What Is the UAE Alternative End-of-Service Savings Scheme?

The UAE Alternative End-of-Service Savings Scheme, also known as the Savings Scheme, is a voluntary system that allows participating employers to fund employees’ end-of-service benefits through approved investment funds instead of relying entirely on the traditional gratuity system.

Introduced under UAE Cabinet Resolution No. 96 of 2023, the scheme aims to protect employees’ end-of-service savings, reduce the risk associated with an employer’s financial difficulties, and provide opportunities for investment returns.

For HR teams, payroll professionals, and business owners, understanding this scheme is important when reviewing employee benefits, payroll contributions, and statutory compliance. Employers must understand who can participate, how contributions are calculated, how funds are managed, and how the scheme interacts with existing employee entitlements.

1. What Is the Alternative End-of-Service Savings Scheme?

The Alternative End-of-Service Savings Scheme is an optional system for private-sector employers, including eligible establishments in free zones. Instead of accumulating traditional end-of-service gratuity liabilities for employees enrolled in the scheme, employers make monthly contributions to an approved investment fund.

The fund invests the contributions according to its approved investment options. When the employment relationship ends, the employee becomes entitled to the employer-funded basic subscriptions and the investment returns attributable to those subscriptions, in accordance with the applicable rules.

The scheme is intended to provide employees with a more structured way to accumulate end-of-service savings while helping employers manage their financial obligations.

According to the UAE Government’s official guidance, employers can choose to enrol all employees, specific employee groups, or selected professional categories. Participation is voluntary for employers, rather than a universal replacement for the traditional gratuity system.

2. How Does the Savings Scheme Work?

The process involves the employer, the employee, the approved investment fund, and the relevant regulatory authorities.

The employer applies to participate in the scheme and selects an approved investment fund. Once the relevant employees are enrolled, the employer calculates and transfers the required monthly contributions.

The investment fund manages the contributions under its approved investment policies. Employees may also make additional voluntary contributions, subject to the applicable limits and procedures.

The main steps are:

1. Employer enrolment: The employer applies through the Ministry of Human Resources and Emiratisation (MOHRE) or the applicable service channel.
2. Fund selection: The employer selects and contracts with an eligible investment fund.
3. Employee enrolment: The employer identifies and registers the employees or categories covered by the scheme.
4. Monthly contributions: The employer calculates and transfers the required basic subscriptions.
5. Investment management: The fund invests the contributions according to the selected investment option.
6. Employee entitlement: When employment ends, the employee receives the applicable savings entitlement under the scheme.

Employers must also comply with the applicable rules for employees’ existing gratuity entitlements and any transition from the traditional system.

3. What Are the Employer Contribution Rates?

For full-time employees enrolled in the scheme, the standard basic subscription rates are generally based on the employee’s monthly basic salary and length of service.

Employee service period	Employer contribution
Less than five years of service	5.83% of monthly basic salary
More than five years of service	8.33% of monthly basic salary

These rates apply to the basic subscription under the scheme. Different contribution rules may apply to other work patterns, so employers should verify the applicable requirements before configuring payroll.

Example of monthly contributions

Assume a full-time employee has a monthly basic salary of AED 10,000 and has completed three years of service.

The employer’s monthly basic subscription would be:

AED 10,000 × 5.83% = AED 583 per month

If the employee later falls within the applicable service category attracting the 8.33% rate, the monthly subscription on the same basic salary would be:

AED 10,000 × 8.33% = AED 833 per month

These figures are illustrative. Payroll teams should confirm the applicable service-period rules, salary basis, and current scheme requirements.

Under the scheme’s general rules, employers must transfer subscriptions to the investment fund within 15 days of the beginning of each calendar month.

4. Can Employees Make Additional Voluntary Contributions?

Yes. Employees enrolled in the scheme may make additional voluntary contributions alongside the employer’s basic subscription.

Depending on the applicable fund procedures, voluntary contributions may be made through a deduction arranged by the employer or through a direct transfer by the employee.

The general limit is 25% of the employee’s total wage, whether contributions are made monthly or through a lump-sum payment, subject to the applicable calculation and scheme rules.

Voluntary contributions can help employees build additional savings. However, HR and payroll teams should ensure that any salary deduction is properly authorised, recorded, and processed in accordance with the relevant rules.

Employers should keep voluntary contributions separate from their mandatory basic subscriptions in payroll reports and reconciliation records.

5. What Investment Options Are Available?

The scheme allows contributions to be invested through approved funds offering different investment approaches. Available options may include:

• Capital-protection options: Designed to prioritise protection of the invested capital, subject to the specific product terms.
• Risk-based investment options: Offer different levels of investment risk, potentially including low-, medium-, and high-risk strategies.
• Sharia-compliant options: Designed to follow applicable Islamic finance principles.

The exact options, fees, investment policies, and risks depend on the selected fund and its offering documents.

Employers should avoid describing investment returns as guaranteed unless the relevant fund documentation explicitly supports that statement. Investment performance can vary, and employees should understand the terms of the options available to them.

The Securities and Commodities Authority (SCA) has a supervisory role in relation to approved investment funds, while MOHRE oversees the labour-related aspects of the scheme.

6. How Does the Scheme Affect Traditional End-of-Service Gratuity?

For employees enrolled in the alternative scheme, the employer generally stops applying the traditional gratuity system for the period covered by the scheme, in accordance with the applicable rules.

However, an employer cannot simply disregard gratuity that an employee accumulated before enrolment. The employer must calculate and settle the employee’s accrued entitlement for the pre-enrolment period as required by law.

This makes the transition process especially important for payroll and HR teams.

Employers should:

• Identify the employees being enrolled.
• Confirm the effective date of enrolment.
• Calculate any gratuity accrued before enrolment.
• Verify how the pre-enrolment entitlement must be settled.
• Record the employer’s monthly fund contributions.
• Maintain documents supporting the transition and ongoing payments.

The traditional gratuity rules and the alternative savings scheme should not be combined indiscriminately. Each employee’s entitlement must be assessed according to the applicable legal framework and participation period.

7. Does the Savings Scheme Replace Pension Contributions for Emirati Employees?

No. The alternative savings scheme does not automatically replace mandatory pension contributions for eligible Emirati employees.

This distinction is particularly important for companies employing both UAE nationals and expatriates.

Eligible Emirati employees are generally covered by the applicable UAE pension and social security legislation. Cabinet Resolution No. 96 of 2023 allows national employees in the public and private sectors to be accepted as voluntary beneficiaries of the savings scheme, provided their employers continue paying pension contributions to the General Pension and Social Security Authority (GPSSA) in accordance with the applicable legislation.

Therefore, an employer enrolling an eligible Emirati employee in the savings scheme must not stop the employee’s required pension registration or contributions merely because the employee participates in the savings arrangement.

Payroll teams should maintain separate records for:

• Mandatory pension contributions.
• Employer savings-scheme subscriptions, where applicable.
• Employee voluntary savings contributions, where applicable.
• Traditional gratuity liabilities for periods or employees not covered by the alternative scheme.

8. What Should Employers Consider Before Joining?

Although the scheme can improve the management of end-of-service liabilities, employers should assess its financial, administrative, and employee-benefit implications before enrolling.

Key considerations include:

• Eligibility and coverage: Determine which employees and professional categories will participate, and confirm any applicable exclusions or special rules.
• Fund selection: Compare approved funds, investment options, service arrangements, fees, and reporting capabilities.
• Existing liabilities: Calculate employees’ accrued traditional gratuity before enrolment and follow the required settlement process.
• Payroll configuration: Set up the correct contribution rates, salary basis, service-period rules, and payment schedule.
• Employee communication: Explain how contributions work, what happens when employment ends, and how investment performance may affect savings.
• Compliance monitoring: Assign responsibility for registration, monthly transfers, reconciliation, and recordkeeping.

A written implementation plan can help avoid confusion between the traditional gratuity system and the alternative savings arrangement.

9. How Can Payroll Software Help Manage the Scheme?

Payroll software can support employers by organising employee data, automating contribution calculations, and producing records needed for financial reconciliation.

Useful capabilities include:

• Employee enrolment and scheme-status tracking.
• Configurable contribution rates and service-period rules.
• Basic salary and employee-category validation.
• Monthly contribution reports.
• Tracking of employee voluntary deductions.
• Alerts for upcoming contribution deadlines.
• Reconciliation between payroll calculations and fund payments.
• Secure storage of fund statements and payment confirmations.
• Separate reporting for pension contributions and savings-scheme subscriptions.

For organisations with multiple employee groups or locations, these controls can help reduce manual errors and improve audit readiness.

However, software settings must reflect the applicable legislation and fund requirements. Employers remain responsible for verifying the rules and ensuring that contributions are transferred correctly.

Frequently Asked Questions

1. Is the UAE Alternative End-of-Service Savings Scheme mandatory?

No. It is a voluntary alternative for eligible employers. Employers that do not enrol in the scheme generally continue to follow the traditional end-of-service benefit framework applicable to their employees.

2. Which employees can be enrolled?

Employers may generally enrol all employees, specific groups, or selected professional categories, subject to the scheme’s eligibility rules. Special rules apply to some employee categories, including Emirati employees who remain subject to applicable pension obligations.

3. How much must employers contribute?

For full-time employees, the standard basic subscription is generally 5.83% of monthly basic salary for employees with less than five years of service and 8.33% for those with more than five years, subject to the applicable rules.

4. Can employees withdraw their savings?

Under the official scheme guidance, beneficiaries may keep their funds invested or withdraw them in accordance with the scheme’s applicable arrangements. Employees should review the fund’s terms and conditions before making a decision.

5. Are investment returns guaranteed?

Not necessarily. Returns depend on the investment option, fund performance, and applicable terms. Employers should not promise a particular return unless it is expressly supported by the relevant fund documentation.

6. Does an employer need to settle previous gratuity when enrolling an employee?

Yes. The employer must calculate and settle the employee’s accrued traditional gratuity for the pre-enrolment period in accordance with the applicable law and scheme rules.

7. Does the savings scheme replace GPSSA contributions for Emiratis?

No. Eligible Emirati employees remain subject to their applicable pension and social security obligations. Participation in the savings scheme does not remove the employer’s duty to make required pension contributions.

Conclusion

The UAE Alternative End-of-Service Savings Scheme provides participating employers with an investment-based approach to managing employee end-of-service benefits. It can help protect employee savings, improve visibility over benefit funding, and offer opportunities for investment returns.

Successful implementation requires employers to select an approved fund, enrol employees correctly, calculate and transfer contributions on time, manage existing gratuity entitlements, and maintain accurate payroll records.

For employers of Emirati employees, one distinction is essential: the savings scheme does not replace mandatory pension contributions. HR and payroll teams should manage pension obligations and savings-scheme subscriptions separately, using current official guidance to ensure compliance.

An alternative savings arrangement changes what payroll needs to track. InnBuilt Payroll Software can help UAE employers organise employee participation, contribution records and review steps alongside standard wage processing.