Working in the UAE is an exciting prospect, but understanding your end-of-service benefits, especially gratuity, is key to preparing yourself financially when the time comes to leave a job. In the UAE, gratuity is a lump-sum payment that provides support for your next step.
At Remitly, we’ve created this guide to cover gratuity calculations, eligibility rules, and how different situations like resignation or termination affect payouts. With this knowledge, you can plan ahead with confidence.
Understanding the rules for gratuity in the UAE
The UAE Labour Law (Federal Decree-Law No. 33 of 2021) governs gratuity payments in the country, outlining how they are calculated. Before diving into the calculation process, let’s take a look at how to know if you’re eligible.
Eligibility for gratuity
To qualify for gratuity in the UAE, you need to meet the following conditions:
- Minimum service requirements: You must complete at least one year of continuous service with the same employer.
- Employment type: You need to be under a labour contract (limited-term or unlimited-term).
After understanding the eligibility requirements, you also need to consider how the type of contract you have can impact your gratuity.
Impact of contract type on gratuity
The UAE’s new labour law makes it easier for workers and employers to understand gratuity entitlements, especially with the general transition to fixed-term contracts.
Key changes include:
- Uniform gratuity rules: All employees now use the same gratuity calculation method, which ensures consistency in end-of-service benefits.
- Reduced disputes: With a single contract type, gratuity eligibility is clearer, reducing uncertainty and legal conflicts.
This shift makes gratuity calculations easier for all employees in the UAE. Once you confirm that you qualify, you’ll need to learn how to calculate your final payouts to ensure you receive the correct amount.
Gratuity calculation in the UAE (2024)
Knowing how to calculate gratuity is essential for UAE employers and employees as it ensures compliance and better financial planning.
Key factors affecting gratuity calculation
Several factors affect how gratuity is calculated in the UAE:
- Duration of continuous service
Gratuity is mainly calculated based on how long you have worked for the company rather than the type of contract you have. Employees who work for more than five years receive higher end-of-service benefits.
- One to five years: Employees receive 21 days of basic salary per year of service.
- More than five years: Employees receive 30 days of basic salary per year for each additional year.
- Final basic salary
You can calculate gratuity based on your last basic drawn salary, excluding transportation and rent allowances. Since basic salary determines gratuity, those with higher base pay receive larger end-of-service benefits.
While the UAE has no single minimum wage, the average salary is around AED 13,000 per month (around GBP 3,200).
- Maximum gratuity gap
To ensure fairness and financial stability, the UAE caps gratuity at a maximum of two years of basic salary. This means that no matter how long you work for a company, your total gratuity cannot exceed the equivalent of 24 months’ salary after the first five years. This balances fair compensation for employees while keeping costs manageable for employers.
- Influence of unpaid leave on gratuity
Taking unpaid leave can also affect how much gratuity you get because it shortens the total time you work. Most UAE employers deduct these periods when determining gratuity. So, to avoid surprises, it’s a good idea to check with your human resources (HR) department to understand how unpaid leave can impact your end-of-service benefits.
With these key factors in mind, let’s break down the step-by-step process for calculating gratuity in the UAE.
How to calculate gratuity in the UAE
Here’s a simple breakdown for limited contracts, with an example:
- Basic monthly salary: AED 30,000
- Total years worked: Four years
Step 1: Calculate your daily wage
Divide your basic salary by 30 (average days in a month):
- AED 30,000 ÷ 30 = AED 1,000 (daily wage)
Step 2: Calculate gratuity for each year
Since you’ve worked for less than five years, you’re entitled to 21 days’ salary per year:
- AED 1,000 × 21 = AED 21,000 per year
Step 3: Multiply by the number of years worked
- AED 21,000 × 4 = AED 84,000
At the end of four years of service, your total gratuity payout would be AED 84,000.
How much gratuity will I get after five years?
If you work for five years or more, your gratuity calculation changes:
- After five years, you’re entitled to 30 days’ salary per year.
Example for someone who has worked for seven years:
- For the first five years:
(AED 1,000 × 21) × 5 = AED 105,000
- For the final two years:
(AED 1,000 × 30) × 2 = AED 60,000
Total gratuity for seven years = AED 105,000 + AED 60,000 = AED 165,000.
Using gratuity calculators for quick estimates
Online gratuity calculators can make your calculations and financial planning easier. Below are some reliable gratuity calculators available in the UAE:
- Gulf News gratuity calculator: Quickly estimates your gratuity based on inputted information
- The National’s gratuity calculator: Provides an estimation in line with UAE labour laws.
- Virtual Accountants LLC gratuity calculator: An easy-to-use tool for accurate end-of-service benefit calculations
- Dubai Development Authority (DDA) gratuity calculator: A simple and interactive tool designed to help employees estimate their gratuity payout.
These calculators give useful estimates, but in order to ensure a precise calculation and legal compliance, you might consider referring to the UAE Labour Law or consulting a financial legal expert.
Considerations for termination and resignation
Whether you resign or your contract is terminated also plays a role in determining gratuity entitlements.
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Gratuity entitlement when resigning
If you resign, you are entitled to gratuity. The amount will be calculated based on your years of service and the type of contract you have. You’ll need to provide proper notice to avoid deductions from your final payment.
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Gratuity entitlement when terminated
If your employer terminates your contract, gratuity is calculated using the same structure as for resignations. However, if you’re dismissed for misconduct under Article 120 of the UAE Labour Law, you may forfeit your gratuity.
Serious offences such as fraud, breach of trust, or repeated failure to perform duties can lead to disqualification. You’ll need to review your contract to ensure compliance with workplace policies and safeguard your entitlements.
Specific exemptions under UAE law
While most employees are entitled to gratuity, there are a few exceptions. Let’s look at workers who might not be eligible for gratuity under UAE law:
Employees in the government sector
Government employees in the UAE are governed by separate employment regulations and benefit schemes, which differ from those in the private sector.
Instead of gratuity, these employees may receive alternative end-of-service benefits, such as pension schemes or retirement packages determined by their respective government entities.
Domestic workers
Housemaids, gardeners, drivers, nannies, and other domestic workers’ gratuities are covered under the UAE’s Domestic Labour Law, which operates separately from the labour law governing private sector employees.
These employees’ employment terms, including end-of-service benefits, are regulated by Ministerial Decree No. 675 of 2022, which outlines specific rights such as paid leave and compensation structures.
Workers under free-zone regulations
Many UAE free zones, such as Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), operate under independent employment laws that can differ from the UAE labour law.
These laws may have their own end-of-service benefits or pension schemes, which can exempt employees from standard gratuity calculations.
Common misconceptions about gratuity entitlements
Some workers think gratuity is always paid when leaving a job in the UAE, but that’s not always the case. Here are some common misconceptions:
Gratuity is paid immediately after resignation or termination
Many employees believe that gratuity is paid as soon as they resign or terminate their contract. However, employers are given 14 days to process the payment, and delays can occur due to administrative procedures, final settlement calculations, and disputes over entitlements.
Gratuity is without deductions
While gratuity is generally tax-free in the UAE, certain deductions may still apply, such as outstanding loans, visa costs, and other financial obligations to the employer.
Gratuity covers unused leave and other benefits
Employees often assume that gratuity includes compensation for unused leave, flight tickets, and other benefits. In reality, gratuity is a separate calculation based only on the basic salary; other entitlements, like leave balance payouts, are handled separately in the final settlement.
Part-time employees are not entitled to gratuity
Under UAE labour laws, part-time employees may also be entitled to a gratuity payout, depending on their contract terms and length of service. Part-time workers still need to check their contracts and UAE policies to understand their rights.
Gratuity is lost if the company shuts down
While it can be more complicated in such cases, UAE labour laws ensure that employees still have a right to their end-of-service benefits. If a company closes down without paying gratuity, affected employees can file a claim with the authorities to recover what they’re owed. In some cases, government funds or legal processes may help secure the payments.
Gratuity covers all employees regardless of nationality
While UAE law applies to most private sector employees, some workers (especially domestic workers) have different gratuity rules under separate labour regulations. Understanding which law applies based on the sector and job type is crucial to knowing your entitlements.
Gratuity is unaffected by changes in labour laws
Many employees believe that once their contract is signed, their gratuity entitlement remains unchanged. However, labour laws in the UAE can evolve, impacting gratuity calculations, eligibility, and payout structures. Employees have to stay updated to understand their rights accurately.
Accurate gratuity calculations are essential for ensuring fair end-of-service benefits and financial security in the UAE. By staying informed and using reliable calculation tools, you can navigate your financial future while ensuring compliance with UAE labour laws.
FAQs
What are the rules for gratuity in the UAE?
Gratuity is a statutory end-of-service benefit in the UAE, calculated based on an employee’s basic salary and years of service. Employees have to complete at least one year of continuous service to qualify. The amount varies depending on whether an employee resigns or is terminated, and is governed by UAE labour laws.
How is gratuity calculated in the UAE?
Gratuity in the UAE is calculated based on an employee’s last basic salary, excluding allowances such as bonuses or commissions. For the first five years of service, gratuity is equivalent to 21 days of basic salary per year. After completing five years, gratuity is equivalent to 30 days of basic salary per year for each additional year of service.
Are you entitled to gratuity if you resign?
Yes, employees who resign may still be entitled to gratuity, but the amount depends on their length of service. An employee who resigns before completing one year is not eligible for gratuity. If you have worked for a year or more, the amount of gratuity you are entitled to depends on length of service and the type of contract you have.
Does unpaid leave affect gratuity in the UAE?
Yes, unpaid leave affects gratuity calculations, as it is not counted as part of an employee’s continuous service period. This means that if an employee takes an extended unpaid leave, their gratuity may be reduced since only actual working days are considered.
Employees need to keep track of their leave records and clarify any concerns with their employer or HR department to avoid unexpected reductions in their gratuity entitlement.