Explained: What the UAE's new low-cost insurance policy means for you

The Dh60 annual policy was rolled out across the Emirates on Monday

The Dh60 annual policy applies to all private sector employees in the Emirates, including domestic workers. Satish Kumar / The National

A new low-cost insurance policy that protects private sector employees' workplace benefits in the event of job loss, redundancy or an employer's bankruptcy - went live on Monday.

The UAE Cabinet-approved legislation was first unveiled by Sheikh Mohammed bin Rashid, Prime Minister and Ruler of Dubai, in June. Earlier this month Nasser Al Hamli, Minister of Human Resources and Emiratisation (MoHRE), confirmed the changes will take effect from October 15.

What is the new insurance policy?

The Dh60 annual policy, payable by employers, replaces the Dh3,000 bank guarantee companies were previously mandated to deposit for each new hire. While the insurance premium costs Dh60 per year, the work permits issued by the ministry are valid for two years, meaning employers must pay Dh120.

What does the insurance policy protect against?

It covers all workplace perks - such as end-of-service benefits, holiday allowance, overtime allowance, unpaid wages, return air tickets and cases of work injury – in the event an employer cannot pay. The maximum payout is capped at Dh20,000 per person.

What happens to the money already held for bank guarantees?

According to the ministry, about Dh14 billion held in employee deposits will be released back to companies. Firms can either reclaim the money when an employment contract is terminated or when a work permit is renewed. They must have purchased the new insurance policy before the refund is paid out.  However, any companies with violations against them – such as failing to pay salaries within the last six months – will not be eligible for a refund.

Who does the scheme apply to?

It applies to all private sector employees, including domestic workers, such as maids, drivers, gardeners and cooks.

Which employees will benefit the most?

Vulnerable, low-income employees will gain the most as the previous system only protected them up to Dh3,000 in the event of an employer not paying a salary or a firm’s insolvency. Now they can claim up to Dh20,000 for any payments they are owed. Those on higher-incomes may lose out, however, as the Dh20,000 cap will not be sufficient to cover their benefits – such as a gratuity or missing salary payments – if an employer cannot pay them.

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How do employers benefit?

Employers will receive a boost to their coffers on two fronts: firstly, they will have the Dh3,000 they previously paid out for each employee refunded. Secondly they will now pay a lower upfront amount to pay for each staff member, while also securing them better and wider cover for their entitlements. This will free up capital to companies to use for other purposes. Those who employ domestic helpers will also gain as they can seek compensation if a worker is sick, absent from work or wants change employers.

How does the economy benefit?

The move comes on the back of a series of new government measures, including Abu Dhabi's Dh50 billion stimulus package, announced earlier this year, aimed at lowering the cost doing business in the country to propel growth, attract more foreign and direct investment and create jobs. The Dh14bn refund of bank guarantees will boost liquidity for firms, encouraging them to invest in other areas of their business. In turn, lowering recruitment costs will strengthen the jobs market.

Who will manage the insurance scheme?

The ministry said Dubai Insurance Company will manage it, issuing electronic insurance policies via “a group of national insurance companies” selected by the UAE’s Insurance Authority.

How can someone make a claim?

Employees must file a claim at the Labour Court or complain to their local labour officer. The Ministry can then draw on the insurance policy to pay the employee.