ME gratuity pay increases 140%

dubai — The average “end of service benefit” payments that are made to expatriate workers in the Middle East when they leave an employer has risen by 140 per cent over the last six years as a result of an average increase in service tenure by two years, a new survey reveals.

“This is because the typical length of service has increased — from just less than five years to nearly seven years — and the associated rate of salary growth over that period,” a recent report published by Zurich Global Life said.

The Department of Economic Development in Dubai has welcomed the report which promotes discussions between government and stakeholders.

“Over four fifths of chief financial officers surveyed in the Middle East think it would be helpful if the government introduced a requirement that end of service benefit liabilities be properly funded,” Zurich said.

According to previous reports on the subject by Willis Towers Watson, an international consulting group, the aggregate liabilities across the GCC could rise to $75 billion by 2020.

Zurich’s research found that the majority of employers do not set aside specific assets to cover their EOSB liabilities and rather settle on a pay-as-you-go basis.

Peter Cox, head of international pension plans at Zurich in the Middle East, pointed out that the EOSB dilemma is an inconvenient truth. “Although 83 per cent of companies don’t fund their EOSB liabilities, 85 per cent think it would be a good idea if they did. This is a surprising response, bearing in mind it should be within their control to do so. Companies in the Middle East struggle to see the prudence of derisking an ever-growing financial issue.”

The research was based on a survey of chief financial officers and formed the basis of a thought leadership round-table discussion, organised by the consultancy firm Insight Discovery. The company first highlighted the limitations of the EOSB system in 2012. The report includes a case study by EY chartered accountants.

Some 72 per cent of companies do not expect that the government will take steps to introduce a mandatory funding requirement. This is in spite of the fact that the sums of money are significant.

“Expatriate workers across the region have a real need for attractive workplace savings solutions, which could include the EOSB entitlement. Those employers who facilitate workplace savings will find that they become an employer of choice with significantly improved recruitment and retention results,” said Cox.

Such plans will also help CFOs who are looking to introduce a funding programme to address increasing EOSB liabilities, he added.