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15 Jan 2020

DIFC workplace savings regime to go live from 1 February 2020: What do employers need to know and do?


His Excellency Mohammed Bin Rashid Maktoum has enacted legislation to introduce the new mandatory requirements for DIFC employers to pay contributions to a workplace savings scheme that meets certain minimum requirements (a Qualifying Scheme). The legislation also sets out the detail of what the minimum requirements for Qualifying Schemes will be.

The enacted legislation contains a number of modifications to the draft legislation that was issued as part of a consultation in October 2019, including some of the suggestions we made in our consultation response and some helpful easements for affected employers.

In this e-alert we:

  • set out some actions for employers to take if they are affected by the new workplace savings regime; and
  • summarise six significant features of the finalised legislation to be aware of.

Next steps for employers

The enacted legislation contains some helpful easements (see item 2 below) that provide a short amount of extra time for employers to adopt and get familiar with their Qualifying Scheme. However, there is a lot for employers to consider and do in the immediate-term.

In particular employers will need to:

  • find a suitable Qualifying Scheme that will meet their requirements;
  • consider (with legal advice, as appropriate) the terms of the legal documents they will be asked to execute by their chosen scheme (such as a deed of admission/participation) to ensure they are competitive and there are no unusual or onerous provisions;
  • integrate their chosen scheme with their payroll processes to ensure employer (and any employee) contributions are paid to the scheme accurately and on time;
  • consider whether any of their employees are Exempt Employees (see item 3 below) or whether any other easements or exemptions may apply;
  • consider any changes that may be necessary to their standard and existing employment contracts, employee handbooks and other employee communications to reflect the cessation of accrual of the end of service gratuity regime, the start of the new workplace savings regime and other matters, such as adoption of the probation easement; and
  • engage with staff to ensure they are aware of the upcoming changes.

Six significant features of the enacted legislation

1. Start date

As trailed by the DIFCA in December 2019, the start date for the new regime has been shifted to 1 February 2020 (from the 1 January 2020 start date set out in the consultation). However, as detailed below, there are some easements which give employers a short amount of extra time to comply with the new workplace savings regime.

2. Easements for employers

There are some notable new easements to the obligation to enrol employees into a Qualifying Scheme which should ease the compliance burden for employers.

First, employers will have the option to apply a two month deferment to the enrolment of an employee into a Qualifying Scheme, starting from the point at which the employee’s right to membership of such a scheme arises under the law (which may be as early as 1 February 2020 for existing employees). However, an employer will still need to pay retrospective contributions to the Qualifying Scheme in relation to any such deferral period.

Second, an employer can defer payment of contributions to a Qualifying Scheme during an employee’s probation period, provided that this is provided for in the relevant employment contract. This means that contributions that would otherwise be due during the probation period need not be paid until the probation period has ended and the employee’s employment is confirmed. If the employee’s employment is not confirmed the law suggests that the employer will not be obliged to pay any contribution to a Qualifying Scheme for that employee. DIFC Employers may therefore wish to engage their legal advisers to review and modify their standard employment contracts to adopt this easement.

3. Exemptions

In addition to the above easements, there are some situations where employers do not need to enrol certain employees in to a Qualifying Scheme at all.

First, employers will not be required to enrol so-called Exempted Employees. These include employees who are:

  • subject to a registration requirement under the GPSSA;
  • working in or from the DIFC on the basis of a qualifying secondment;
  • serving a notice period under the DIFC Employment Law on 1 February 2020;
  • employed on a fixed term basis ending within three months of 1 February 2020; and
  • an Equity Partner (which is a person who owns a partnership interest, membership interest or shares in an Employer) provided the Equity Partner makes drawings from a partnership, equity, capital or profit account of the Employer or receives profit distributions or dividends from their Employer (it will be interesting to see how this exemption interacts with any employee share scheme operated an employer).

Second, an employer may be able to gain an exemption from the requirements of the workplace savings regime for any employee where it can demonstrate (and the DIFCA is satisfied) that the employer is either:

  • under a statutory obligation in another country to pay pension, retirement, saving or similar contributions in to a scheme in another country for the employee; or
  • providing a defined benefits arrangement for the employee that meets certain minimum requirements (including the arrangement being a funded scheme with benefits in excess of the value of contributions payable to a Qualifying Scheme).

4. Fines for compliance failures

The updated legislation clarifies that, for certain compliance failures, such as the failure to pay contributions due to a Qualifying Scheme in respect of an employee, a fine of up to US$2000 may be imposed against the employer in respect of each employee for whom there has been a failure.

5. Requirement for employers to monitor their Qualifying Scheme

As well as having to obtain a certificate of compliance in relation to their Qualifying Scheme, Employers will also be under two monitoring obligations as follows:

  • a requirement to take reasonable steps at least annually to ensure that their adopted Qualifying Scheme continues to satisfy the requirements for a Qualifying Scheme; and
  • a requirement to notify DIFCA as soon as practicable should their Qualifying Scheme cease to be compliant with the relevant DIFC regulations.

It remains to be seen how much due diligence employers will be expected to conduct in line with these monitoring obligations. It may be difficult for employers to be in a position to independently assess whether a Qualifying Scheme is in fact satisfying the Qualifying Scheme requirements without legal advice.

6. Transfer regime

The enacted legislation also contains some short provisions about transfers. These provide employers with the right to require a bulk transfer of entitlements from one Qualifying Scheme to another where the employer has selected a new Qualifying Scheme. Qualifying Schemes will also be obliged to transfer entitlements if the scheme ceases to exist or ceases to hold a valid certificate of compliance.

The Stephenson Harwood employment and pensions team has a detailed understanding of the new workplace savings regime and is ready to assist employers with any queries about how it may affect them. In the first instance please make contact with any member of the team listed in this alert or your usual contact at Stephenson Harwood.