Changes to the Bank Guarantee system in the UAE

A new worker’s insurance scheme came into effect on 15 October 2018, replacing the existing bank guarantees system that was in effect across the UAE.

The new affordable insurance scheme applies to all private-sector employees and instead of a fixed deposit amount of AED 3,000, which typically had to be paid against every work permit application, employers now have the option to pay an insurance premium of AED 150 per worker for a two-year work permit. This system will in effect guarantee the wages of workers in the private sector as well as the domestic sector.

The coverage period of the insurance will be for the full duration of the work permit, plus an additional 60 days and covers each worker’s entitlements:

  1. Unpaid end of service benefits
  2. Unpaid salary
  3. Unpaid return airline ticket to home country
  4. Unpaid repatriation of mortal remains
  5. Work related injuries.

The coverage limit is AED 20,000 of any one claim, or the aggregate, per worker.

Employers will be able to recover their deposited bank guarantees (AED 3,000) upon cancellation or renewal of a work permit and once the insurance premium of AED 150 has been paid against the individual. However, it is worth noting that the approval of the bank guarantee refund is at the discretion of the Labour office and companies that have had violations relating to payment of wages through the Wages Protection System (WPS) may not receive the refund immediately, subject to terms set by the Labour office.

As this is a new process, the details of the scheme are subject to change and may include slight variations to the details mentioned above.

This new scheme aims to secure the rights of all workers in the UAE whilst reducing the burden on employers needing to have large sums of money on hold as deposits.

If you have any queries relating to these changes or how they affect you, please get in touch with Wayne Merrick, Head of Corporate Solutions on wayne.merrick@linksgroup.com or +971 (0) 4 446 3900.

Article by Wayne Merrick on Oct 30th 2018