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While enrolment deadline looms, uncertainties still surround UAE's unemployment scheme

The deadline to register for the new unemployment system is June 30.

On June 14, 2023

Update: The UAE’s Ministry of Human Resources and Emiratisation announced on June 15th that it has extended the registration deadline to the first of October 2023.

UAE officials have urged workers to enrol in the mandatory unemployment insurance scheme by the end of June in order to avoid paying fines. The scheme went into effect this year.

Workers who fail to enrol by June 30 will face an AED 400 (US$108) fine, in addition to the past due enrolment fees. If workers fail to pay the outstanding dues within 90 days of the June deadline, they will incur an additional AED 200 (US$54). According to regulations, these fines can be deducted from workers’ wages or end-of-service gratuity.

The unemployment insurance scheme, known as the “Involuntary Loss of Employment Scheme” (ILOE), extends to both citizens and non-citizens and provides limited cash benefits during the initial three months of unemployment. These benefits only kick in after one-year of enrolment. It encompasses all workers in the private and government sectors, excluding investors, self-employed business owners, domestic workers, individuals employed on a temporary basis, those under the age of 18, and retirees who receive a pension and have secured new employment. Workers in semi-governmental companies and companies registered in free zones were incorporated into the schemed last month. According to the local media reports, Emirates and Dnata workers were recently told that those with permanent contracts are not obliged to enrol.

The ILOE is unique in the region as it is provided by private insurance companies rather than the state. Similar to the UAE's Workers Protection Program, the scheme operates through an insurance pool established by a group of insurance companies, managed by Dubai Insurance, which collects premiums and administers the benefits.

The premium fees are determined by salary level, which is divided into two groups. The first group consists of workers earning a basic monthly salary of AED 16,000 (US$ 4,356) or less. They are required to pay a monthly premium of AED 5 (US$ 1.36), or an annual premium of AED 60 (US$ 16.34). The second group comprises workers with a monthly salary exceeding AED 16,000. They pay a monthly premium of AED 10 (US$ 2.72) or an annual premium of AED 120 (US$ 32.67). Workers can pay through the ILOE app and web portal, ATM machines, special kiosks and exchange centres. The amount can be paid monthly, quarterly, semi-annually or annually.

Because the payouts are based on a percentage of the basic salary, while the fees are fixed, low-income workers who pay the same amount into the scheme as the middle to higher-income are only eligible for a far smaller claim. Each insurance claim will be compensated up to 60% of the individual's basic monthly salary, for a duration of three months from the date of unemployment. The maximum monthly compensation is set at AED 10,000 (US$ 2,722) for the first salary level and AED 20,000 (US$ 5,445) for the second.

The UAE does not have a minimum wage, though bilateral agreements with origin countries may specify wages for nationals of that country. For instance, the minimum referral wage for Indians, who constitute the majority of migrants in the country, is between AED735 and 1500 in the construction sector. With a cap of 60% of basic pay, lower income workers will have to survive with as little as AED450 (US$122), even if they do not send money back home to families, and likely without the food and accommodation the original employer would have covered. With the high cost of living in the UAE, the unemployment insurance scheme may not be as attractive to those earning such a low basic pay. Though the payout may do little to protect their interests, workers are required to sign up for the private insurance scheme.

Compensation payments will cease if the unemployed person secures employment with another employer.  According to insurance regulations, the maximum benefit for a single claim is three months, and the total aggregate claims throughout an insured worker's service period in the UAE shall not exceed 12 months, regardless of the number of claims submitted.

Workers who voluntarily resign, regardless of the reason, are ineligible for a payout.  Consequently, workers who are coerced into resigning by businesses, a practice that is not uncommon in the region, are ineligible for insurance benefits. The insurance scheme also excludes individuals with absconding charges, those who are dismissed due to disciplinary reasons as outlined in the labour law, and individuals who are terminated for participating in strikes. Given that low-income workers often struggle to combat false charges made by their employers, these restrictions may unfairly prevent many workers from accessing the unemployment benefits. Workers who leave the country are also not eligible for a payout.

According to recent local media reports, only two million workers have enrolled in the insurance scheme since the beginning of the year until May. This number is noticeably lower than the estimated total workforce in the UAE, which was nearly seven million in 2020. Consequently, there is a potential risk that a substantial number of workers may face fines for failing to enrol by the end of the month if they do not subscribe in time.

Extending social protections to migrant workers is critical, and the UAE’s unemployment insurance scheme is an important step forward for the region. However, how the scheme will be implemented in practice remains to be seen, as the insurance policy takes 12 months to come into effect. The shortcomings observed in Bahrain — the only other Gulf country that, on paper, extends unemployment insurance to migrants — demonstrates the need to consider all aspects of migrants' economic and social conditions when designing social protection programmes.  Read our previous report for more details about the scheme and its potential pitfalls.