Middle East companies not setting aside enough money for end of service benefits, study asserts

A majority of Middle East employers fail to set aside end of service benefit payments but there is a growing demand to make it mandatory for companies to do so, according to new research from Zurich Global Life.

The report, published on Monday, warns that the average end of service benefit (EOSB) payment made to expatriate workers when they leave a job has risen by 140 per cent over the last six years as the length of service increased from less than five years to seven years.

Employees are entitled to 21 days basic salary for each complete year of service for the first five years, according to the UAE Labour Law. For each complete year of service over five years, they are entitled to 30 days of basic salary. A cap is set at two years remuneration.

Rather than setting money aside ahead of time, around 83 per cent of companies surveyed make the payments as they become due, drawing the funds from their working capital, according to Peter Cox, head of international pension plans at Zurich in the Middle East.

The research was based on a survey of chief financial officers and a round-table discussion, organised by the consultancy firm Insight Discovery. Zurich surveyed 106 chief financial officers and finance executives across sectors, with nearly a third working for construction companies. Nearly 90 per cent of the respondents work with companies that are headquartered in the UAE. Around half of the companies have more than 1,000 employees.

“Companies in the Middle East struggle to see the prudence of de-risking an ever growing financial issue,” Mr Cox said.

At least 85 per cent of respondents said it would be a good idea if they did set aside funds for the payments.

“A [majority] think that a mandatory fund requirement would be a good thing, in that it would focus employers’ minds on a growing financial issue,” according to Nigel Sillitoe, the chief executive of Insight Discovery.

A majority of the companies – 72 per cent – do not expect government to introduce a mandatory funding requirement.

A 2010 report from the consultancy Towers Watson estimated that the aggregate end of service liabilities across the Arabian Gulf could rise to US$75 billion by 2020.

“Those employers who facilitate workplace savings will find that they become an employer of choice with significantly improved recruitment and retention results,” Mr Cox said.

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