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Mohammed El Dakamawy, a lawyer with Dubai-based law firm Dr Mahmood Hussain Advocates and Legal Consultancy LLC, said the legislation on bank guarantees was enacted in 2001 and the resolution on employee insurance was only recently issued.
“In 2001, the UAE enacted a series of legislation to enforce the concept of a ‘bank guarantee’ paid by the employer. The bank guarantee will be paid when a new employee is hired or the labour certificate of an existing employee is renewed,” he said.
However, El Dakamawy added that the previous legislation provided certain exemptions for bank guarantees, including but not limited to organisations or companies operating in the oil, gas, mining, banking, insurance, tourism and hospitality industries, which were Solely or partially owned federal or local entities.
The new resolution – Ministerial Resolution No. 318 of 2022 – now allows employers to provide bank guarantees or enroll their employees in insurance schemes.
“The latter scheme was developed to give employers an alternative to paying bank guarantees, which were previously mandatory, to reduce operating expenses and increase employers’ cash liquidity. With the introduction of this scheme, employers now have the option of Provide bank guarantees or pay annual insurance premiums or premiums for each employee to meet their obligations,” El Dakamawy said.
Regardless of the option an employer chooses, El Dakamawy emphasizes that employers should cover the cost of bank guarantees or employee insurance, rather than deducting it from employees’ wages.
With the introduction of the scheme, employers now have the option of providing a bank guarantee or paying an annual premium or premium for each employee to meet their obligations,” El Dakamawy said.
– Mohammed El Dakamawy, Attorney at Dr Mahmood Hussain Advocates and Legal Consultancy LLC
What is a Bank Guarantee?
According to Natasha Sood, a senior partner at Dubai-based law firm Mote and Associates: “A bank guarantee is a promise made by a lender that if a debtor is unable to repay the debt, the bank will take action.”
Therefore, in the case of a bank guarantee for an employee, the amount paid by the employer to the bank ensures that the bank will expedite the payment of any expenses the employee may incur during the employment period in accordance with the conditions laid down by the minister.
A bank guarantee is a promise made by a lender that the bank will take action if the debtor cannot repay the debt.
– Natasha Sood, Senior Partner, Dubai law firm Motei and Associates
What does a bank guarantee cover?
Sood said if the employer opted for a bank guarantee, the amount should not be less than Dh3,000 per worker. The security deposit is deposited when applying for an employee work permit or renewing a work permit.
“If the company collapses or the foreign partner flees, leaving a financial commitment to the worker, the guaranteed amount will be used to resolve disputes involving non-payment of wages,” Sood said.
DH3,000
Minimum bank guarantee amount per employee
When is the amount deducted from the bank guarantee?
According to Sood, MOHRE may deduct any amount from the bank guarantee if:
a) Expenses for the repatriation of the employee to his place of origin or any other place agreed between the employee and the employer.
b) The amount of the employee’s rights recognized in the Ministry by the employer or its representative.
c) Delivery of the employee’s rights in accordance with a court decision.
d) Reimbursement of expenses incurred in the repatriation of the employee to his or her place of origin or any other place agreed by the employee and the employer (if the employee has a bank guarantee), as required by the relevant authorities in that country. The employee covered by the insurance is subject to the Regulation.
e) In any case, the employer is responsible for repaying the amount paid or completing the bank guarantee.
What is employee insurance?
Employers have a new option for workers to enroll in employee insurance plans instead of depositing bank guarantees. While bank guarantees are paid annually, insurance plans offer the option of paying monthly.
According to MOHRE, the scheme requires a 30-month insurance policy worth AED 137.50 per skilled worker and AED 180 per low-skilled worker, paying a fee of AED 250 per worker Dirhams, paid by unregistered high-risk institutions. Paycheck Protection System (WPS).
Employee Insurance – What Does It Cover?
According to MOHRE, the coverage is up to Dh20,000 and provides coverage for:
- Worker’s salary for the last 120 working days
- end of service tip
- Cost of workers returning home
- In the event of a worker’s death, the cost of transporting the body back to its home country
- Other rights and rights that the employer cannot realize based on the decision of the Ministry of Labour or the relevant labour court.
How do I know if my company has an insurance policy for me?
“It is the employer’s duty to maintain a bank guarantee or join an employee insurance scheme. Failure to comply with such legal obligations will subject the employer to sanctions and penalties,” El Dakamawy told Gulf News.
He added that further details of the insurance scheme, which will clarify how employees will check insurance status, have not been released. However, employees always have the right to inquire about insurance plans and seek judicial remedies with their company’s human resources department if they believe they are not receiving any of the benefits they deserve.
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