FIRMS FAILING TO MAINTAIN GRATUITY CASH POT
Most firms are failing to put aside funds to pay employees’ end of service payments, a study has found, putting their own finances at risk.
And the situation could lead to staff losing out financially in the event of their company’s collapse, experts say.
Finance giant Zurich yesterday released the
By Rory Reynolds results of new research showing 83 per cent have nothing set aside for gratuity payments.
The study was the result of interviews with 106 chief financial officers in the Middle East, 90 per cent of which were based in the UAE.
Report co-author Nigel Sillitoe, CEO of researchers Insight Discovery, described the findings as “worrying” and urged employers to plan for the future. More than half of the firms employ more than 1,000 people each.
Zurich and Insight Discovery found that companies are seemingly unaware at their potentially gratuity bill.
At present, companies are legally obliged to pay out in the event of an employee leaving their position or losing their job – but are not compelled to keep the money set aside.
Peter Cox, Head of International Pension Plans (Middle East) for Zurich said many employees are unaware of how the system works.
“I don’t think employees necessarily understand that there’s no money set aside for them in their best interests,” he told 7DAYS.
“The money - in 83 per cent of cases - is invested back into the business.
“We have seen cases in which companies have collapsed - the subsidiary of an Australian firm with 250 employees a few years ago was one.
“Money wasn’t set aside, all of the profits had gone back to Australia, and the staff faced a struggle to get what was due to them.”
Cox said, in most cases, companies are aware of the problem but have not addressed it.
He said: “The astonishing thing is when we asked the question, ‘if the government introduced mandatory funding requirements, would this be a good idea’ and 85 per cent said yes.
“So 83 per cent don’t fund end of service benefits, and 85 per cent think it would be a good idea if they did – you couldn’t make it up.
“What that tells me perhaps is that attitudes might not change unless they are compelled to do so.” At present, employees are entitled to 21 days pay for every completed year of service, rising to 30 days after five years.
Along with the financial risk to firms, companies are losing out on an opportunity to give their staff a reason to stick with them.
Cox also said that, along with proving to staff that gratuities are secure, firms should be considering offering pension schemes.
He said some larger oil and gas firms, hospitality groups and companies such as Emirates have saving schemes, but that most do not.
He said: “The end of service benefit was never designed for retirement, it was designed to allow people to go home, pay for an airline ticket.
“What’s happening now is people are staying in the UAE longer, so attitudes towards employees need to change.”
PAYMENT: Some experts say pension schemes - and not just one-off gratuity payments - would encourage staff to stay with their firms for longer