More employment, end of service pay on the way for Middle Eastern businesses

More employment, end of service pay on the way for Middle Eastern businesses
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Published September 16th, 2013 - 07:17 GMT via SyndiGate.info

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Furthermore, the survey reveals employees are staying in their jobs for a longer period, resulting in a greater percent being eligible for higher EoSB payout.
Furthermore, the survey reveals employees are staying in their jobs for a longer period, resulting in a greater percent being eligible for higher EoSB payout.

The results of a new annual poll published by SEI, titled "SEI End of Service Benefit Report 2013," reveals positive employment momentum in the Middle East region is putting increased pressure on company End of Service Benefit (EoSB) liabilities. The poll focused primarily on the UAE, where the majority of respondents were based (89 per cent). Eighty percent of the total firms surveyed plan to increase their headcount over the next three years, with over a third (34 per cent) expecting double digit growth.

The employment trends revealed in the poll have meaningful implications for the EoSB sector. Increasing headcounts and rising salaries mean an increase in EoSB liabilities, which directly correlate with employees' salaries. Furthermore, the survey reveals employees are staying in their jobs for a longer period, resulting in a greater percent being eligible for higher EoSB payout. In the UAE, a worker who has completed one or more years of continuous service is entitled to severance pay at the end of his employment; for each of the first five years of service a worker receives 5.75 per cent of his final salary. This percent increases to 8.22 per cent for each additional year of service.

Despite these pressures, the poll finds that many companies may be failing to manage their EoSB obligations effectively and may be exposed to significant risk. Sixty percent of respondents co-mingle the funds for these payments with their working capital. This has a number of implications for employers and employees, the most important of which is the lack of protection offered to employees in this arrangement.

However, survey responses do indicate that some firms are taking steps to enhance their EoSB governance. Fifty-four percent of respondents stated they have separated the assets or are interested in doing so to protect EoSB funds via a trust. Typically, employers considering professional management of EoSB liabilities want to offer employees more competitive benefits. This sentiment is reflected in the survey, as 35 percent of human resource directors ranked increasing employee retention as a first or second priority, and 21 percent confirmed that replicating industry best practices for employee benefits was a first or second priority.

In terms of managing EoSB liabilities, the results of the survey reflect significant interest in outsourced solutions such as fiduciary management, which allows employers to assign discretion for investment responsibilities including manager selection. Thirty percent of respondents indicated they would consider outsourcing management of their entire EoSB scheme, while the majority would be interested in outsourcing at least two components of the scheme's management.

Commenting on the results of the poll, Jahangir Aka, Managing Director of SEI's Dubai office, said: "In the Middle East the employment market is evolving significantly and SEI's poll results highlight the need for renewed focus on the benefits being offered to employees. It is our belief that employers need to understand their end of service benefit liability better and consider adapting from the current pay-as-you-go approach. SEI's experience managing pension schemes around the world puts us in a good position to assist employers with this challenge and offer new methods for enhancing EoSB governance. By working with a fiduciary manager employers can assign discretion for investment responsibilities, such as manager selection, to a single, accountable provider."

The poll, conducted in May and June 2013, was completed by senior executives from 90 local and international companies in the GCC. None of the poll participants were clients of SEI, the statement concluded.

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