Understanding your financial rights when leaving a job in the UAE is crucial for every employee. Whether you’re an expatriate or a local worker, end of service benefits (EOSB) is a lump sum that employees receive based on how long they worked for the company.
The EOSB rules and calculations can be confusing, especially for new immigrants in the UAE. However, Remitly has created this guide to simplify end of service benefits, covering eligibility, how to calculate gratuity, and important updates from the 2024 UAE gratuity law.
Eligibility criteria for end of service benefits
Not all employees in the UAE qualify for EOSB. To be eligible, employees have to meet specific conditions:
- Minimum service requirements: Employees need to have completed at least one year of continuous service with the same employer. Those with less than one year typically do not qualify for gratuity.
- Reason for termination: EOSB eligibility depends on how employment ends. Employees dismissed for misconduct may lose the right to their benefits.
Employment categories and explanations
The UAE labour law (Federal Decree by Law No. 33) applies differently depending on the type of employment:
- Full-time employees: These employees accumulate gratuity based on their years of service.
- Part-time, temporary, and flexible contract employees: Under UAE Cabinet Resolution No. 1 of 2022, gratuity eligibility for these workers depends on their specific contract terms and employer policies. Employees might need to review their contracts to understand their entitlements.
Calculating end of service benefits
Understanding how to calculate end of service benefits is essential, but several key factors might influence the final gratuity amount.
Key factors affecting gratuity calculation
Gratuity in the UAE is calculated based on specific criteria set by labour laws. The main factors influencing the final payout may include:
- Basic salary: You can calculate your gratuity based on the last drawn basic salary, excluding allowances like housing, transportation, or commissions.
- Length of service: Employees with 1 to 5 years of service receive 21 days’ salary per year, while those with more than five years receive 30 days for additional years.
- Employment type: Full-time employees receive gratuity based on their basic salary, while alternative work pattern employees (part-time, temporary, flexible contracts) receive pro-rated amounts based on actual hours worked.
- Employee resignation: An employee’s gratuity may be reduced if the individual resigns before completing 5 years of service.
How to calculate gratuity in the UAE for full-time employees
Follow the below steps to start calculating your gratuity:
Employees with 1 to 5 years of service
Example calculation (AED 50,000 basic salary, 3 years of service)
- Daily wage: AED 50,000 ÷ 30 = AED 1,666.67
- Gratuity: 21 days × AED 1,666.67 × 3 = AED 105,000.00
Employees with more than 5 years of service
Example calculation (AED 50,000 basic salary, 7 years of service)
- First 5 years: 21 days × AED 1,666.67 × 5 = AED 175,000.00
- Additional 2 years: 30 days × AED 1,666.67 × 2 = AED 100,000.00
- Total gratuity: AED 275,000.00
Maximum limit
No matter how long an employee has worked for a company in the UAE, gratuity payments cannot exceed two years’ worth of the basic salary, even if you earn above the minimum wage.
Gratuity for alternative work pattern employees
For part-time, temporary, or flexible contract workers, gratuity is pro-rated based on actual hours worked, compared to a full-time schedule (8 hours/day, 5 days/week).
Example calculation (part-time employee, 7 years of service)
A part-time employee working 20 hours/week (50% of a full-time job) would receive 50% of the gratuity a full-time employee earns.
- Full-time gratuity for 7 years: AED 275,000.00
- Part-time employee (50% workload): AED 137,500.00
This ensures fair compensation while complying with UAE labour laws. Now that you know how to calculate gratuity, let’s explore the latest updates to UAE labour laws and how they impact end of service benefits.
The new gratuity law in UAE 2024
The UAE introduced key reforms to its new EOSB framework in 2024 that affect how gratuity is managed across different employment categories.
Key changes in the 2024 UAE gratuity law
- Standardised gratuity for all employment types
Previously, gratuity calculations varied significantly for full-time, part-time, and flexible workers. The new law standardises the approach, ensuring part-time and flexible employees receive a fair, pro-rated gratuity based on actual hours worked.
- Mandatory employer deposits in secure accounts
The new law now mandates employers to deposit gratuity payments into regulated financial accounts, including those provided by digital banking platforms, to prevent delays or withholding of benefits. This ensures timely payouts and safeguards employee rights.
- Elimination of resignation penalties
Under previous rules, employees resigning before five years of work received reduced gratuity. The 2024 law removes this penalty, allowing all eligible employees to receive their full pro-rated gratuity, regardless of resignation timing.
- Strict 14-day payment deadline
Employers now process and pay end of service benefits within 14 days of an employee’s last working day, preventing prolonged delays in receiving gratuity.
These reforms strengthen employee rights while promoting accountability among employers. Workers need to review their contracts and stay informed about these changes to ensure they receive their rightful end of service benefits.
With these changes to gratuity rules, you might be wondering how they affect both employers and employees.
Impacts and implications for employees and employers
The updated gratuity laws bring significant changes for employees and employers. Here’s a breakdown of what these laws mean for everyone involved:
Impact on employees
- Stronger retirement planning: With gratuity funds now eligible for structured investments, employees can grow their savings more effectively. This shift improves financial literacy and long-term wealth management strategies.
- More career mobility: Employees have greater flexibility to pursue better opportunities without worrying about gratuity losses. This fosters a more competitive and dynamic job market.
- Higher workplace confidence: Legal enforcement of gratuity payments builds trust in employers, ensuring that employees can negotiate benefits and voice concerns without fear of financial repercussions.
- Encouragement for professional growth: With financial security assured, employees may feel more confident in seeking skill development, career transitions, or entrepreneurial ventures.
Impact on employers
- Strategic financial planning: Businesses in the UAE can now integrate gratuity obligations into long-term financial strategies to ensure sustainability.
- Greater employer differentiation: Demonstrating fair compensation practices strengthens employer branding. This makes companies more attractive to skilled job seekers in a competitive labour market.
- Shift toward structured compensation models: Employers may explore performance-based incentives alongside gratuity benefits, aligning their rewards system with modern workforce expectations.
- Regulatory compliance and risk reduction: Aligning with UAE labour laws helps businesses avoid legal disputes, penalties, and reputational damage related to gratuity non-compliance.
- Better financial forecasting: Knowing future gratuity obligations allows companies to manage cash flow more efficiently and plan for workforce changes.
- Competitive edge in recruitment: Companies with well-structured end of service benefits stand out in the job market, attracting top-tier talent.
The 2024 UAE gratuity law not only safeguards employee rights but also encourages structured financial planning for businesses, ultimately fostering a more balanced and transparent employment environment.
Voluntary end of service benefits savings scheme
The UAE has introduced a voluntary end of service benefits savings scheme, approved by the Securities and Commodities Authority (SCA) to enhance financial security for employees in the private sector.
This initiative allows employees to invest their end of service benefits in approved investment funds, helping to grow their savings while protecting against inflation and employer insolvency.
How to make voluntary contributions
Employees can boost their EOSB through voluntary contributions via employer deductions or direct investments.
- Employer contributions: Employees can request their employer to deduct a set amount from their monthly salary, which is then invested into their chosen fund.
- Direct contributions: Employees may also contribute directly by selecting an approved investment fund and setting up regular payments.
Before contributing, employees need to review the terms of the investment funds and consult their employers to ensure the contributions align with their financial goals.
Investment options available with voluntary contributions
The scheme offers different investment options to suit various risk preferences and financial objectives:
- Conservative funds: Focused on preserving capital with stable, lower-risk returns.
- Balanced funds: A mix of equities and fixed-income investments, offering moderate growth with controlled risk.
- Aggressive funds: Targeting higher returns through equity investments, suited for those willing to take more risks.
Currently, Lunate and Daman Investments are among the approved fund managers overseeing the scheme, providing employees with a range of investment strategies.
By participating in the voluntary end of service benefits savings scheme, employees can take advantage of structured investment opportunities, potentially increasing their end of service benefits in line with their long-term financial aspirations.
Ensuring a smooth collection process for end of service benefits in the UAE
Proper documentation ensures a smooth EOSB collection process. Below is a guide to ensure an efficient and seamless settlement process.
Necessary documentation and provisions
To avoid delays, employees can prepare the following documents before initiating the end of service benefits collection process:
- Employment contract: A copy of the original contract outlining employment terms and EOSB entitlements.
- Salary records: Payslips or bank statements confirming salary payments and any allowances.
- Identification documents: A valid Emirates ID and passport copy.
- Resignation or termination letter: An official document stating the reason for leaving the company.
- Notice period compliance: Proof of serving the notice period according to the contract terms, unless waived by the employer.
- Work completion clearance: A confirmation from the employer that all tasks and responsibilities have been completed.
Keeping well-organised employment records throughout the tenure can facilitate a faster settlement process.
Steps to take post-employment for efficient settlement
After concluding employment, consider taking the following steps to ensure a smooth EOSB collection:
- Request final settlement statement: Employees need to formally ask their employer for a detailed statement of gratuity, unused leave encashment, and any other entitlements.
- Review and verify calculations: Cross-check your employer’s calculations with personal records to ensure accuracy.
- Return company assets: Hand over any company property, such as laptops, ID cards, or office equipment, to prevent settlement delays.
- Confirm payment method: Ensure your employer has the correct bank account details for your EOSB transfer.
- Follow up on payment timeline: Employers are required to process EOSB within 14 days of the last working day, according to UAE labour laws. If there are delays, employees can raise a complaint with the Ministry of Human Resources and Emiratisation (MOHRE).
By following these steps and ensuring compliance with UAE labour regulations, employees can claim their end of service benefits smoothly and efficiently. Whether you’re planning to change jobs or preparing for long-term financial stability, being aware of your EOSB entitlements will help you maximise your benefits and avoid unnecessary disputes.
FAQs
What are end of service benefits?
End-of-service benefits (EOSB) are financial payments given to employees when they leave a job in the United Arab Emirates. These benefits are legally mandated and are calculated based on an employee’s basic salary and years of service.
They serve as a financial cushion, helping employees transition smoothly after leaving their jobs. Understanding EOSB entitlements allows employees to plan their finances effectively and ensure they receive the correct payouts.
How to calculate gratuity in UAE for 3 years?
For a full-time employee who has worked for 3 years, gratuity is calculated based on 21 days of basic salary per year of service. The formula is:
- (Basic salary ÷ 30) × 21 × 3
This calculation applies to employees who have completed at least one year of continuous service. It ensures that employees receive a fair payout based on their tenure with the company.
How do I calculate my end of service benefits in the UAE?
The end of service gratuity amount depends on several factors, including contract type, salary and length of service. The general formula for calculation varies based on years of service.
- (Basic salary ÷ 30) × 21 × years of service (if less than 5 years)
- (Basic salary ÷ 30) × 30 × years of service (if more than 5 years)
Additionally, employees under limited contracts may have different calculations depending on the terms outlined in their contracts. It is a good idea to review employment agreements and UAE labour laws to ensure your calculations are accurate.
What is the new gratuity law in UAE 2024?
The 2024 law introduces a voluntary savings scheme, standardises gratuity calculations for all workers, and requires gratuity payments within 14 days of an employee’s last working day. The change aims to enhance financial security and ensure fair treatment for all employees, while also helping businesses streamline their financial planning and compliance.