UAE to implement mandatory unemployment insurance scheme in 2023

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In May 2022, the UAE announced a new unemployment insurance scheme for public and private sector workers that includes non-nationals. The scheme, which comes into effect at the start of next year, will provide limited cash benefits for the first three months of unemployment.

The scheme is mandatory for all workers, except for domestic workers and workers on temporary contracts. MRRORS previously covered the insurance scheme when it was first announced. However, new details have emerged that are worth exploring, including the barriers to accessing benefits: workers who will be disqualified from unemployment benefits include those who resigned from their job, those with absconding charges, those who are dismissed due to disciplinary reasons as stipulated in the labour law, and those who are fired for participating in strikes. Given the rife abuse of the absconding regime, and the difficulties in contesting wrongful dismissal, particularly among lower-income workers, many workers are liable to be unfairly blocked from accessing unemployment benefits.

The unemployment insurance scheme is mainly governed by two official texts: the Federal Decree-Law No. 13 of 2022 Concerning Unemployment Insurance Scheme - Opens in new tab and the Cabinet Resolution No.97 of 2022 Concerning the Procedures and Controls for Implementing Unemployment Insurance Scheme.

The subscription fees will be divided into two categories based on salary level. The first category includes workers making a basic salary of AED 16,000 (US$ 4,356) per month or less, who must pay a monthly premium of AED 5 (US$1.36), or AED 60 (US$16.34) annually; while the second category includes workers earning more than AED16,000 per month, who must pay a monthly premium of AED 10, or AED 120 annually.

According to the insurance scheme regulations, each insurance claim will be compensated up to 60% of the basic salary per month, for a period of three months from the date of unemployment. The monthly compensation is limited to AED 10,000 (US$ 2,722) for the first salary level and AED 20,000 (US$ 5,445) for the second category salary level. Compensation payments will stop if an unemployed person is hired by another employer.

Eligibility

There are several conditions that must be met to claim benefits: for example, only workers who have participated in the scheme for at least 12 months are eligible (this means it will take at least a year to see how the benefit distribution works in practice). Workers who voluntarily resign from their employment will be ineligible to receive benefits, and it is still unclear if those whose contracts have ended, rather than been terminated, are eligible. Claims must be filed within 30 days of contract termination, and claimants must also “have legal residence in the country.” With regard to the last point, it also remains unclear how long a migrant worker’s status is legal after becoming unemployed in the UAE (see sidebar). Furthermore, the barriers highlighted above are often brought about due to poor employment practices, and sponsors’ misuse of the power they wield over their employees.

Previously, all migrant workers in the UAE had 30 days to find a new sponsor following the expiration or termination of their work permits. After 30 days, their status would become irregular and they would begin accruing overstay fines. However, the UAE has recently - Opens in new tab amended its residency laws to extend the grace period for certain visa categories and workers following visa cancellation. This is determined by the Executive Regulations of the UAE's Residency Law - Opens in new tab. The Executive Regulations have not yet been published on government websites.
The Federal Authority for Identity, Citizenship, Customs, and Port Security, on the other hand, has shared the following information with local media - Opens in new tab about the new grace period extensions:

180 days grace period: For Golden and Green Visa holders, Students who have completed their studies and Skilled professionals of first and second level as per Ministry of Human Resources and Emiratisation classification (MOHRE)

90 days grace period: For Skilled professionals of the third level as per MOHRE classification and property owners

60 days grace period: “for normal residencies”
30 days grace period: For “other categories”
It is unclear what "normal residencies" and "other categories" refer to and who it applies to, but if workers become irregular within 30 to 60 days, it may threaten their eligibility to claim unemployment benefits.
As argued previously, the implementation of unemployment schemes for migrant workers will run into contradictions without reforming some aspects of the Kafala system, given that their legal status is tied to employment. It remains to be seen how the scheme will be implemented in practice in the wake of the latest residency reforms.

Nevertheless, the expansion of social protections to migrant workers in the Gulf is a welcome and necessary step. After Bahrain, the UAE will become only the second Gulf state to enact an unemployment scheme that, at least on paper, includes non-citizens. In contrast to Bahrain, the UAE’s unemployment insurance scheme is provided by private insurance companies and not the state. Additionally, unlike in Bahrain, only workers, rather than employers, are responsible to contribute to the unemployment fund.

According to Article 4 of Cabinet Resolution No. 97 of 2022, insurance service providers must obtain an equivalent of “BBB” Standard & Poors or Fitch Rating. This means that the institution must have adequate capacity to meet its financial commitments, however, "adverse business or economic conditions are more likely to impair this capacity. - Opens in new tab” Delegating responsibility for the unemployment insurance scheme to the private sector may pose risks, as it is unclear what would happen if service providers become insolvent or bankrupt. It is also unclear how potential disputes will be resolved, as there are few details available regarding the redress process. The Cabinet Resolution simply stipulates that “unemployment insurance disputes are subject to the jurisdiction of the United Arab Emirates courts, which are governed by UAE laws and regulations."

Although purchasing an insurance policy from a service provider is mandatory, it is not yet clear whether workers must individually subscribe for policy coverage or if subscription occurs automatically, and the insurance premiums are deducted at source. The Cabinet Resolution's language gives the impression that it is the worker's sole responsibility to subscribe to an insurance policy. According to the regulations, workers who fail to subscribe to the unemployment insurance scheme must pay all due amounts resulting from non-subscription, in addition to a fine of AED 400 (US$ 109) which can be deducted from workers’ wages or end-of-service gratuity. Workers who don't pay the required insurance premiums on time risk losing their eligibility for unemployment benefits.

Workers are also responsible for providing accurate information to insurance providers regarding their basic salary, employment details, and circumstances of termination. In the event that the insured provides inaccurate information, “the service provider has the right to recover the full amount paid to the insured, without prejudice to the insured being penalised or sanctioned by the governing authorities in the country for such information.”

Requiring workers to provide accurate information to insurance providers rather than the latter automatically retrieving such information from their employer would pose an issue for workers who struggle to obtain the necessary paperwork from their employers, particularly at the end of an employment relationship.

How the UAE’s unemployment insurance scheme will be implemented in practice remains to be seen. It will take some time before insured migrants are eligible for unemployment benefits, and for the system’s strengths and shortcomings to become apparent.

Image credit: dlisbona via Flickr

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UAE to implement mandatory unemployment insurance scheme in 2023

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