January 14, 2020

The introduction of the DIFC Employee Workplace Savings Plan and other qualifying schemes

From 1 February 2020, the DIFC Authority is replacing the existing arrangement of statutory end of service gratuity, payable on termination of employment, with a defined contribution savings scheme, in which contributions are made monthly into a scheme (the Qualifying Scheme).

The Qualifying Scheme which is being supported by the DIFC Authority is the DIFC Employee Workplace Savings plan (DEWS). However, employers may choose to use a Qualifying Alternative Scheme (QAS).

The laws implementing the new arrangements, through amendments to DIFC Law No. 2 of 2019 (DIFC Employment Law, as amended) and Employment Regulations (Employment Regulations), have been published in their final form on 14 January 2020.

Key Developments

The key developments are as follows:

  • End of service gratuity – end of service gratuity will cease to accrue from 31 January 2020.   Gratuity is not paid out at this date, but will either:
  1. Be held by the employer until termination of employment, at which point it must be paid within 14 days of the termination date.  The value of the gratuity accrued up to 31 January 2020 will be adjusted to reflect any increases in salary in the period to termination of employment; or
  2. Be paid by the employer into a Qualifying Scheme at any point.  Where:
    - The transfer is with employee consent, the risk of the investment transfers to the employee;
    - The transfer is without employee consent, the risk of the investment stays with the employer. 

Whilst there remains a qualifying period of one year in order to achieve a gratuity entitlement, the achievement of one year's service can be after the 1 February 2020 (although the gratuity itself will be pro-rated from the commencement of employment to 31 January 2020).

  • Employer Contributions – from 1 February 2020, an employer is obliged to make Employer Contributions into a Qualifying Scheme, calculated as follows:    
  1. 5.83% of basic salary, for each month until the employee achieves five years' service; and
  2. 8.33% of basic salary, for each month in excess of five years' service.

Once the employer has made the Employer Contributions, their obligation in relation to the Qualifying Scheme ceases.

  • Payment into a Qualifying Scheme – An employer must register each employee by 31 March 2020 (and for any new employee, within two months from commencement of employment) and the first payment must be made by 21 April 2020 (and for any new employee, by 21st day of the month following registration), save that where an employee is under probation, the payment may be deferred until confirmation that the probation period has been passed.  In all cases, the first payment must include backdated pay to the Qualifying Scheme Commencement Date.  This date varies, but in most cases will either be 1 February 2020 or the commencement of employment, if later.
  • Exemptions – it is not possible for the parties to simply agree to opt out of paying into a Qualifying Scheme (and any such agreement will be null and void and unenforceable), however, the DIFC Authority has confirmed that the following will be exempt from the arrangements:
  1. Anyone registered with the General Pension and Social Security Authority;
  2. Anyone working in the DIFC on secondment in accordance with the DIFC Employment Law (as amended);
  3. An employee employed in the DIFC by a local or federal government entity established by decree;
  4. An employee exempted by the President of the DIFC from being subject to the DIFC Employment Law (as amended);
  5. Any employee serving notice as at 1 February 2020;
  6. Any employee employed under a fixed term contract which will end on or before 30 April 2020; or
  7. An equity partner, who owns a partnership interest, membership interest or shares in an employer, to the extent that they make drawings from a partnership, equity, capital account, or receive profit distributions or dividends from their employer.
  • Qualifying Scheme – a qualifying scheme may be:
  1. DEWS, or
  2. a QAS, for which the employer has obtained a certificate of compliance from the DIFC Authority.  Where the QAS is established outside of the DIFC, this must be in a recognised jurisdiction; or
  3. a pension, retirement or savings scheme into which an employer has a statutory duty to make a contribution in another jurisdiction; or
  4. a scheme where the defined benefits are in excess of Employer Contributions and the employer, with the written consent of the employee, is paying into the scheme, provided it is subject to regulation and supervision by the DFSA or a regulator in a recognised jurisdiction.

As at the time of writing, the list of what will be considered a recognised jurisdiction has not been published, but we understand this is likely to include key financial centres, such as Jersey, Guernsey and the Isle of Man.

In the case of a QAS, there are a number of criteria which a scheme must satisfy in order for it to be certified, including a requirement that the payment of Employer Contributions must be no less than those specified in the DIFC Employment Law, as amended, and it must pay out benefits when a member ceases to be an employee.  In addition, it must have an

Operator and Administrator, either regulated by the DFSA or a recognised jurisdiction.  The Operator must have a Supervisory Board or, in the case of a QAS not established in the DIFC, this function may be performed by a protector of a trust.

In order for an employer to choose a QAS, they must obtain a certificate of compliance prior to 31 March 2020, or during the period 3 December 2020 – 31 January 2021 and each anniversary thereafter.

  • Employee contributions – employees may also choose to make voluntary contributions into a Qualifying Scheme, in addition to the Employer Contributions, which must be deducted from payroll and paid via the employer. 

This is an exciting development within the DIFC Authority, however there are a number of steps to be taken by employers to ensure that they are ready to implement the new laws.  Before 31 March 2020, employers must:

  1. Ensure that employees understand the change to the DIFC Employment Law and the obligation of the employer to pay Employer Contributions going forward;
  2. Sign a Deed of Participation with DEWS, or with a QAS;
  3. Where an employer chooses a QAS, they must satisfy themselves that the scheme satisfies the DIFC Employment Law, as amended, and the Employment Regulations, and obtain a Certificate of Compliance from the DIFC Authority;
  4. Register their employees and prepare payroll to make contributions on a monthly basis going forwards;
  5. Consider how payroll arrangements will be made for any employee contributions;
  6. Confirm the new arrangements in relation to End of Service gratuity, Employer Contributions and employee contributions in writing;
  7. Identify those employees who are exempt and ensure they understand the arrangements which apply to them.

How we can assist

There are a number of ways in which we can assist you to be ready to implement the new laws regarding the Qualifying Schemes. For example, we can:

  1. Advise you about the treatment of exempt employees;

  2. Advise you on the suitability of a QAS;

  3. Advise you on the process to obtain a certificate of compliance for a QAS;

  4. Advise you on the Deed of Participation;

  5. Present the new laws to your employees, so that they understand the changes;

  6. Prepare communications to staff.

Please contact Rebecca Ford or Peter Hodgins, or your usual contact within the Clyde & Co employment team to discuss this further.