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Dubai: Companies in the region are taking the necessary steps to enhance their gratuity governance.
In the SEI survey, more than half (54 per cent) of the respondents said they have separated the assets or are interested in doing so to protect the end of service benefit (EoSB) funds via a trust.
A key driver for this is that companies now want to offer employees more competitive benefits. More than a third (35 per cent) of human resource directors included in the survey said that increasing employee retention is now their first or second priority.
Michael Brough of Towers Watson confirmed that setting aside funds in advance to cover EoSB liabilities is now becoming common. He said that keeping the funds in an external trust-based vehicle will ensure the assets are available at the point of payment and remain protected against a possible bankruptcy.
Besides, if the employer pays contributions to the external vehicle as benefits, it would help stabilize the cash flow, compared to paying larger lump sums at the end of an employee’s service.
“This is a sensible approach to fund, at least a part of the EosB, in an external vehicle such as an external trust or a contract, or a bank account,” Brough said.