Table of Contents
- End-of-service gratuity calculation in the UAE: What you must Know
- How to Calculate Gratuity – Formula
- Gratuity Calculation Example
- Significant Disclosure: Resignation vs Termination
- Limited vs Unlimited Contract Clarification
- Maximum Gratuity Limit
- When Must Gratuity Be Paid?
- Unpaid leave days not be considered when calculating End of Service benefits.
- Legal Provision relating to End of Service Benefits- Article (51)
- When should an employee expect to receive their gratuity according to the new law?
- Legal Consultants in Dubai
- FAQ’s
End-of-service gratuity calculation in the UAE is a vital aspect of employment, ensuring fair compensation for employees upon completion of their service. This article provides a comprehensive guide to the calculation process, including factors such as length of service, final salary, and applicable formulas. Recent updates and considerations are also highlighted, empowering employers and employees to navigate the gratuity calculation process clearly and confidently. It is essential to consult with legal professionals or authorities for specific circumstances and to ensure compliance with current regulations. Calculating your end-of-service gratuity is a simple and transparent process under UAE labour law. Recently, the UAE Ministry of Human Resources and Emiratization (MoHRE) made an announcement clarifying that unpaid leave days should not be considered when calculating the final gratuity amount.
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End-of-service gratuity calculation in the UAE: What you must Know
The UAE gratuity, also known as end-of-service gratuity, is a payment made to employees upon the termination of their employment contract in the United Arab Emirates. Here’s what you need to know about UAE gratuity:
- Calculation Basis: The gratuity is calculated based on the employee’s basic salary, which is the fixed portion of the salary before any allowances or additional benefits are added. The calculation does not include allowances such as housing, conveyance, utilities, furniture, etc.
- Duration of Service: The amount of gratuity payment depends on the duration of an employee’s service in a company. Under the current law, employees are entitled to full gratuity regardless of whether they resign or are terminated, provided they complete at least one year of service..
- First Five Years: For the first five years of service, an employee is entitled to receive up to a 21-day salary payment for each year. This means that if you resign or are terminated during this period, you will receive a gratuity payment equivalent to 21 days’ worth of your basic salary for each year of service.
- After Five Years: Employees who have completed more than five years of continuous service with the same employer are eligible for an increased gratuity rate. For each year beyond the initial five years, the gratuity payment is increased to 30 days’ worth of the basic salary.
- Unpaid Leave Deduction: As per a recent update, any unpaid leave days taken by an employee will be deducted from the total gratuity payment. Previously, the calculation was based on the total years of service without considering unpaid leave.
- Last Basic Salary: The gratuity is calculated based on the employee’s last basic salary, which is the basic salary they are entitled to at the time of termination. It does not include any allowances or additional benefits.
It’s important to note that the specific details and regulations surrounding UAE gratuity can vary, so it is advisable to consult the UAE labour law or seek guidance from the relevant authorities or legal experts to ensure accurate information based on the current regulations.
You may want to know – Did You Just Lose Your Job? Here’s What the Company Owes You
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Dubai's Expert Advice at Your Fingertips.
How to Calculate Gratuity – Formula
In order to compute gratuity according to the UAE Labour Law:
Step 1: Basic wage per day
Daily wage = Basic salary ÷ 30
Step 2: Apply gratuity formula
First 5 years → 21 days per year
After 5 years → 30 days per year
Step 3: Multiply total wage in a day x number of eligible days
Gratuity Calculation Example
Example:
Basic salary: AED 10,000
Length of service: 6 years
Calculation:
First 5 years:
21 days × 5 years = 105 days
6th year:
30 days
Total eligible days:
105 + 30 = 135 days
Daily wage:
10,000 ÷ 30 = AED 333.33
Final gratuity:
135 × 333.33 = AED 44,999.55
Then the employee would get something like AED 45,000 as gratuity.
Significant Disclosure: Resignation vs Termination
The present UAE Labour Law (Federal Decree-Law No. 33 of 2021) provides employees with all the gratuity upon completion of one year of uninterrupted service, irrespective of the termination or resignation.
The former reduction regulations which were used during the old labour law are no longer in use.
Limited vs Unlimited Contract Clarification
According to the new UAE Labour Law, limited and unlimited contracts are not different in terms of calculating gratuity.
All contracts made by the private-sector have been fixed-term and the gratuity is also calculated according to the formula.
Maximum Gratuity Limit
As per Article 51:
The amount of the gratuity should not be more than the amount of two years of basic salary.
When Must Gratuity Be Paid?
As stated in Article 53:
The employers are obligated to pay all the outstanding pay and end of service benefits within a period of 14 days upon the expiry of the employment contract.
Unpaid leave days not be considered when calculating End of Service benefits.
According to Article 51 of the UAE Labour Law, specifically Federal Decree-Law No. 33 of 2021, the calculation of severance pay for employees in the private sector is outlined. Clause 4 of the Article specifies that days of absence from work without pay should not be considered when determining the length of an employee’s service. This means that periods of unpaid leave will not be included in the calculation of an employee’s service duration.
Similarly, Article 33 (2) of the law concerning unpaid leaves also states that such periods of unpaid leave should not be included when calculating the worker’s period of service.
Legal Provision relating to End of Service Benefits- Article (51)
- National workers (UAE citizens) are entitled to severance pay according to the UAE’s legislation governing pensions and social security.
- Foreign full-time workers who have completed at least one year of continuous service are eligible for severance pay. The calculation is based on the worker’s basic wage and follows these guidelines:
- For the first five years of service, the worker is entitled to 21 working days’ wage each year.
- After completing five years of service, the worker is entitled to 30 working days’ wage for each subsequent year.
- If a foreign worker serves for a fraction of a year, they are entitled to severance pay proportional to the period of service. However, they must have completed at least one year of continuous service to be eligible for this benefit.
- It is important to note that days of absence from work without pay should not be included when calculating the period of service for severance pay purposes.
- It should be noted that, except for specific establishments with their own pension or retirement benefit schemes, the calculation of severance pay is based on the last basic wage received by the foreign worker. For monthly, weekly, and daily paid workers are calculated based on their last basic salary.
- The total severance pay for a foreign worker should not exceed two year’s wage.
- Following the conditions and procedures set by the Executive Regulations of this Decree-Law, the employer may deduct any amounts legally due or ordered by the court from the severance pay.
- The Cabinet has the authority to introduce alternative systems instead of the severance pay system upon the Minister’s proposal and after coordination with relevant entities. The decision will outline the conditions, regulations, and mechanisms for participating in such alternative systems.
When should an employee expect to receive their gratuity according to the new law?
According to the provisions stated in Article 53 of the new law, employers must settle all pending wages and end-of-service benefits owed to workers within a period of 14 days from the expiration date of the employment contract.
Legal Consultants in Dubai
If employees find themselves in situations where they believe they are receiving lower benefits than they are entitled to, seeking assistance from legal consultants in Dubai is highly recommended. HHS Lawyers and Legal Consultants can be a valuable resource in such cases. Their team of qualified lawyers can provide expert legal advice and guidance, ensuring a smooth process when leaving a job and navigating complex gratuity calculations.
Need Labour Law Help?
Dubai's Expert Advice at Your Fingertips.
FAQ’s
Is the calculation of gratuity based on the total salary or the basic salary?
The calculation of gratuity is based on the basic salary and does not include allowances like housing, transport or any other benefits.
Is there any unpaid leave days on calculation of gratuity?
No. Unpaid leave days should not be counted in service period calculation as it is explained in Article 51 and Article 33(2).
Does it pay gratuity in case of resignation?
Yes. According to the existing worker laws in UAE, employees would be entitled to full gratuity in a year of service, including those who resign.
Does it have any minimum service requirement?
Yes. The employees are required to have a year of continuous service.
How much is the most permissible gratuity?
The gratuity should not be more than two years of basic pay.
