Traditional vs. Alternative Gratuity: How to Grow a ‘Second Salary’ in the UAE
Dubai: Employees in the UAE now have a new way to enhance their gratuity. The Alternative End-of-Service Benefits (ESOB) Scheme provides a modern option to traditional payouts, enabling your savings to grow through strategic investment opportunities.
What is the Alternative End-of-Service Benefits (ESOB) Scheme?
Launched in 2023, this voluntary scheme allows employees’ end-of-service benefits to be invested in established, high-performing investment funds, offering the potential for higher returns compared with the conventional gratuity system.
The scheme is administered by the Ministry of Human Resources and Emiratisation (MoHRE) in partnership with the Securities and Commodities Authority (SCA). Its main objective is to generate investment returns on employees’ end-of-service benefits, helping their savings grow and work harder over time.
Alternative ESOB vs. Traditional Gratuity: Which is Better?
Choosing between the two depends on your financial goals. Here’s a comparison:
Traditional Gratuity:
- Paid as a fixed lump sum based on your basic salary
- Increases only if your salary rises
- Paid only when you leave your job
Alternative ESOB Scheme:
- Employers contribute 5.83%–8.33% of your basic salary monthly into professionally managed investment funds
- Designed for those who prefer growth through investments rather than a fixed payout
- Availability depends on whether your employer participates
- Participants can track and adjust contributions via the fund’s online platform
How to Enroll in the Alternative ESOB Scheme
- Employer Registration: Your employer submits a request to MoHRE and selects an approved investment fund.
- Employee Selection: Employers register eligible employees while ensuring that previous entitlements under the UAE Labour Law are fully preserved.
Accredited Investment Funds for Employees
Employees can choose from a range of licensed and SCA-regulated funds, offering both conventional and Sharia-compliant options:
- Ghaf Benefits
- Daman Investments
- National Bonds
- First Abu Dhabi Bank
Grow Your Gratuity: Voluntary Contributions
You can accelerate the growth of your end-of-service savings by making voluntary contributions of up to 25% of your total annual salary into an approved fund.
How to Contribute:
- Monthly deductions directly from your wages
- One-time lump-sum transfers directly to the fund
These voluntary contributions earn investment returns just like employer contributions. They are fully flexible and can be withdrawn partially or in full at any time.
What Happens When You Leave Your Job?
At the end of your employment, you are entitled to 100% of employer contributions plus all investment returns accumulated during your tenure.
After leaving your job, you have the option to either withdraw your funds immediately or keep them invested to continue earning returns. If you join a new employer, you can remain with the same fund or transfer your savings to the fund chosen by your new employer.
