In the Middle East, a company must pay a gratuity to each employee that leaves their position. As a result, most businesses will have a separate bank account with a gratuity reserve fund ready to be distributed as and when staff move on.
There are a number of options when it comes to gratuity funds and the way they are stored or saved. One would be to leave the cash stagnant in a bank account for example, but the increasingly popular option is to select one of the multiple types of tailored group funds specifically designed to cater for gratuity pots in the UAE and the Middle East.
Group Gratuity plans will come with a variety of options to suit each company, essentially guaranteeing not only that the business is able to meet their gratuity liabilities as and when they need to, but to also get market-linked growth of the funds set aside.
These schemes or plans can be fully customised, and are an increasingly popular trend because of the quick release of the necessary funds and the flexibility in terms of options.
A number of the largest global insurance and pension providers now also offer schemes such as group gratuity plans, and rather than leaving money in an account – where it is of course exposed to currency fluctuations and inflation, group funds can place capital into prime assets classes generally unaffected by global market conditions, a few examples being global hotel groups or prime London real estate – two asset classes that have been made more accessible than ever before, regardless of level of investment.
What is gratuity?
End of service gratuity is payable to an employee if they have completed more than one year of service. In the UAE, gratuity is calculated as 21 days wages for each year of service for the first five years, moving up to 30 days for each year thereafter – but on the provison that the total gratuity payment shall not exceed the value of two full years of employment.
Why invest gratuity?
An employer should always choose to put aside an amount for gratuity liability. The employer then chooses to use this money to contribute to a group gratuity plan. The plan and fund then earns returns while also simultaneously being used for gratuity payments upon employee exit.
The schemes available are established and targeted at guaranteed returns. Even UHNWI’s seldom leave their money as cash, preferring instead to place their money into low-risk asset classes such as hotels or vintage art collections to bullet proof their finances and see growth rather than stagnation.
All businesses should work to ensure that while there is access to capital as and when required, the money they have is put to work in the most effective way. A group gratuity plan meets both of these objectives.
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