For decades, every private-sector employee in the UAE has had the same end-of-service arithmetic. Work for at least a year. Accrue gratuity at 21 days of basic salary per year of service for the first five years, 30 days per additional year after that, capped at two years of total wages. Receive the lump sum from the employer when employment ends.
That arithmetic is not going away. What changed in 2023, and is now reshaping how UAE employers think about end-of-service benefits, is the introduction of an alternative. Instead of the employer carrying the gratuity liability on its own balance sheet and paying out at termination, contributions go monthly into a regulated investment fund chosen from a list authorised by the UAE Securities and Commodities Authority (SCA) and recognised by MoHRE.
This article is an educational walkthrough of how that scheme works, who is running the funds, how the federal mainland scheme compares with the existing DIFC and ADGM schemes, and what employees and employers may want to consider in 2026. It is not a recommendation about whether to switch, which provider to choose, or which fund option to select within any provider's range. Those are decisions for licensed financial advisors and qualified employment-law counsel, not for a blog post.
A quick recap of how traditional gratuity works
Under Federal Decree-Law No. 33 of 2021, end-of-service gratuity is calculated on basic salary only, after at least one year of continuous service, at 21 days of basic salary per year for the first five years and 30 days per year beyond that, capped at two years of total wages. Payment is due within 14 days of contract termination.
Under that traditional structure, the gratuity is an unfunded promise. The employer holds the liability on its books and pays it out when the time comes. For a financially stable employer this is uneventful. When it goes wrong, it tends to go wrong slowly: late payments, partial settlements, or, in difficult cases, employer insolvency that leaves a long line of claimants. The voluntary alternative scheme exists in part to address this structural risk.
What changed in 2023
In 2023, the UAE Cabinet introduced the Voluntary Alternative End-of-Service Benefits Savings Scheme through Cabinet Resolution No. 96. The scheme allows private-sector and free-zone employers to opt in to a model where, instead of accruing gratuity as an unfunded liability, they make monthly contributions into a regulated investment fund.
In July 2024, MoHRE announced the first two authorised funds. Through 2024 and into 2025, the approved-provider roster expanded. The current list of authorised fund operators is published on the official MoHRE scheme page and is the authoritative source; readers should check that page directly before relying on any provider roster.
Legal commentary has reported a MoHRE consultation relating to the scheme in early 2026 (see for example Morgan Lewis). The status of any consultation, and any change to the scheme's voluntary or mandatory status, should be confirmed directly through official MoHRE communications rather than from secondary commentary.
How the scheme works mechanically
The mechanics matter because the structure determines how the scheme behaves over time and what trade-offs it introduces.
Employer contributions
The mandatory employer contribution rate mirrors the traditional gratuity formula:
- 5.83% of monthly basic salary if the employee has not yet completed five years of service
- 8.33% if the employee has more than five years of service
These percentages map to the 21-days-and-30-days structure of traditional gratuity. The numbers are calibrated so that, before any investment return, an employee enrolled in the scheme accrues roughly the same notional balance over time as one accruing traditional gratuity.
Payment timeline
Subscriptions must be transferred into the chosen investment fund within 15 days of the start of each calendar month. Late or missed contributions are an enforcement matter, not a softer expectation than the traditional 14-day-after-termination payout.
Voluntary employee contributions
Employees enrolled in the scheme can make additional voluntary contributions of up to 25% of their annual salary. These behave differently from the employer's mandatory contributions in one important way: voluntary employee contributions can generally be withdrawn at any time during active employment, while employer mandatory contributions can only be drawn at end of service. The exact withdrawal mechanics, processing times, and any fees depend on the chosen provider's documented terms.
Mandatory participation, voluntary employer
The scheme is voluntary for employers. If an employer enrolls a particular employee, however, that employee's participation in the scheme becomes mandatory for them. Employers may choose to enroll all employees, specific groups, or selected professional categories. Once an employer enrolls, the commitment is for at least one year before the option to opt out becomes available.
What happens to gratuity already accrued
Once an employee is enrolled in the scheme, traditional gratuity treatment generally stops for future service. Any gratuity accrued before enrollment should be calculated, documented, and handled in accordance with applicable law and the scheme rules. Employers should work this through with qualified UAE employment-law counsel before enrollment, because the documentation of pre-enrollment entitlements is a material part of getting the transition right.
What happens at end of service
When an enrolled employee's employment ends, the beneficiary may generally have options to keep funds invested in the scheme or withdraw them, subject to the scheme rules, the chosen provider's procedures, and any applicable legal or tax requirements. The exact mechanics vary by provider and should be checked in the provider's current member documentation.
Who is running the funds
Mention of any provider in this article is for factual identification only and is not a recommendation, ranking, or endorsement by Clarvia.
The scheme has a small set of authorised fund operators. The roster has included Lunate, Daman Investments, First Abu Dhabi Bank, and National Bonds. The current authoritative list is published on the official MoHRE scheme page.
One publicly disclosed example, included here for illustration, is Lunate's Ghaf Benefits platform. According to Pensions Monitor reporting on SCA filings, the Ghaf Benefits range comprises six sub-funds, structured as four conservative and two balanced strategies, including Shariah-compliant options. According to public disclosures, the platform also includes member-portal allocation features. Any specific allocation decision should be made using current fund documents and, where appropriate, with licensed advice.
Other authorised providers offer their own fund line-ups, which differ by provider and may change over time. Employees and employers should review the current product disclosures from each provider directly, including fees, risk ratings, any guarantee terms, and Shariah-compliance status.
How traditional gratuity and the scheme compare structurally
The differences are easier to see side by side. Neither model is universally better; they are different products serving different priorities.
Traditional gratuity
- Employer holds the liability on its own balance sheet
- Lump sum payment at end of contract
- Amount fixed by formula on basic salary at termination
- No investment growth and no exposure to investment risk
- Counter-party risk concentrated in the employer
Voluntary alternative scheme
- Money segregated in a regulated investment fund from month one
- Final amount depends on contributions plus investment performance, net of fees
- Employee can add voluntary contributions, generally accessible during employment
- Employer counterparty risk may be reduced; employees are exposed to scheme, provider, market, operational, fee, and fund-specific risks depending on the option selected
For employees, the structural shift is a trade-off between formula-based predictability and investment-linked outcomes that may be higher or lower depending on performance, fees, and the chosen risk profile. For employers, the shift is mostly about balance-sheet treatment and insolvency risk.
Whether either model is more suitable for any specific person depends on factors a blog cannot evaluate: the employer's financial stability, the employee's investment time horizon, the chosen fund's risk profile and fees, the employee's overall financial picture, and the home-country tax treatment of any eventual payout. Those are conversations to have with a licensed financial advisor.
DIFC DEWS and ADGM: precedents and parallels
The federal mainland scheme is not the UAE's first crack at this structure. It is the third.
DIFC DEWS has been operating since 1 February 2020 for employees of DIFC-licensed entities, using the same 5.83% / 8.33% contribution rates. DIFC reported in 2024 that DEWS had surpassed USD 1 billion in assets, giving the federal scheme a multi-year working example to study.
ADGM enabled its own End-of-Service Benefits Savings scheme from 1 April 2025, available to employees of ADGM-licensed entities. The ADGM model allows employers to choose multiple providers; the federal mainland scheme currently restricts an employer to a single provider for all enrolled employees.
Taken together, these schemes show growing use of funded end-of-service benefit structures in parts of the UAE. That does not mean the federal voluntary scheme has become mandatory, or that any particular employer will adopt it. The pace and degree to which any individual employer adopts the change is an employer decision in 2026.
Questions employees may want to ask
For employees not currently enrolled, a useful set of questions to bring to an HR conversation:
- Has my employer enrolled in the voluntary scheme, and if so, am I one of the employees included?
- If I am enrolled, which authorised fund provider has my employer chosen?
- What is the default fund within that provider's range, and what other fund options are available?
- How are pre-enrollment accrued gratuity balances being calculated, documented, and handled?
- Is the employer's contribution timing consistent with the 15-day-of-month cadence required by the scheme?
For employees considering a new job, asking how the prospective employer handles end-of-service benefits, including whether it uses the voluntary scheme and where official information about the chosen provider can be reviewed, is a reasonable question to add to the standard offer-letter checklist alongside salary, allowances, and notice period.
Issues employers may want to review with counsel
The scheme is a structural decision, not just a payroll one. The legal updates linked above flag that the following are issues to work through with qualified UAE employment-law counsel before enrollment:
- Calculation, documentation, and handling of pre-enrollment accrued gratuity for any employee group included in the scheme
- Choice of authorised fund provider and the contractual terms with that provider
- Payroll system changes to handle the 15-day monthly contribution timing
- Communication to affected employees, including the irreversibility of mandatory participation once selected, and the one-year minimum employer commitment
- Treatment of employees on probation, fixed-term contracts, or with overseas tax-residency considerations
Where Clarvia helps
Clarvia does not recommend whether to join, remain in, opt out of, or choose any fund under the scheme. What Clarvia helps with is the financial-context piece that sits underneath any of those decisions.
For employees whose employer is considering or has adopted the scheme, Clarvia helps organise personal cash-flow information around salary, expenses, savings, and relevant bank transactions, so that any conversation with a licensed financial advisor about the scheme starts from a complete and current picture rather than a guess.
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