The results of a new annual poll published by the SEI titled “Employment Trends and Managing End of Service Benefits in the Middle East,” reveals positive employment momentum in the Middle East region is putting increased pressure on company End of Service Benefit (EoSB) liabilities.

The report focused primarily on the UAE, where the majority of respondents were based (89 per cent). Eighty per cent 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 firm said.

The SEI said that 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 shows that employees are staying in their jobs for a longer period, resulting in a larger number being eligible for higher EoSB pay out.

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 per cent increases to 8.22 per cent for each additional year of service, the firm said.

The research revealed that many companies may be failing to manage their EoSB obligations effectively and may be exposed to significant risk. Sixty per cent of respondents co-mingle the funds for such 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, 54 per cent of respondents said that they have separated the assets or are interested in doing so to protect EoSB funds via a trust, indicating that some firms are taking steps to enhance their EoSB governance. Typically, employers considering professional management of EoSB liabilities want to offer employees more competitive benefits. This sentiment is reflected in the survey, as 35 per cent of human resource directors ranked increasing employee retention as a first or second priority, and 21 per cent confirmed that replicating industry best practices for employee benefits was a first or second priority, the firm said.

The SEI said that 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 per cent 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.