UAE end-of-service gratuity is more than just a law requirement for employers — it is a business reward for workers who have given their time and expertise to an enterprise.
As a planning expat considering your next professional step, an HR manager closing employees’ accounts, or a company owner who does not desire to find oneself in trouble, gratuity calculation is important.
What is Gratuity?
Gratuity or end-of-service benefit is a sum of money paid to the outgoing staff upon condition that they’ve worked for one year in continuous employment. Treat it as a thank-you bonus by law, an appreciation and gratitude.
Gratuity in UAE is regulated under Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations and Cabinet Resolution No. 1 of 2022.
It applies to UAE mainland private sector employees and all the free zones (except for some like DIFC and ADGM, which are exempted under other regulations).
What is the Eligibility for Gratuity in UAE?
You are eligible for gratuity on the following conditions
- Twelve months of service: The employee should have been in service for 12 consecutive months on the same employment.
- Substantial employment contract: Limited (fixed-term) or unlimited (open-term).
- Not terminated on account of gross misconduct: Where terminated on grounds of gross misconduct (Article 44 of the law), gratuity may be lost.
- Not a daily wage employee: Daily wage employees are calculated otherwise.
- Resignation after one year: Even if you quit (and not fired), you will get gratuity — but the calculations have special provisions.
Remember These Points while Calculating Gratuity Pay
While calculating, remember also:
- Basic Pay: Gratuity is actually payable only on basic pay (not transport, housing, or bonus allowances).
- Service Time: Service in full years is computed. Half a year is computed pro-rata.
- Type of Contract: Limited or unlimited contract affects application and entitlement of formula.
- Reasons for Leaving: Whether dismissed or resigned could change end payment.
- New UAE Labour Law Rules: From 2023, limited and unlimited contracts distinction no longer applies.
- Intermittent Service: Continuous service must be had; service interruption could make eligibility redundant.
Types of Employment Contracts in the UAE
There are different types of employment contracts in the UAE that you should need to know if you are looking for employment in UAE.
1. Fixed-Term Contract (Limited)
- Clearly defined termination and initiation date (2 or 3 years, e.g.).
- Automatically expires unless extended.
- On early resignation without cause, you will be penalized.
- Calculation of gratuity is made simpler.
2. Open-Term Contract (Unlimited)
- No fixed date of termination; goes on till notice of termination by either party.
- Greater autonomy in the case of resignation and termination.
- Greater conditions to be fulfilled in calculation of gratuity, particularly where resignation is involved.
Gratuity Pay Calculation for Limited Contracts
In the case of a limited contract, gratuity can be paid on basic pay and length of service.
In the Event of Ending
If the employer terminates your contract and you’ve completed more than one year:
- Upto 5 years of service: 21 days’ basic salary for every completed year.
- 5 years and above: 30 days’ basic salary for every completed year following the first five.
Note: The overall gratuity shall not exceed two years’ basic salary.
Steps to Calculate Gratuity for Limited Contracts
- Determine the Basic Salary: Example — AED 10,000 monthly.
- Divide by 30: AED 10,000 ÷ 30 = AED 333.33 (daily wage).
- Multiply by 21 (or 30):
- For less than 5 years’ service: AED 333.33 × 21 = AED 6,999.93 annually.
- For over 5 years’ service: AED 333.33 × 30 = AED 9,999.90 annually.
- By Years of Service: Example — for 4 years’ service: AED 6,999.93 × 4 = AED 27,999.72.
Sample Calculation – Restricted Contract Cancellation
- Normal salary: AED 8,000
- Years of service: 6 years
- 1st 5 years: 21 days × daily wage × 5 years = (8,000 ÷ 30 × 21 × 5) = AED 28,000
- Sixth year: 30 days × daily wage × 1 year = (8,000 ÷ 30 × 30 × 1) = AED 8,000
- Total gratuity = AED 36,000
Gratuity Pay for Unlimited Contracts
The law is not the same in the case of unlimited contracts on resignation or termination.
At Resignation
- 1–3 years service: One-third of 21 days’ basic pay per year.
- 3–5 years: Two-thirds of 21 days’ basic pay every year.
- More than 5 years: 21 days’ pay in full every year for the first 5 years and 30 days every other year after that.
When Termination Occurs?
- Until 5 years: 21 days’ basic salary a year.
- Beyond 5 years: 30 days’ basic salary a year.
Gratuity Calculation on Unlimited Contracts
- Determine basic salary (do not include allowances).
- Compute daily wage = Basic Salary ÷ 30.
- Use proper percentage (one-third, two-thirds, or full rate) in the case of resignation.
- Compute daily wage * 21 or 30 days, depending on years of service.
- Compute * years of service.
Example – Unlimited Contract Resignation
- Basic salary: AED 7,500
- Years of service: 4 years
- Daily wage = AED 7,500 ÷ 30 = AED 250
- Two-thirds of 21 days = 14 days
- 14 × AED 250 = AED 3,500 per year
- Total gratuity = AED 3,500 × 4 = AED 14,000
Resignation Gratuity Calculation
When you resign:
- Look at contract type (limited or unlimited).
- Accurate categorization according to years of service.
- Calculate daily wage from basic pay.
- Proportionate calculation if service in previous year was only partial.
- Calculate qualifying days (21 or 30) and years of service and then multiply with daily wage.
Straight away — below is the step-by-step gratuity guide with a step-by-step calculation table to make it easy for readers to calculate their payment according to contract type, salary, and years of service.
Gratuity Calculation Table
Below is a sample gratuity table for different salaries, years of service, and scenarios under UAE law. Assumptions:
- Only basic salary (allowances not included)
- Service years served (fractional years prorated)
- As per UAE Labour Law (Federal Decree-Law No. 33 of 2021)
| Basic Salary (AED) | Years of Service | Contract Type | Exit Type | Daily Wage | Eligible Days | Gratuity per Year (AED) | Total Gratuity (AED) |
|---|---|---|---|---|---|---|---|
| 6,000 | 2 | Limited | Termination | 200 | 21 | 4,200 | 8,400 |
| 6,000 | 4 | Unlimited | Resignation | 200 | 14 (2/3 of 21) | 2,800 | 11,200 |
| 8,000 | 6 | Limited | Termination | 266.67 | 1st 5 yrs: 21 | ||
| 6th yr: 30 | 5,600 (yrs 1–5) | ||||||
| 8,000 (yr 6) | 36,000 | ||||||
| 10,000 | 3 | Unlimited | Termination | 333.33 | 21 | 7,000 | 21,000 |
| 10,000 | 7 | Unlimited | Termination | 333.33 | First 5 yrs: 21 | ||
| Next 2 yrs: 30 | 7,000 (yrs 1–5)} | ||||||
| 10,000 (years 6–7) | 55,000 | ||||||
| 12,000 | 2 | Unlimited | Resignation | 400 | 7 (1/3 of 21) | 2,800 | 5,600 |
| 12,000 | 10 | Restricted | Cancellation | 400 | First 5 yrs: 21 Next 5 yrs: 30 | 8,400 (yrs 1–5) 12,000 (yrs 6–10) | 102,000 |
Reading the Table
- Basic Salary (AED): Basic pay as written in contract.
- Years of Service: Rounded to nearest full year; prorate for fraction of a year.
- Contract Type: Limited or unlimited by employment contract.
- Exit Type: If you resigned, or if terminated.
- Daily Wage: Basic Salary ÷ 30 days.
- Eligible Days: 21 days in a year (or 30 days after 5 years) with resignation facility on infinite contracts.
- Gratuity per Year: Eligible days × daily wage.
- Total Gratuity: Gratuity per year × years of service (splitted if rates are different after 5 years).
Key Findings from the Table
- Contract type makes a difference — Resignation on an infinite contract can halve payout compared to termination.
- More than 5 years of service — Entitled to 30 days’ salary per year, while now only 21, effectively doubling gratuity.
- Minimum basic pay — Does not cut into other allowances’ gratuity; only basic pay is used.
- Part years of service only — Always done pro-rata (i.e., 3 years and 4 months = 3.33 years).
Pro Tip for Employees
For the ease of a rough estimate of your gratuity without bothering about complicated calculations:
- Step 1: Take your basic monthly salary and divide by 30 (daily wage).
- Step 2: Multiply by 21 (or 30 if applicable).
- Step 3: Multiply by eligible years of service.
- Step 4: Adjust for resignation rules if you’re on an unlimited contract.
FAQs
Here are a few questions and queries that the others have asked that you might find helpful at the same time.
General formula: Gratuity = (Basic Salary ÷ 30) × Eligible Days × Years of Service Where eligible days = 21 or 30 depending on service term.
Federal Decree-Law No. 33 of 2021 states as follows:
• Contracts are always capped (fixed-term) by law.
• End-of-service gratuities are always calculated on the basis of last basic salary.
• Maximum gratuity = 2 years’ basic salary.
– 5 years or less: 21 days’ remuneration per year.
– Over 5 years: 30 days’ remuneration per year.
Why Gratuity Entitlement Matters?
UAE gratuity is a quite significant component of UAE workers’ rights, and it’s actually a reward for workers for time and effort.
Although calculations appear as difficult as they are, dividing them into contract duration and years in figure helps keep things simple.
Essential steps are:
- Determining your base salary.
- Defining if you resigned or were fired.
- Applying the right formula to your contract status.
