Gratuity (end-of-service benefit) is a mandatory payment to employees in the UAE when their employment ends. It’s designed as a financial recognition of service and is regulated under Federal Decree-Law No. (33) of 2021 and related Ministry of Human Resources & Emiratisation (MoHRE) guidance. In this article we will be exploring the legal rules, formulas, examples and key principles related to gratuity.
Who is eligible for gratuity?
- Minimum service: The full-time workers from foreign countries can become eligible only after one continuous year of service with that same employer. The unpaid absence dates are excluded while calculating service length.
- Types of workers: a full-time foreign worker in the UAE private sector is eligible for applying. These rules and timelines can differ from nation to nation or according to the criteria of a worker.
The legal basis and key rules (short summary)
- Calculation basis: Gratuity is specifically calculated on the last basic wage of an employee. This excludes allowances like housing and transportation unless these are specified in a contract.
- First five years: For each of the first five years of service, the entitlement is 21 days of basic salary per year.
- After five years: For each year beyond 5 years, entitlement is 30 days of basic salary per year.
- Cap: Total gratuity for a foreign worker cannot exceed two years’ basic wages.
- Payment timeline: Employers are obligated to settle wages and end-of-service entitlements within 14 days of the contract’s end (this is reflected in implementing regulations and Cabinet resolutions related to the law).
Formulae — step-by-step
We’ll use the term Daily Wage = Basic Monthly Salary ÷ 30 (the law uses calendar days). Then:
If total service < 1 year: No gratuity.
If service = 1 to 5 years:
Gratuity = (Basic Salary ÷ 30) × 21 × (Years of service)
If service > 5 years:
Gratuity = [(Basic Salary ÷ 30) × 21 × 5] + [(Basic Salary ÷ 30) × 30 × (Years of service − 5)]
Round reasonably for payout (employers usually pay to 2 decimals; check your employer’s policy or payslip detail).
(You can also use any reputable online Gratuity Calculator to confirm; the UAE authorities and payroll providers publish calculators to simplify these steps).
Practical considerations & common questions
Q. Does it matter if I resign or am terminated?
Under the updated labour law framework, the calculation is consistently applied based on service length and basic salary. Certain provisions have been substantially removed under the newer decree and implementing rules, however, contractual terms and specific circumstances such as gross misconduct can still affect entitlement. If in doubt, check the specific MoHRE guidance and your employment contract.
Q. Are allowances included?
No, gratuity is calculated on basic salary only unless your employment contract explicitly includes a component of salary as “basic”. Most of the employers exclude transportation, hotel or housing allowance unless and until they are mentioned in the contract.
Q. What about part-time, job-sharing, or piecework?
MoHRE looks for a gratuity for a job-sharing or part-time job role that is prorated based on the proportion of hours worked in comparison to a full-time contract. For piecework, there are special rules that use the average daily wage; please check MoHRE’s implementation texts for the exact formulas.
Q. Can the employer deduct debts from gratuity?
Yes, employers are fully eligible for deducting the amount legally owned by an employee. Before this, the employer has to make sure that such deductions must be lawful and documented but are totally subject to the procedure and ruling.
Q. Timeframe to receive payment?
The cabinet and law resolution looks for timely payments, in which employers should process end-of-service entitlements within 14 days of the end date. If it gets delayed, the employee has a right to file a complaint with MoHRE.
Worked examples (digit-by-digit arithmetic)
Example 1: 3 years of service, Basic salary AED 10,000
Step 1: Daily wage = 10,000 ÷ 30 = 333.333333… → round to AED 333.33 for payout.
Step 2: Annual gratuity (per year) = 21 × daily wage.
21 × 333.33 = 6,999.93 → round to AED 6,999.93 (or AED 7,000 depending on employer rounding).
Step 3: For 3 years → Total gratuity = 6,999.93 × 3 = 20,999.79 → commonly paid as AED 20,999.79 (or AED 21,000 rounded).
Result: ≈ AED 21,000 for 3 full years at AED 10,000 basic.
Example 2: 6 years of service, Basic salary AED 12,000
Step 1: Daily wage = 12,000 ÷ 30 = 400.
Step 2: Gratuity for the first 5 years = 21 days × daily wage × 5
21 × 400 = 8,400 per year → 8,400 × 5 = 42,000.
Step 3: Gratuity for year 6 (years beyond 5) = 30 days × daily wage × (6 − 5)
30 × 400 = 12,000.
Step 4: Total gratuity = 42,000 + 12,000 = AED 54,000.
Check cap: Two years’ basic salary = 12,000 × 2 = AED 24,000
Note: The legal cap of two years’ wages must be observed in total; however, the law’s cap applies to foreign workers; in many real-world cases, the computed gratuity may exceed two years’ wages and then must be limited. In this numeric example, the computed gratuity (54,000) is above two years’ wage (24,000), that suggests checking whether the figure should be capped. (Important: Always validate with MoHRE/payroll, the law states total gratuity shall not exceed two years’ wage.)
Clarification on the cap: The two-year cap means employers should not end up paying more than two years’ basic salary as gratuity under the statutory scheme, you should consult payroll/HR or MoHRE if a computed gratuity appears to exceed this cap.
Using a Gratuity Calculator
If you prefer a fast check, the UAE authorities and many payroll providers offer online calculators where you enter your start date, end date and basic salary and get an immediate computation. These calculators mirror the statutory formula and are a convenient cross-check before you speak with HR. Examples include official calculators and reputable payroll tools. (Always cross-check the inputs: use basic salary only and confirm the exact service duration used by the tool).
If there’s a dispute
- Talk to HR first: ask for the gratuity breakdown (daily wage calculation, years counted, any deductions).
- Document everything: copies of contracts, payslips (showing basic salary), join/exit dates.
- File with MoHRE: if the employer delays payment beyond the legal timeframe (14 days) or disputes persist, MoHRE channels exist for complaints and dispute resolution.
Final checklist for employees
- Confirm what your basic salary is (not gross).
- Verify start date and last working day used for computation.
- Ask whether any unpaid absences were deducted from service length.
- Check for deductions and request documentation.
- Use an online gratuity calculator as a sanity check, then confirm with HR.
Closing notes
Gratuity in the UAE is basically a statutory formula and a principle tied to a basic wage and service length in a specific company. It comes with a practical implementation, including aspects such as contract specifics, rounding, alternate saving systems, deductions, caps, and part-time roles are important to consider when managing calculations. If the computed amount differs from the HR figure, the employee can request a clear breakout and can escalate through MoHRE’s dispute resolution channels. For quick checks use official or well-known gratuity calculators and always keep copies of contracts and payslips.
