Can Employers Still Claw Back EOSB Gratuity Under the New System?
Some time ago, we wrote about how the new EOSB savings scheme is quietly reshaping salary-transfer lending in the UAE. Since then, we have received a lot of correspondance with a related but different question from HR and finance teams:
"if the bank can no longer treat EOSB as collateral, can we, the employer, still net off what an employee owes us against their gratuity?"
The answer is a genuine "it depends" — and getting it wrong could put an employer in breach of two separate pieces of legislation at once.
What employers CAN still do: netting off legacy gratuity
For gratuity accrued under the traditional system — including the portion every employer must freeze and calculate at the moment an employee joins the alternative scheme — the old offset rules haven't gone anywhere. Article 51(7) of Federal Decree-Law No. 33 of 2021 allows an employer to deduct "any amounts due by law or court order" from severance pay, with the mechanics set out in the Executive Regulations. Article 29 of Cabinet Resolution No. 1 of 2022 spells out what qualifies: unpaid loans or overpayments, unpaid pension or end-of-service contributions, disciplinary penalties under the company's approved regulations, court-ordered debts, and damage caused by the employee's negligence.
Crucially, this legacy gratuity doesn't disappear just because an employee moves onto the new savings scheme. Under Article 5(3) of Cabinet Resolution No. 96 of 2023, employers must "calculate benefits due to beneficiaries in accordance with the Decree Law prior to implementing the alternative system and must pay them upon the termination of the employment relationship, based upon the beneficiary's basic salary as of the time of participation." That frozen legacy amount is still an employer-held liability — and it stays subject to the same offset rules as always.
What employers CANNOT do anymore: touch the new contributions
The moment money moves into the alternative system, the rules change completely. Three provisions matter here:
The money belongs to the beneficiary, by default. The Annex to Cabinet Resolution No. 96 of 2023 obliges the Fund Manager to "pay to the beneficiary or his beneficiaries the sum of subscription amounts paid and any resulting returns upon maturity, in accordance with the terms of this decision." There is no carve-out in that clause for an employer's competing claim.
The funds are shielded from creditors — including the employer. Article 10(8) states plainly that "subscription amounts paid by the employer are not subject to judicial enforcement, seizure, liquidation, or bankruptcy procedures." An informal side-letter with the fund manager promising to redirect payouts to the company doesn't override that protection.
There is exactly one door left open — and it's narrow. Article 9(3) allows an employer to "request any amounts legally owed to him from the worker's entitlements under the alternative system upon the termination of the employment relationship," but only "subject to approval by the Ministry or the enforcement of a judicial decision." No termination has occurred yet, no automatic set-off clause survives, and no private arrangement with the fund manager substitutes for Ministry sign-off or a court order.
The takeaway for employers
Put simply:
Legacy gratuity (frozen at the point an employee joined the alternative system) → still governed by Article 51(7) and Article 29 offset rules. Loan netting remains possible here.
New EOSB contributions (paid into the investment fund from enrolment onward) → cannot be pre-arranged as collateral, cannot be automatically diverted, and can only be clawed back post-termination with Ministry approval or a judicial ruling.
Employers who assume the old playbook simply carries over onto the new scheme are exposing themselves to real risk — a fund manager who agrees to an automatic offset arrangement is arguably breaching its own duty to the beneficiary, and an employer relying on it may find the "security" was never legally enforceable in the first place.
Conclusion
As we said in our earlier piece, the shift to funded, externalised EOSB savings is throttling the old assumption that gratuity sits within an employer's — or a lender's — reach. The traditional gratuity liability still allows for the deductions employers are used to. But once money crosses into the new investment fund, it's no longer "employer money in waiting." It's the employee's, protected by design.
Claw-back is still possible — the law does not close that door entirely. But it is only possible through due process: either MOHRE approval or a court decision. Anything short of that — a standing instruction, a side-letter, an internal HR policy — is in our opinion not a substitute for the one legally recognised route the resolution provides.
Disclaimer & Note: This article does not constitute legal advice - it is the author's view after having read the laws in question. In case of questions please consult with a qualified legal specialist.
We are curious to hear your perspective on this issue - please do write us on info@gratuityadviser.com !
