talk about it in perhaps a dedicated podcast, is that this unemployment insurance, as is the case with emiratisation which we have covered before as well, is being regulated and enforced through the Ministry of Human Resources & Emiratisation (MOHRE). All these penalties we have discussed, it is all being governed and driven by MOHRE. But once again, free zone employees are not subject to MOHRE. The governing authorities of free zone employees are their free zones. Let’s say you are in the DMCC or if you are in the Dubai Development Authority (DDA), like TECOM, these free zones that basically have their own versions of the Ministry of Human Resources & Emiratisation. It ultimately come back again to who the governing authority is. Right now, the governing authority for this is MOHRE. Free zone employees are not subject to MOHRE. That is why MOHRE does not have the direct ability to control and enforce within the free zones. Perhaps as the WPS system is being rolled out across the U.A.E. more extensively, we speculate that maybe it is just a matter of time before free zone employees are, in one way or another, also being brought under the fold, if not MOHRE directly, but at least the mechanism that allows them to enforce the unemployment insurance.
Tim Elliot: It is kind of case of watch this space, isn’t it? We have seen so many changes. It wouldn’t be unusual to expect some more. Finally, a quick question. You enrolled in the scheme. Let’s look ahead a year and you lose your job. Do we know anything about how you claim, at the moment?
Ludmila Yamalova: Yes. You have 30 days, first of all, after you have lost your job. Within 30 days from your termination you have to lodge a claim. To make a claim right now, because until further notice, for now is through the Dubai Insurance Company. By the way, the website for that is www.dubins.ae. That is the Dubai Insurance Company and they will be the one through whom you will also be lodging your claim for compensation. You have 30 days after the termination to lodge your claim. Remember not to miss that window. You need to mention in your claim the reason for the work permit cancellation and whether it is termination or resignation.
Remember, it does not apply to resignation. This is an important note for anyone who would ultimately tap into this because you need to make sure that whenever you end your employment in the future, that what is stated in your work permit cancellation is the actual reason, termination versus resignation, because if it states resignation, you will not be able to apply for this unemployment insurance. This, by the way, is not a small point, because we often hear employees asking, should I resign, or should I be terminated? If that question ever comes up, then remember, if you just want to resign to pre-empt termination or you want to resign, for example, because you are trying to protect your reputation, we have had a lot of employees who are reluctant to be terminated and opt for resignation and companies often give that option to resign because they are afraid that it will negatively affect their future prospects. The whole idea of being terminated versus resigning just does not sit well with some employees. Over the years I have heard a lot of questions like that and have seen many employees who opt to resign just so they don’t have this, in their minds at least, like a black spot on their employment file. Well, now perhaps is the time to reconsider that particular issue because if you decide to resign in order to save your reputation, so to speak, and on your work permit cancellation the reason will be resignation, and therefore, you will not be entitled to avail yourself of unemployment insurance compensation.
Tim Elliot: There is another one I just wanted to make very quickly. We discussed unemployment insurance in broad terms in another podcast. You can find that on the LYLawyers.com website, of course. But this does not affect end-of-service benefits. This is an entirely separate scheme, isn’t it?
Ludmila Yamalova: Excellent question. Yes, indeed. This is in addition to. Whenever you lose your job, for one reason or another, you are entitled to a number of benefits, some of which include in most relevant terms, what we often call in the U.A.E. is end-of-service entitlements or EOS or gratuity, and that is calculated, at a high level, as 21 days of your basic salary for every year of service. Let’s say if you are terminated or you lose a job you have had for three years, you have 21 days for every year of service, 21 x 3, and that basically is your additional compensation for being terminated. It is almost like a reward for the term of your employment while you were employed. That is in addition to the notice period, which is at least 30 days and obviously unpaid leave and unpaid salary and whatever bonuses and commissions you might have otherwise earned. These are all of the end-of-employment entitlements. Those entitlements remain. You don’t lose them, whether you resign or you are terminated, as we have discussed in the different podcasts. This unemployment insurance is an add-on to that.
However, the main law as well provided for some comments that you can’t abuse the system. You can’t, for example, just find a job and work and then also tap into your insurance. That would be fraud, by the way. Or equally so, you need to at least show that you are trying to work, that you are trying to find a job and not just basically using this as a holiday and that I leave town or then start looking after the three-month period. There is a little bit of obviously common sense there. Remember, the purpose of this is to help people and not help them to abuse the system. If you are going to try to use this to abuse the system, then that would be considered fraud potentially.
Tim Elliot: I think that covers it, Ludmila. That’s another episode of Lawgical, unemployment insurance in the U.A.E., some more details and updates for you. Our legal expert, as always, Ludmila Yamalova, the Managing Partner here at Yamalova & Plewka. And a big thank you.
Ludmila Yamalova: Thank you, Tim, as always.
Tim Elliot: Find us at LYLAW on Facebook, Instagram, TikTok, and LinkedIn. We have a huge, ever-growing library of hundreds of podcasts, all kinds of legal matters here in the U.A.E. and all free to listen to as well or to watch in some areas too. To have your legal question answered in a future episode of Lawgical or to talk to a qualified U.A.E. experienced legal professional, click Contact at LYLawyers.com.
