Gratuity payment is essentially a severance payment that is owed to an employee after serving an employer for a certain period of time. Gratuity is calculated in UAE on an annual basis if the employee has completed at least one year of continuous employment with the employer. End of service gratuity is one of the benefits an employee is entitled to upon the completion of the employment contract.
How to Calculate gratuity in UAE
The calculations for gratuity are highly dependent on the type of employment contract an employee has
Gratuity calculation under limited contract
- Between 1 to 5 years of service: Employee is entitled to gratuity pay based on 21 days basic salary for each year of work.
- More than 5 years of service: Employee is entitled to full gratuity pay based on 30 days basic salary for each year of work.
- If a limited contract is for a period of 2 years, and an employee has resigned from the job without completing at least one year of service, the person will not be eligible for any gratuity. This is mentioned clearly in the UAE Labor Law.
Gratuity calculation under unlimited contract
If any employee on an employment contract resigns in the first five years of employment, then the gratuity is calculated as below:
|Years of service||Gratuity payment|
|1 – 3 years of service||7 days in a year|
|3 to 5 years of service||14 days in a year|
|More than 5 years||21 days in a year|
The employee may receive no reduction in gratuity if the employee has completed 5 years of service or more.
The basic wage which is taken as a basis for the calculation of gratuity is the amount which is last received by the employee before the termination of the employment contract. The basic wage will be the basis for calculating the gratuity for all the years during which the employee works for the employer calculated at the rate advised above.
As per recent changes any amount payable to an employee which is classed as their basic wage may include amounts paid as a, commission or performance-based pay, and therefore are taken into consideration for the calculation of gratuity.
Important Points on gratuity calculation in UAE
- An employee who has worked for less than a year in an organization is not eligible for gratuity.
- According to the UAE labor law gratuity provided will not be more than 2 years of salary
- Expats are eligible for gratuity but no pension
- According to UAE law, only the basic salary will be computed for gratuity other allowances like:
- Housing allowances
- Children education
- Overtime pays
- Travel allowances
- Any allowances or bonus as mentioned above is not considered under gratuity. This can only be considered as an allowance if it is specified under the employment contract.
- An employer may deduct any amount due and payable by the employee to the employer from the end of the service gratuity and make payment for the balance to the employee.
- There are circumstances wherein was an employee is considered as ineligible to receive gratuity such as:
- The employee terminates the employment contract without any prior notice
- Fake documents are submitted to the organization
- The worker causes any material loss/damage to the organization
- If the worker fails in performing his basic duties at the organization
- The employees are employed under limited contract and resigned of their own will without providing at least one year of service. (only applicable where continuous services are less than five years)
- Employees are employed under an unlimited period and left the job voluntarily without notice, in cases other than those provided for in Article 121 of the Labor Law.
Labor and Employment issues are faced by every kind of business. The diversity of labor in the UAE requires special attention and care. The Labor Lawyers in HHS lawyers in advice and offer services for various types of clients on issues relevant to End of service gratuity benefits in Dubai. We have a team of seasoned lawyers that can offer advice on employment laws. Call us today to book a consultation with our labor and employment lawyers in the UAE.