How does the new employee insurance affect workers in the UAE?

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What is the amount of coverage and when can it be deducted?

Dubai: Earlier this month, the UAE’s Ministry of Human Resources and Emiratisation issued a new resolution introducing the concept of employee insurance in the UAE. ‘Ministerial Resolution No. 318 of 2022 concerning bank guarantees and employees protection insurance scheme’ for private sector employees, made it mandatory for establishments in the UAE to provide either a bank guarantee or an insurance coverage for employees.

But what is a bank guarantee and how is it different from an employee insurance? Gulf News spoke with legal experts in the UAE to find out what an employer’s responsibilities are and how bank guarantees and insurance policies benefit employees.

How is a bank guarantee different from an employee insurance?

Mohammed El Dakamawy, a lawyer with Dubai-based law firm Dr Mahmood Hussain Advocates and Legal Consultancy LLC, stated that the legislation on bank guarantees was issued in 2001, with the resolution on employee insurance being issued more recently.

He said: “In 2001, the UAE enacted a series of legislations that enforced a concept of a ‘bank guarantee’ that is payable by employers. The bank guarantee was to be paid at the time of hiring a new employee or renewing a current employee’s labour card.”

However, El Dakamawy added that the previous legislation provided certain exemptions for the bank guarantee, including but not limited to organisations or companies operating in the oil, gas, mining, banking, insurance, tourism and hotel sector, which were solely or partially owned by federal or local entities.

The new resolution – Ministerial Resolution No. 318 of 2022 – now allows employers to either provide a bank guarantee or enroll their employees in an insurance scheme.

“The latter scheme was enacted to give employers an alternative to the payment of a bank guarantee, which was earlier mandatory, in an effort to reduce the operating expenses and increase employers’ cash liquidity. With the introduction of this scheme, employers now have the option to either provide the bank guarantee or pay an annual insurance fee or premium per employee to fulfil their obligations,” El Dakamawy said.

Regardless of the option employers choose, El Dakamawy highlighted that employers should bear the cost for the bank guarantee or employee insurance, and not deduct it from an employee’s salary.

What is a bank guarantee?

According to Natasha Sood, a senior associate at Dubai-based law firm Motei and Associates: “A bank guarantee is a promise made by a lending institution that the bank will step up if a debtor is unable to repay a debt.”

So, in the case of a bank guarantee for employees, the amount paid by the employer to the bank ensures that the bank will step up to cover any costs that may arise during an employee’s term of employment, as per conditions laid down by the ministerial resolution.

What does a bank guarantee cover?

Sood stated that if an employer opts for a bank guarantee, the amount for each worker should not be less than Dh3,000. The guarantee is deposited at the time of either applying for the employee’s work permit or at the time of renewal of the work permit.

“The guarantee amount will be used to settle disputes involving the non-payment of wages if a company collapses or if an expatriate partner flees, leaving behind financial commitments to its workers,” Sood said.

When are amounts from a bank guarantee deducted?

According to Sood, MOHRE may deduct any amounts from a bank guarantee in the following instances:

a) Expenses for repatriation of an employee to his or her place of origin or any other place agreed upon by the employee and the employer.

b) Amounts acknowledged by the employer or his representative before the Ministry as entitlements of the employee.

c) By virtue of a court judgment, to deliver the employee’s entitlements.

d) Pursuant to a claim raised by the concerned authorities in the country, to reimburse expenses incurred for repatriation of an employee to his place of origin or any other place agreed upon by the employee and the employer in case of employees covered by the bank guarantee. Employees covered by insurance coverage are subject to the provisions of their insurance policies.

e) In all cases, it is the employer’s responsibility to reimburse the sums paid or complete the sum of the bank guarantee.

What is an employee insurance?

The new option that employers have instead of depositing a bank guarantee is enrolling workers in the employee insurance scheme. While the bank guarantee is an annual payment, the insurance scheme provides the option to make monthly payments.

According to MOHRE, the scheme entails a 30-month insurance policy, at a value of Dh137.50 for each skilled worker, Dh180 for each low-skilled worker and Dh250 for each worker paid by high-risk establishments that are not registered with the Wages Protection System (WPS).

Employee insurance – what does it cover?

According to MOHRE, the insurance coverage amounts to up to Dh20,000, and provides coverage for the following situations:

1. The wages of the worker’s last 120 working days

2. The end-of-service gratuity

3. The expenses of returning the worker to their home country

4. In the event of the worker’s death, the costs of repatriating the body to his or her home country

5. Other rights and entitlements that the employer is unable to fulfil, based on a decision by the Ministry or the concerned labour court.

How do I know if my company has an insurance policy for me?

“An employer’s maintenance of a Bank Guarantee or enrolment into the Employee Insurance Scheme is an obligation on employers. Failure of an employer to comply with such legal obligations would subject the employer to sanctions and penalties,” El Dakamawy told Gulf News.

He added that further details of the insurance scheme have not been announced, which will provide clarity on how employee can check the insurance status. However, the employee always has the right to enquire about the insurance scheme with his or her company’s HR department and seek judicial remedy if he or she believes that they have not received any benefits they are entitled to.

This article has been published in Gulf News.