The implementation of VAT in the UAE in 2018 will mean extra expenditure for businesses and could result in employee reward schemes being slimmed down to accommodate this additional cost. Simon Stephens, head of Middle East at Frazer Jones, talks about how talent acquisition will be affected if reward packages are no longer as attractive, and looks at the financial pros and cons facing expat talent thinking of coming to the region to work.
Why have many employers in the UAE scaled back their benefits packages? What are they offering to attract talent instead?
This is a general trend in the region. Since the global financial crisis, employers globally are looking at cost more closely. In the GCC, some sectors are feeling the knock-on effect of the oil price drop, which in turn has impacted on government spending and major infrastructure projects.
While there is an erosion of the rewards landscape in the Middle East to compensate for anticipated VAT costs, it’s not a depletion of reward in its entirety. Besides, with the exchange rate as it is at moment, and the dollar so strong, it can still be a very attractive proposition for people coming over here – someone from Europe, for example, where employees are currently paying PAYE, national insurance and VAT.
The VAT that will be implemented in the UAE is five per cent; it’s still significantly less than other countries around the world and could be considered a negligible increase, with only the lowest paid workers with a smaller disposable income really feeling an impact. It’s not going to make a significant difference for mid- to senior-level employees.
From an employer’s perspective, VAT could have a negative impact on margins – every business that is VAT-registered will need to assess, record and report its VAT obligation. Additional employees or external tax consultants may well need to be engaged.
With the increasing cost of education in the UAE, you predict that the 30-50 age group (statistically more likely to have children in school) could be financially disadvantaged coming to the region – especially if benefits packages are scaled down. What impact could this have on employers?
Dubai is an expensive place to live with a family if the employer does not pay education fees. Postings to Saudi and Qatar, by contrast, often include an education allowance.
There could be significant employee demographic changes. The 20-30 and 50-60+ age groups are more likely to be attracted to the region as they don’t generally have to bear school fees. Generally speaking, many employers tend to believe that those in the 30-50 bracket are key to a company’s future success, due to the length of their experience and the working years they still have remaining.
Is there an argument for higher fixed pay and better benefits to entice talent, as opposed to bonus schemes?
If someone offers a tangible benefit such as cash, in comparison to an intangible benefit, you have the ‘one in the hand is worth two in the bush’ scenario. If you’re leaving home to work in another part of the world, sometimes the motivation is financial gain and sometimes it’s from a genuine career development perspective.
If an employer is offering a bonus – is it something you can expect and can factor into what you will receive or is it just a hearsay figure put into a contract? Organisations should look at how effective bonuses are at attracting and retaining employees, and consider if the time and money spent on implementing and managing them could be diverted into fixed income. Is the incentive to join the organisation the bonus they might get in two or three years’ time? An employee would probably just prefer a higher salary.
