New Worker’s Insurance Scheme Effective October 14
October 8, 2018
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The situation
The Ministry of Human Resources and Emiratisation announced that the worker’s insurance scheme will replace the existing bank guarantees system in mainland UAE on October 14.
Background
The bank guarantee system currently requires companies in the mainland (under the umbrella of the Ministry of Human Resources and Emiratisation (MOHRE)) to deposit AED 3,000 (equivalent of approximately USD 817) for each work permit application, with some exceptions.
The bank guarantee system is meant to cover any costs an employer may owe the employee, including unpaid wages and return tickets. The current system is practically ineffective since employers are often unable to front large amounts of money on behalf of foreign workers.
A closer look
Details of the new worker’s insurance scheme are as follows:
- Affected employers. The new insurance scheme will apply to all private-sector employees in the mainland, including domestic workers.
- Reduced cost. Employers will pay an insurance premium of AED 120 per foreign national for a two-year work permit. This will provide insurance coverage of up to AED 20,000 for unpaid wages, return tickets and work-related injuries, among other costs.
- Reclaiming bank guarantees. Employers will be able to recover deposits they previously paid under the bank guarantee system only after the cancellation or renewal of a work permit and after the payment of an insurance premium under the new system. Only employers who have not been subject to wage-related violations for at least six months prior to the cancelation or renewal of the work permit will be eligible for the refund of their bank guarantee amounts.
Impact
The new insurance scheme should make business operations in the mainland more cost effective and will provide greater coverage for employee costs than the current system.
Those who hire domestic workers will now be able to recover some costs in situations where their employees do not meet their employment obligations.
Looking ahead
The replacement of the bank guarantee system follows a trend in the United Arab Emirates of creating a business-friendly environment by reducing operational costs for international businesses and expanding workers’ rights, among other initiatives.
This alert is for informational purposes only. If you have any questions, please contact the global immigration professional with whom you work at Fragomen or send an email to [email protected].
