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Jahangir Aka, head of SEI Investments Middle East, provides fiduciary management services to companies in the region. Here he talks about how to calculate a gratuity and why it is so important.
How should employees calculate their gratuity, or more correctly, end of service benefits (EoSB)?
In the UAE, it is calculated on basic salary and on 21 days per year of service up to five years. Over five years it becomes 30 days a year. It is based on basic salary plus commission, not on allowances. The precedent through some recent cases has been set that the commission must be a commission for the core work of the employee, ie, formulaic sales commission for a salesperson, and this should not be confused with a bonus.
What are the maximum and minimum payments?
According to the law, you must complete a year of service and up to 24 years of service for the payment. Most companies we have met remove the 24-year cap as a loyalty bonus for any, normally not many, employees who have stayed that long.
With people changing jobs every three to five years, how is that affecting the benefits?
EoSB was conceived as a mechanism to help people save. Historically people used to work for the same company for long periods, and when they left it would give them large sums of money when they went back to their home countries. Now the concern is that people change jobs every two, three, four years and they see it as a cash bonus when they leave companies and they spend that on consumer items here. So, you have wasted the lump sum. Moreover, it is not as big a chunk of money every two or three years. As adults we should be responsible and use it as a savings pot for their future.
SEI Investments started its fiduciary services in Dubai last year. How do you see companies managing their EoSB?
Still almost 90 per cent of the companies in the UAE manage their EoSB as they go.
What's the best way to ensure an employee receives their benefits?
The best companies are partitioning EoSB from the assets and the employee can ask for it. Dubai is seeing another period of growth and the chief financial officers need to realise that a pay rise would increase EoSB. For instance, a 4 per cent pay rise would actually lift the EoSB by 16 per cent. We are helping CFOs to model that payment.
Why should companies listen to such a request?
Leading companies listen and care for their employees as part of their HR policy. In many cases the company directors are themselves expatriates, and they recognise the comfort derived from knowing their EoSB is secure. Also, an increasing number of Emirati sponsors want the assets separated so they know that the companies they are sponsoring are able to meet their company liabilities in the event of financial difficulties and the burden is not on the Emirati sponsor.