Almost 60 per cent of the companies surveyed by the trust management company SEI Investments do not separate end of service benefits funds from their working capital.
Shoddy handling of end of service benefits
Jahangir Aka, the managing director of SEI Investments Middle East in Dubai, and his trust management company wanted to get a clearer view of the employment trends in Arabian Gulf markets and how companies deal with end of service benefits.
The survey showed that many companies surveyed were not separating their end of service benefits funds from working capital. Here he talks to This was your company’s first survey in the Arabian Gulf on employment trends and managing end of service benefits. What was the response?
We got responses from 90 corporates across sectors such as oil and gas, professional services, tourism, real estate, technology, and banking and finance among others. Around 89 per cent of the companies surveyed had employees based in the UAE. Responses also came in from companies with employees in Qatar, Kuwait and Bahrain. We wanted to find out how they manage their end of service benefits fund.
What did you discover?
It was disappointing to find that employers have not implemented a sound and fair policy. For instance, for an employee on Dh10,000, employers make the base salary Dh3,000 and allowances to the tune of Dh7,000. Why have they done so? Because they want to short-change the employees and find a way around not paying the employee gratuity on the full amount. And it made the policy look bad, which it is not. But 60 per cent of the employers said they want to do something positive. We are also seeing multinational and local firms biting the bullet and actually making changes and increasing the percentage that they have classified as a base salary and as a result moving to provide gratuity on the total compensation and not on an artificially low base salary. In the United Kingdom and the United States, you don’t play these games with allowances. The salary includes transport allowance and housing. Anything other than the bonus should be included.
Around 60 per cent of the respondents in the survey said they do not invest their end of service fund, and it is part of their working capital. How serious is this?
It is quite serious because salaries are growing as Dubai’s economic activities have picked up. Around 80 per cent of the companies surveyed said that their headcount is going up, and over 90 per cent have seen an increase in salaries. So, the concern is serious, as liability is growing rapidly. Growth is great, but you need to understand the cost of growth, and end of service benefits have been neglected. Also, when a company matures, you need to have a professional structure in place such as a board to oversee your operations.
The survey found that 35 per cent of companies have staff retention as one of their top objectives. Could this lead to better management of end of service benefits funds? How will employees with low pay be affected by this?
Yes, because in a positive economic environment the war on talent has picked up. In such a situation, companies are building a reward-and-retention structure. But some companies have such structures in place only for the top earners, and lower salary earners have a pay-as-you-go structure. So, the companies are taking advantage of the loopholes.
You recommend taking end of service benefits funds off working capital. Why?
We recommend taking the funds off the working capital because if a company goes bankrupt, then employees become the last creditors as a means to protect them. From a local perspective, if the company goes bankrupt, then the sponsor is liable. That is not mandatory by law, it’s best practice. This is a tougher step than, say, creating a governance board that would oversee the end of service benefits funds management.
What is the challenge in implementing end of service benefits rules?
It’s easy to do nothing. The law says you have to pay, not how to pay. What the employees’ rights are; how to protect it or safeguard it, that’s business practice. But awareness from sponsors and employees are growing about end of service benefits, and that is a positive thing.