Understanding how to calculate gratuity in the UAE is essential for employees, especially for those working in the private sector, whether expatriates or locals.
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Gratuity is a statutory right, providing a financial cushion when your employment ends. It's calculated based on specific factors outlined in UAE Labour Law, which ensures fair compensation for the years of service you’ve provided to your employer.
In 2023, the UAE introduced significant reforms to end of service benefits in the UAE, including the option for private-sector employees to join a new voluntary savings scheme. This reform aims to protect workers' savings and ensure more financial security for those nearing the end of their careers
By gaining a clear understanding of how to calculate end of service in UAE, employees can ensure they receive their entitled benefits, making it crucial for those transitioning between jobs or preparing for retirement.
What is Gratuity and End of Service Benefits -EosB in UAE?
Gratuity or the end of service benefits ( EoSB) in the UAE isn’t just a farewell paycheck – it’s your golden reward for all those hours, hard work, and commitment you’ve poured into your job. Think of it as a thank-you bonus from your employer, and trust us, you’ll want every dirham of it. Here’s the catch: it’s based purely on your basic salary, which means no extra fluff like housing or transportation gets factored in. But don’t worry, it still adds up nicely over time.
Here’s the real deal:
You need at least 1 year under your belt – no service, no gratuity.
It applies to both limited-term and unlimited-term contracts, so no one’s left out.
The magic number is 5 years – once you hit that, you start racking up 30 days’ worth of salary for every extra year.
The 2023 labor reforms introduced an optional savings scheme. Yes, you can now invest your gratuity and watch it grow while you’re still employed!
Oh, and if you resign before completing a year? Sorry, no gratuity for you!
The rules may seem strict, but if you know how to navigate them, you’ll walk away with a solid financial cushion. So, why not make your years of service count?
Importance of EoSB as part of employee rights in the UAE
End of Service Benefits (EoSB) in the UAE aren’t just a formality—they’re a cornerstone of employee rights. These benefits ensure that employees are rewarded for their loyalty, hard work, and years of service, offering financial security when they move on from a job. Here's why EoSB is crucial:
Financial Cushion: EoSB provides employees with a lump-sum payment that acts as a financial buffer when they leave a job, helping with the transition to new opportunities.
Legal Protection: Employees in the UAE, whether expatriates or locals, are legally entitled to these benefits, ensuring that their efforts are recognized, regardless of the reason for termination.
Incentive for Retention: Knowing that their EoSB accumulates over time, employees are often motivated to stay with a company longer, benefiting both the employee and the employer.
Recent Reforms: The 2023 labor law reforms introduced more flexibility, allowing employees to invest their gratuity through savings schemes, adding value beyond the traditional lump-sum payment.
In short, EoSB is a key part of employment in the UAE, ensuring that employees are fairly compensated at the end of their service, while also providing a sense of security and reward for their dedication.
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Types of Employment Contracts in the UAE and How to Calculate Gratuity
Gratuity in the UAE depends on your type of employment contract. Here’s a breakdown of the two main types of contracts—limited-term and unlimited-term—and how they affect your gratuity calculation. Let’s make it simple and clear!
1. Calculating Gratuity for a Limited-Term Contract
This contract has a clear start and end date. It’s common for project-based jobs or jobs tied to a specific period, like 2 years.
Example:If you’re hired to work on a construction project for 3 years, your contract will have an exact end date. Once the project is complete, your contract ends, and you’re entitled to gratuity.
Less than 5 years: You get 21 days' salary for each year of service.
More than 5 years: For each year after the first five, you’ll get 30 days' salary.
Example Calculation:If your basic salary is AED 10,000 and you’ve worked for 6 years, your gratuity would be:
First 5 years: 10,000×21÷30=7,00010,000 \times 21 \div 30 = 7,00010,000×21÷30=7,000 (per year)
Total for 5 years: 7,000×5=35,0007,000 \times 5 = 35,0007,000×5=35,000
Year 6: 10,000×30÷30=10,00010,000 \times 30 \div 30 = 10,00010,000×30÷30=10,000
Total Gratuity: 35,000+10,000=AED45,00035,000 + 10,000 = AED 45,00035,000+10,000=AED45,000
2. Calculating Gratuity for an Unlimited-Term Contract
Definition: This contract doesn’t have a fixed end date. Either you or your employer can end it, but both need to provide notice.
Example:You’ve been working at a tech company for 7 years without a specific end date. You’re planning to resign.
If you resign after 1-3 years, you’ll get one-third of 21 days’ salary for each year.
After 3-5 years, you’ll get two-thirds of 21 days’ salary for each year.
After 5 years, you’re entitled to the full 21 days’ salary per year, plus 30 days’ salary for each year after the first five.
Example Calculation:Let’s say your basic salary is AED 12,000 and you’ve worked for 4 years:
You’ll get two-thirds of 21 days’ salary per year.
12,000×21÷30=8,40012,000 \times 21 \div 30 = 8,40012,000×21÷30=8,400
8,400×2÷3=5,6008,400 \times 2 \div 3 = 5,6008,400×2÷3=5,600 (per year)
Total Gratuity: 5,600×4=AED22,4005,600 \times 4 = AED 22,4005,600×4=AED22,400
3. 2023 Labor Law Reforms: Transition to Limited Contracts
What Changed?: Starting in 2023, all contracts are being converted into limited-term contracts with a maximum of 3 years. This simplifies the process for both employers and employees.
Example:If you’ve been working on an unlimited contract, it will now be converted to a limited-term one. Don’t worry, though—this just streamlines your contract terms. Your gratuity rights stay the same based on how long you’ve worked!
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Key Gratuity Calculation Rules Under the New Labor Law
The UAE’s new labor law has made gratuity calculation more transparent, but there are a few key rules you need to know to make sure you get what you're entitled to.
Minimum one year of service: To be eligible for gratuity, you must complete at least one continuous year of service. If you resign or are terminated before completing this, you won’t qualify for gratuity.
Example: If you’ve worked for 11 months and decide to leave, unfortunately, you’re not eligible for any gratuity.
Gratuity is calculated based on your basic salary: This means that only your basic salary counts toward the gratuity, not any allowances like housing, transportation, or bonuses. This makes it crucial to know your basic salary amount when calculating your benefits.
Example: If your basic salary is AED 15,000, but with allowances, you earn AED 20,000, your gratuity will only be calculated on the AED 15,000.
Unpaid leave days are not counted: Any unpaid leave you take during your employment period is excluded from the total number of days considered for gratuity calculation. This means that even if you’ve worked for 2 years, if you took 3 months of unpaid leave, the gratuity will only count for 21 months.
Example: Let’s say you’ve worked for 3 years but took 2 months of unpaid leave. Your gratuity will be calculated as if you worked 2 years and 10 months, reducing the final amount.
Gratuity for Employees with Less Than Five Years of Service
For employees who have worked less than five years, gratuity is calculated at 21 days’ basic salary for each year of service. This rule applies whether you resign or are terminated, as long as you've completed at least one year of continuous service.
Formula:
Gratuity = (Basic Salary×21)÷30(\text{Basic Salary} \times 21) \div 30(Basic Salary×21)÷30
This formula takes your basic monthly salary, multiplies it by 21 days, and then divides it by 30 (to represent the number of days in a month). The result is the gratuity owed to you for each year of service.
Let’s say your basic salary is AED 10,000, and you’ve worked for 3 years.
1.Gratuity for one year of service:
10,000×21÷30=7,00010,000 \times 21 \div 30 = 7,00010,000×21÷30=7,000 AED
2.Gratuity for 3 years:
7,000×3=21,0007,000 \times 3 = 21,0007,000×3=21,000 AED
So, if you’ve worked for 3 years, you would be entitled to AED 21,000 as your gratuity.
Gratuity for Employees with More Than Five Years of Service
For employees who have worked more than five years, the gratuity calculation becomes more generous. While the first five years are calculated based on 21 days' basic salary per year, for every additional year beyond five, you are entitled to 30 days' basic salary for each year of service. However, there is a maximum limit — your total gratuity cannot exceed the equivalent of two years' salary.
First 5 years: Gratuity is based on 21 days' salary for each of the first five years.
Years beyond 5: Gratuity increases to 30 days' salary for each additional year of service.
Let’s say your basic salary is AED 12,000, and you’ve worked for 7 years.
1.Gratuity for the first 5 years:
12,000×21÷30=8,40012,000 \times 21 \div 30 = 8,40012,000×21÷30=8,400 AED (per year)
For 5 years: 8,400×5=42,0008,400 \times 5 = 42,0008,400×5=42,000 AED
2.Gratuity for the 6th and 7th year:
12,000×30÷30=12,00012,000 \times 30 \div 30 = 12,00012,000×30÷30=12,000 AED (per year)
For 2 additional years: 12,000×2=24,00012,000 \times 2 = 24,00012,000×2=24,000 AED
Total Gratuity:First 5 years = AED 42,0006th & 7th years = AED 24,000Grand Total = AED 66,000
Regardless of how long you’ve worked, the total gratuity cannot exceed two years’ worth of basic salary. For instance, if your basic salary is AED 12,000, the maximum gratuity you can receive is AED 288,000 (12,000 x 24 months).
Changes Introduced in 2023 to End of Service Benefits
In 2023, the UAE introduced significant reforms to the End of Service Benefits (EoSB), offering an alternative option in the form of a Savings Scheme. These changes aim to provide more flexibility and financial security to employees, especially those in the private sector.
1.Introduction of the Savings Scheme as an Alternative Option
The new Savings Scheme allows employees to invest their gratuity in licensed investment funds. This is a significant shift from the traditional lump-sum gratuity payment model, offering employees the chance to grow their savings over time.
2.Voluntary Participation in the Scheme
Both employers and employees can voluntarily participate in the scheme. It’s not mandatory, meaning companies and workers can choose whether or not to opt in. However, once enrolled, participation becomes mandatory for selected employees, and employers are responsible for making monthly contributions.
3.Investment Options
The scheme offers a range of investment options to suit different risk preferences:
Sharia-compliant funds: These adhere to Islamic financial principles.
Risk-based funds: Employees can choose low, medium, or high-risk investment portfolios, depending on their comfort level.
Capital-protected funds: Designed for unskilled or low-wage workers, these funds guarantee the capital without exposing it to market risks.
4.Contribution Percentages
Employers contribute a percentage of the employee's basic salary to the investment fund:
5.83% of the employee’s basic salary if the employee has completed less than five years of service.
8.33% of the basic salary for employees who have served for more than five years.
How to Calculate Gratuity: Step-by-Step Guide
Calculating your end-of-service gratuity is essential to know exactly what you’re entitled to when leaving a job in the UAE. Whether you're using tools like the Dubai Development Authority’s gratuity calculator or doing the math manually, it’s important to factor in your years of service, contract type, and any unpaid leave. Here’s a simple guide to help you understand how to calculate gratuity in the UAE for different scenarios.
The easiest way to figure out your gratuity is by using the Dubai Development Authority's gratuity calculator. This tool requires you to enter details like:
Your start and end dates of service.
Your basic salary (remember, this excludes any allowances).
The type of contract (limited or unlimited).
Several factors influence how your gratuity is calculated:
Contract Type: Whether you have a limited or unlimited contract affects the gratuity amount.
Years of Service: The longer you serve, the more gratuity you are entitled to. After 5 years, the calculation shifts to 30 days' salary per year.
Unpaid Leave: Any unpaid leave is excluded from the total service period, reducing the amount of gratuity you receive.
If you've worked for 2 years on a limited contract, here’s how to calculate your gratuity:
Basic salary: AED 10,000
Gratuity: 10,000×21÷30=7,00010,000 \times 21 \div 30 = 7,00010,000×21÷30=7,000 (for one year)
For 2 years: 7,000×2=14,0007,000 \times 2 = 14,0007,000×2=14,000 AED
You would receive AED 14,000 as gratuity after 2 years of service.
For a limited contract, gratuity is calculated at 21 days' salary for each year of service for the first 5 years. If your basic salary is AED 12,000, and you’ve worked 4 years:
Gratuity: 12,000×21÷30=8,40012,000 \times 21 \div 30 = 8,40012,000×21÷30=8,400 AED (for one year)
For 4 years: 8,400×4=33,6008,400 \times 4 = 33,6008,400×4=33,600 AED
You would receive AED 33,600 after 4 years on a limited contract.
Let’s assume you have worked for 4 years on an unlimited contract with a basic salary of AED 8,000:
Gratuity for each year: 8,000×21÷30=5,6008,000 \times 21 \div 30 = 5,6008,000×21÷30=5,600 AED
For 4 years: 5,600×4=22,4005,600 \times 4 = 22,4005,600×4=22,400 AED
You would be entitled to AED 22,400 after 4 years of service.
For employees who have served 6 years, the gratuity calculation changes after the 5th year. Suppose your basic salary is AED 15,000:
First 5 years: 15,000×21÷30=10,50015,000 \times 21 \div 30 = 10,50015,000×21÷30=10,500 AED per year
For 5 years: 10,500×5=52,50010,500 \times 5 = 52,50010,500×5=52,500 AED
6th year: 15,000×30÷30=15,00015,000 \times 30 \div 30 = 15,00015,000×30÷30=15,000 AED
Total gratuity for 6 years: 52,500+15,000=67,50052,500 + 15,000 = 67,50052,500+15,000=67,500 AED
If an employee has taken 2 months of unpaid leave during a 5-year service period, these 2 months are excluded from the gratuity calculation. Let’s assume a basic salary of AED 10,000:
Regular gratuity for 5 years: 10,000×21÷30=7,00010,000 \times 21 \div 30 = 7,00010,000×21÷30=7,000 AED per year
For 5 years: 7,000×5=35,0007,000 \times 5 = 35,0007,000×5=35,000 AED
Deduct 2 months (approx. 1/6th of a year): 35,000÷6=5,83335,000 \div 6 = 5,83335,000÷6=5,833 AED
Adjusted gratuity: 35,000−5,833=29,16735,000 - 5,833 = 29,16735,000−5,833=29,167 AED
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When Gratuity is Not Applicable
Although gratuity is a standard benefit for employees in the UAE, there are specific situations where it does not apply. Understanding these scenarios helps employees know when they may not be entitled to end-of-service benefits.
If an employee resigns before completing one full year of continuous service, they are not eligible for gratuity. The UAE Labor Law is clear on this: you must work at least 12 months before becoming entitled to gratuity.
Example:If you resign after 10 months of service, even if you’ve performed well, you won’t receive any gratuity.
If an employee is terminated for gross misconduct or behavior violating the company's policies as outlined in Article 120 of the UAE Labor Law, they lose the right to gratuity. Misconduct includes:
Failing to perform basic duties.
Revealing business secrets.
Engaging in illegal activities or causing substantial financial loss to the company.
Being absent without notice for more than 7 consecutive days or 20 non-consecutive days.
Example:If you are terminated for repeatedly violating company policies or serious misconduct (e.g., theft or fraud), you will forfeit your right to gratuity, regardless of how long you’ve worked.
Unfair Dismissal and Its Impact on Gratuity
Unfair dismissal in the UAE refers to the termination of an employee’s contract without a valid reason or due process as outlined in UAE Labour Law. This situation can occur when an employer terminates an employee without providing proper justification or without following legal procedures. If an employee is a victim of unfair dismissal, it can have significant implications on their gratuity and additional compensation.
Unfair dismissal occurs when an employer terminates an employee’s contract without just cause or in violation of the employee’s rights. This can include termination without following proper disciplinary procedures, dismissing an employee due to discrimination, or for reporting workplace violations (whistleblowing).
Example:If an employee is terminated without being given a valid reason, or for exercising their legal rights (e.g., reporting safety issues), it is considered unfair dismissal.
In cases of unfair dismissal, the UAE law entitles employees to compensation, which can be up to three months’ salary. This is in addition to any outstanding salaries or entitlements.
Example:If your basic salary is AED 15,000, and you are unfairly dismissed, you could be awarded up to AED 45,000 in compensation (3 months of salary).
If you are unfairly dismissed, you are still entitled to receive your full gratuity, calculated based on your years of service and basic salary. Additionally, employees may receive compensation along with gratuity, enhancing their financial protection.
Unfair dismissal does not impact your gratuity rights as long as you have completed the required period of service (minimum one year).
Example:If an employee has served for 6 years with a basic salary of AED 12,000 and is unfairly dismissed, they are entitled to:
Gratuity: AED 67,500 (calculated as per gratuity rules for more than 5 years).
Unfair dismissal compensation: AED 36,000 (3 months’ salary).
Total Compensation: AED 103,500 (gratuity + compensation).
Gratuity in Case of Employer Bankruptcy or Default
In the event of an employer’s bankruptcy or default, employees’ gratuity rights in the UAE are protected through several mechanisms. The 2023 labor reforms introduced additional safeguards, particularly through the Savings Scheme, ensuring that employees receive their entitlements even in challenging financial circumstances for the employer.
The Savings Scheme, introduced in 2023, provides an alternative option for employees to invest their end-of-service benefits into licensed investment funds. This scheme protects employees from losing their gratuity if their employer goes bankrupt or defaults, as the funds are securely managed by approved investment bodies.
Employers who opt into the Savings Scheme contribute to the investment fund on behalf of their employees on a monthly basis. This ensures that, regardless of the employer’s financial condition, employees’ gratuity is safely accumulated and separated from the company’s finances.
Example:If your employer declares bankruptcy but you’re part of the Savings Scheme, your gratuity is protected and managed through a third-party investment fund. You’ll receive your gratuity, even if the company has no remaining assets.
The Ministry of Human Resources and Emiratisation (MoHRE) and the Securities and Commodities Authority (SCA) oversee the implementation and regulation of the Savings Scheme. They are responsible for ensuring that employers comply with their obligations, including timely contributions to the investment funds.
MoHRE monitors labor-related complaints, especially those regarding unpaid gratuities, and ensures that employees’ rights are enforced in cases of bankruptcy or employer default.
The SCA supervises the performance of the investment funds and resolves disputes related to the management of the gratuity savings.
Example:If an employer fails to contribute to the fund, MoHRE can step in to enforce the payment, while SCA ensures that the funds invested remain safe and managed properly.
Frequently Asked Questions (FAQs)
How to calculate gratuity in UAE for unlimited contract?
To calculate gratuity for an unlimited contract in the UAE:
If you’ve worked 1-3 years, you receive one-third of 21 days’ basic salary for each year.
For 3-5 years, you’re entitled to two-thirds of 21 days’ basic salary for each year.
After 5 years, you receive the full 21 days' salary for the first five years, and 30 days' salary for each additional year of service.
How is gratuity calculated in new labor law?
Under the new UAE labor law, gratuity is calculated based on the basic salary and the employee's years of service. Employees are entitled to:
21 days' salary for each year of service for the first five years.
30 days' salary for every additional year after the fifth year. Unpaid leave days are excluded from the total period of service.
What is the new rule for gratuity in the UAE?
The new rule for gratuity in the UAE allows employees to participate in a voluntary savings scheme introduced in 2023. This scheme provides employees the option to invest their gratuity in approved funds. The traditional calculation remains unchanged, offering 21 days’ salary for the first five years and 30 days’ salary for each year beyond five.
What is the new gratuity calculation formula format?
The gratuity calculation formula under the new labor law is:
Gratuity=(Basic Salary×Days Entitled30)×Years of Service\text{Gratuity} = \left( \frac{\text{Basic Salary} \times \text{Days Entitled}}{30} \right) \times \text{Years of Service}Gratuity=(30Basic Salary×Days Entitled)×Years of Service
For the first 5 years: 21 days’ salary.
After 5 years: 30 days’ salary per year.
How to calculate gratuity in UAE MoHRE?
To calculate gratuity using the MoHRE guidelines:
Multiply your basic salary by 21 days for each year of service (for the first five years).
Multiply your basic salary by 30 days for each year of service beyond five years.
Divide by 30 to account for days in a month. Example: Basic salary AED 10,000, worked for 7 years:
(10,000×21÷30)×5+(10,000×30÷30)×2=AED105,000(10,000 \times 21 \div 30) \times 5 + (10,000 \times 30 \div 30) \times 2 = AED 105,000(10,000×21÷30)×5+(10,000×30÷30)×2=AED105,000
What is the basic salary percentage in UAE Labour law 2024?
In the UAE Labour Law 2024, the basic salary must be clearly defined in the employment contract. While there’s no specific percentage mandated by law, it is common for basic salary to constitute around 60-70% of the total salary package, with the remainder being allowances.
What is the new rule for labor contract in UAE?
The new rule for labor contracts in the UAE, introduced in 2023, requires all employment contracts to be converted into limited-term contracts with a maximum duration of 3 years. This applies to both new and existing contracts, ensuring standardization and transparency in employment terms.
What happens if my employer refuses to pay my gratuity?
If your employer refuses to pay your gratuity, you can file a complaint with the Ministry of Human Resources and Emiratisation (MoHRE). MoHRE will investigate and, if necessary, escalate the case to the Labour Court. The law mandates that employers must settle end-of-service gratuity within 14 days of the contract’s termination.
Can I still receive gratuity if I resign?
Yes, you are eligible for gratuity if you resign, provided you have completed at least one year of continuous service. If you’ve worked for 1-3 years, you will receive one-third of the 21 days' salary per year. For 3-5 years, you will receive two-thirds, and for more than 5 years, you are entitled to the full gratuity.
How does the Savings Scheme affect my gratuity entitlement?
The Savings Scheme allows employees to invest their gratuity into licensed funds. This scheme is optional and offers additional benefits by allowing employees to grow their savings over time. The traditional gratuity entitlement remains unchanged, but participating in the scheme provides a structured way to manage and potentially increase the value of your end-of-service benefits through investments.
Can public sector employees participate in the scheme?
Yes, public sector employees in the UAE can opt to participate in the Savings Scheme. This voluntary scheme is available for both public and private sector employees, offering them the same investment options and benefits to manage their end-of-service savings.
What is the maximum gratuity I can receive?
The maximum gratuity you can receive is two years' worth of your basic salary. Regardless of how long you have worked, your gratuity cannot exceed the equivalent of your 24 months’ basic salary as per UAE labor law.
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Disclaimer: The information presented in this article is for general informational purposes only. The details provided are based on the best information available at the time of publication and may be subject to change without notice due to potential updates in educational policies or scheduling adjustments by the respective authorities. Readers are advised to contact the relevant offices directly for the most accurate and current information.