UAE issues mandatory employment insurance schemes

The UAE has sought to protect employees with the introduction of two different insurance schemes over the course of 2022, the unemployment insurance and the workers protection insurance.

Unemployment Insurance Scheme

In September 2022 the UAE launched for the first time an unemployment insurance scheme to become mandatory for all employees. Federal Decree No. 13 of 2022 concerning unemployment insurance, together with Cabinet Decision No. 97 of 2022 concerning the mechanisms and controls for implementing the unemployment insurance scheme, and Resolution No. 604 of 2022 concerning the unemployment insurance scheme, form the statutory framework for this new initiative.

Who does the new law apply to?

The new law applies to all employees in the private sector, state government, or federal government except for investors (owners of the establishments in which they work), domestic workers, contractual workers, juveniles under 18 years of age, and pension-receiving retirees who have joined a new employer.  It has further been clarified that the scheme does not currently apply to employees within the UAE free zones but may do so in the future.

Is the insurance scheme mandatory?

Yes, the onus of subscribing and paying the contributions lies with the employee.  All government and private sector employees are mandated to subscribe to the scheme.  The scheme comes into effect from 1 January 2023 and employee enrolment must be undertaken by 30 June 2023. New employees employed after 1 January 2023 are required to enrol onto the scheme within four months of obtaining their initial work permit approval, receiving their entry work permit, or changing their status, as applicable.

Whilst the onus of paying and subscribing to the scheme lies with the employee, the law mandates establishments to encourage and direct their employees to subscribe to the scheme and pay their premiums on time.

Are there penalties for non-compliance?

Yes, failure to subscribe or failure to pay the insurance premiums for a period of three months from their due date will lead to disentitlement from the scheme, and the employee will be required to subscribe / re-subscribe by purchasing a new policy, paying for such policy, and paying a fine of AED 400 in instances where the employee failed to subscribe (subject to any extension to the subscription timeframe being announced), or AED 200 where the employee failed to pay the premium for more than three months. Fines must be paid through the Ministry of Human Resources and Emiratisation (MOHRE) approved channels. Fines remaining unpaid for a period of three months may be collected through the Wage Protection System, by deduction from end of service gratuity, or any alternative system. 

Note that employees will not be granted new work permits until all fines have been paid.

Attached to Resolution No. 604 of 2022 is the MOHRE procedure manual setting out the procedure for paying fines.

What is the cost of taking out an insurance policy?

Contributions are currently set at AED 5 per month for employees earning a monthly basic salary of AED 16,000 or less (Category 1 contributions), and AED 10 per month for employees earning a monthly basic salary of more that AED 16,000 (Category 2 contributions). Employees on commission-based salaries may choose the category of subscription.

How can employees subscribe to the scheme?

Employees can subscribe online through Dubai Insurance. The employee’s Emirates ID number and mobile number will need to be provided.

Subscription payments may be made through various channels, including; online, banks ATM, money exchange companies and many others. Payments may be made monthly, quarterly, bi-annually, or annually, as decided by the insured. 

On completion, policy documents will be sent via email.

Who is eligible to receive compensation?

The law sets out the following parameters around eligibility:

1. To be eligible for compensation, the insured must have been insured for no less than 12 continuous months, calculated from the date of subscription in the insurance system, and not have been dismissed for a disciplinary reason or have resigned.
2. Claims cannot be made due to work strikes.  
3. Premiums must be paid according to the schedule of payment.
4. The insured must not have an existing claim.
5. Application for compensation should not be undertaken fraudulently or by deception.
6. Claims must be made within 30 days of terminating the employment relationship or following a decision from the Labour Court, through the insurance company website, smart application, or call centre.
7. The insured must lawfully be in the UAE when making the claim.

The insurance provider is obliged to respond to a claim within two weeks of the date of submission.

What amount of compensation is payable in the event of unemployment?

Compensation will be paid monthly, calculated at 60% of the insured’s basic salary and subject to a maximum of AED 10,000 per month for Category 1 contributions, and AED 20,000 per month for Category 2 contributions, for a period of no more than three months from the date of the insured’s unemployment, per claim subject to a maximum of 12 months’ compensation in aggregate during the insured period of service in the UAE. 

Additional benefits may be agreed with the insurance provider. 

Payment of compensation is suspended where the insured joins a new employer during the compensation entitlement period.

Who are the insurance providers?

Service providers are private insurance companies licensed by the Central Bank that comply with the requirements for the provision of unemployment insurance, released by the UAE Cabinet following consultation with the Central Bank or any other government entity assigned to provide unemployment insurance services.

MOHRE has released a list of a pool of insurance providers, which are represented by Dubai Insurance Company, and include: Abu Dhabi National Insurance Company, Al Ain Ahlia Insurance Company, Emirates Insurance Company, Orient Insurance, Oman Insurance, National General Insurance Company, and Orient UNB Takaful Company.

What can employers do?

Whilst the obligation to obtain unemployment insurance lies with the employee, the law makes it clear that establishments must encourage and direct their employees to subscribe to the scheme and therefore prudent employers should educate their employee workforce of this new requirement and the timeframe for compliance, noting that failure to comply may have a direct impact on renewal of employee work permits, which in turn may result in an administrative disruption and burden to the employer.

Workers Protection Insurance

Historically, UAE establishments have had to pay a bank guarantee for each employee they recruit.  In June 2022 the UAE updated previous legislation pertaining to this requirement, allowing for the option of an insurance policy to be taken out in place of such guarantee. 

Ministerial Decision No. 318 of 2022 concerning bank guarantees and employee protection insurance, provides that establishments must either pay a bank guarantee equal to AED 3,000 for each employee, or take out an insurance policy as directed by MOHRE. In conjunction with such requirement, Dubai Insurance Company has launched the Workers Protection Program (WPP Insurance) which fulfils such insurance requirement.  The WPP Insurance has been set up to provide a safety net in instances where the employee is not paid their salary, is not paid end of service gratuity, suffers a workplace injury, where the cost of repatriation is not paid, or where the cost of repatriating a deceased employee’s remains need to be paid.

Various free zones and economic development zones, including Jebel Ali Free Zone, Dubai Airport Free Zone, Dubai Multi Commodities Centre, Trakhees, and others have partnered up with Dubai Insurance Company to make roll out such scheme within their respective areas.