New resolution on Bank Guarantee for UAE Private Sector Staff

The UAE has announced a new resolution on bank guarantees from private sector employers and employee protection insurance schemes.

Minister of Human Resources and Emiratization Dr. Abdulrahman Al Awar has released Ministerial Resolution No. 318 of 2022 regarding the Private Sector Bank Guarantee and Employee Protection Insurance Scheme.

The new law protects employees in the event that an employer becomes insolvent and fails to pay the employee end-of-service pay.

It also protects employers if they fail to fulfill their end-of-service commitments. If there is a claim, the proceeds can be used to cover unpaid wages for the last 12 months, end-of-service gratuity expenses, or repatriation expenses of the worker.

Both options protect workers in the event that an employer is unable to pay end-of-service obligations to an employee.

Under the previous law, the company was required to deposit Dh3,000 per employee to ensure that the employer made provision for each employee's post-service benefit.

This new ministerial resolution further clarifies this option to ensure that employee rights and benefits are protected.

Private companies can now pay an annual amount directly to a local bank for each employee or pay monthly installments under an individual insurance policy for each employee.

Employers have two options.  Under the first option, an employer can provide a bank guarantee of AED 3,000 per employee valid for one year.

A bank guarantee is a written commitment from a bank to support a liability from an employer to an employee.

The warranty is automatically renewed for each year of service. Under the second option, the employer sets up a 30-month insurance policy for each employee. The insurance policy will pay AED 137.50 per skilled worker, AED 180 per unskilled worker, and AED 250 per month for each worker provided by high-risk firms not registered with the Wage Protection System (WPS). The insurance coverage is up to AED 20,000 per worker

The second option under the insurance policy category allows companies to spread the cost of employee benefits. This means they don't have to make a huge upfront investment for each employee. This improves cash flow for companies because they don't have large bank guarantees on their balance sheets – which can be significant for companies with large numbers of employees.

If the employee leaves the company, the employer has to submit a request to revoke the employee's bank guarantee.