Redundancies becoming more widespread in UAE but workers are well compensated

Author: Kirsty Tuxford | Date: 22 June 2016

Employees are receiving severance pay above what the law demands, despite businesses tightening their belts

Organisations in the UAE are increasingly looking to reduce their headcount in order to cut overheads during the economic slowdown, according to the 2016 McLagan Middle East Severance Study Report.
 
However, despite no legal requirement to offer a severance package (aside from the end-of-service gratuity), organisations are being generous when it comes to pay-offs.
 
The McLagan report, which was carried out to better understand how the market is responding in general to the economic slowdown, found that most of the firms surveyed were planning to make further cuts in 2016.
 
The report stated that a quarter of the employers which took part in the survey have downsized staff numbers in the past six months, with 16 per cent looking to downsize over the remainder of the year.
 
“However the majority also plan to go above and beyond their statutory obligations when they release staff,” said Martin McGuigan, partner at Aon Hewitt Middle East, which produced the report.
 
“The study shows that firms are still cautious and the easiest way to cut costs is to reduce headcount. Therefore, until we get back to oil prices which allow for sustainable investment and growth, we are likely to see staffing costs come under increased scrutiny,” added McGuigan.
 
When it comes to severance pay, policies and practices can vary, with firms applying different methodologies, but in essence it acts as a guard for employers against possible legal suits that may arise for ‘wrongful dismissal’.
 
It is important that firms make a formal severance policy and decide to whom it should apply. Any agreement for severance pay in addition to the legally demanded end-of-service gratuity should be written into the employment contract.
 
A report published earlier this year by GulfTalent stated that organisations across the region plan to make job cuts in 2016. Private sector firms across the GCC are planning to make job cuts in 2016, particular in Saudi Arabia (14 per cent of organisations), Oman (10 per cent), UAE (nine per cent) and Qatar (eight per cent).