In brief:

  • The Ministry of Human Resources and Emiratisation announced that the new workers’ insurance scheme came into effect on 15 October 2018.
  • The new scheme provides employers with an alternative to the existing bank guarantee system.
  • The new scheme only applies to onshore businesses in the UAE and any process that a Free Zone may have in place in relation to bank guarantees (or similar) remains unaffected by the new workers’ insurance scheme.

Bank Guarantee system

As part of the recruiting and hiring process in the UAE, for each work permit application made, an employer was required to arrange a bank guarantee in the amount of AED 3,000. The main purpose of the bank guarantee is to ensure the coverage of entitlements the employer may owe to the employee, including any unpaid wages, leave balance, end of service gratuity and/or the value of the repatriation ticket upon termination.

In reality, the AED 3,000 may not cover all the employee’s entitlements but can be applied to the cost of the employee’s repatriation ticket to his/her home country.

The new workers’ insurance scheme

In June 2018, the UAE Cabinet issued a decision granting private sector companies the ability to opt into an annual insurance scheme for their employees.

In light of this decision, the Ministry of Human Resources and Emiratisation (‘MOHRE’) implemented a new workers’ insurance scheme on 15 October 2018.

Under the new scheme, employers in the private sector can opt to pay an annual premium of AED 60 to the workers’ insurance scheme for each work permit application as an alternative to depositing the AED 3,000 bank guarantee. This insurance scheme will cover up to AED 20,000 per employee and should cover the employee’s end of service benefits, leave balance, unpaid wages, overtime payments and repatriation ticket. In addition, employers that opt into the new scheme may be able to obtain liquidity released by way of the cancellation and release of existing deposits under the bank guarantee system.

In summary, employers now have two options: either purchase the insurance policy at the time of application for each work permit at Tasheel; or submit the AED 3,000 bank guarantee under the existing bank guarantee system.

The new scheme only applies to onshore businesses in the UAE and any process that a Free Zone may have in place in relation to bank guarantees (or similar) remains unaffected by the new workers’ insurance scheme.

The new workers’ insurance scheme has been welcomed as providing greater coverage and protection for both employees and employers. The scheme also has the benefit of reducing the overall cost of business operations.