Managing Liquidity Risk in the UAE: Moving from Volatile Gratuity Payouts to Predictable Cash Flows

A fundamental tenet of prudent corporate risk management is the stabilization of cash flows. For decades, UAE entities have managed the traditional End of Service Gratuity Benefit (EOSGB) as an operational cash flow risk. Gratuity payments are triggered by employee exits—resignations, terminations, or retirements—making the timing and magnitude of cash outflows inherently unpredictable.

This unpredictability creates a significant liquidity risk, particularly during periods of economic contraction or societal upheaval. In challenging economic environments, employee attrition or unavoidable mass redundancies can force a company to meet substantial lump-sum gratuity obligations precisely when operational cash reserves are most strained. In extreme scenarios, the cash flow burden of the EOSGB can restrict a company's ability to restructure, as the cost of paying out accrued benefits becomes prohibitive.

By voluntarily adopting the End of Service Savings (EoSS) scheme under Cabinet Resolution 96 of 2023, organizations can effectively neutralize this volatility. Under the EoSS, employers transition to a predictable, monthly contribution model based on a fixed percentage of the current scheme salary (5.83% for the first five years, and 8.33% thereafter). The standard deviation of expected cash outflows is substantially minimized, removing sudden liquidity shocks from the balance sheet. Furthermore, by ring-fencing these funds externally, employers cleanly discharge their end-of-service responsibilities as part of standard payroll operations.

To model how this transition will affect your company's specific liquidity profile and to manage the legacy accruals effectively, we invite you to contact Ruan van Rensburg here at Lux Actuaries.

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