Companies in UAE are rethinking pay packages and benefit schemes as a raft of new labour laws is pushing up costs.
Business braced for labour laws
A host of new labour laws is pushing up costs for local businesses and causing companies to rethink pay packages and benefit schemes.
The likely winners in this shift in the balance of power are employees, who should enjoy increased mobility and leverage when it comes to the job hunt.
"There will certainly be cost implications, and we will work on those accordingly," said Shishir Jha, the head of human resources for the retailer Jumbo Electronics. "We are very [aware of] the shift that these changes may bring about."
Government officials from the Ministry of Labour have said the new rules are meant to create a stable environment where rights of all workers are protected. Most of the laws came into effect on January 1 and make it easier for workers to switch jobs.
Under the new system, employees can change jobs after two years instead of three and they no longer face a six-month ban or need a no-objection certificate before they are allowed to start a new job. The retirement age of foreign workers was also raised from 60 to 65 years and the region's first permits for part-time employees are now valid.
"The power is being placed in the hands of the employee," said Katy Macleod, the corporate development manager for the Dubai office of Friends Provident International, which provides financial products and advice.
Some businesses say higher wages will be needed to retain skilled workers but that this is just a part of doing business in the new environment. The UAE is a "competitive place. You have to pay the right salary", said Farook Kassim, the chairman of Dubai Foodstuff Group, which represents food traders and retailers. "If you don't pay people properly, definitely they will leave," he said.
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Even before the new laws went into effect, some business leaders argued that labour laws were too restrictive.
More than 40 per cent of executives polled in the UAE cited restrictive regulations as the biggest hurdle to doing business here, according to a report released last month by the management consultancy Oliver Wyman and the polling firm Zogby International. Nearly a quarter of executives also said the hiring or firing process was too difficult, while 38 per cent argued that visa rules for expatriates and their families were too restrictive.
One of the mandates that will put the most pressure on employers, particularly small concerns, includes a new fee structure for labour cards. Those firms with at least 20 per cent of skilled workers and 15 per cent of Emiratis will pay just Dh300 (US$81.67) for each worker's labour card, while businesses with a smaller mix would pay anywhere from Dh600 to Dh5,000 per employee. Experts warn that simply meeting the stricter requirements will not necessarily lead to overall savings, but it could help offset the added costs of having to apply for new labour cards every two instead of every three years.
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"The cost of labour cards becomes prohibitive," said Neil Crossley, a partner at DLA Piper (Middle East) who heads the employment department for the region. "If employers really need an incentive, they have one in the form of reduced costs."
Some businesses are also revamping their employee benefits plans to hold on to their workers and attract new ones, said Ms Macleod. They are mulling over more generous medical plans, she said, and even considering creating a savings plan that would work similar to that of an employer-sponsored retirement scheme in the US.
One idea some companies are considering is to match employee deposits of up to 3 or 5 per cent, but only if they stay with the company a set number of years. The logic being that if an employee cuts out of their contract early, their matched funds would instead go towards finding a replacement.
"Turnover will be a big factor," says Sharad Barkataki, the chairman of management at American University's School of Business in Dubai. "Companies that haven't thought about how to retain their employees are going to be forced to."