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Gratuity calculations

Understanding Gratuity Calculations

Gratuity is an employment benefit received by an employee for the service rendered to a company. It is often defined as a lump sum amount that a company pays an employee on resigning or retiring.

Benefits of gratuity?

  • It is a financial incentive provided to employees in return for their loyalty to the company. This benefit has often been considered great support to the employees in their savings. It is vital for every employee to be aware of the gratuity pay and how to calculate the same, to avoid any errors made by the employers.
  • The calculation of the gratuity amount varies depending on the type of contract.

Types of Employment Contracts

  1. Limited Contract
  • A limited contract is self-explanatory; it is a contract of employment intended to exist for a specific period of time. These contracts have a start date, and an end date mentioned, and the contract will automatically terminate after the end date.
  • If an employer wants to terminate a limited contract on an earlier date, as per the UAE labor law, they need to pay the employee an ‘early termination compensation’ of a minimum of three months’ remuneration.
  • If an employee wants to terminate the limited contract on an earlier date, as per the UAE labor law, he/she needs to pay the employer an ‘early termination compensation’ which is half of the three months’ remuneration. Further, a labor ban will be imposed on the employee, which will restrict him from working elsewhere for a period of 6 months to 1 year. Under certain circumstances, the ban can be lifted and the employee can resume his employment elsewhere.

CALCULATION OF GRATUITY FOR A LIMITED CONTRACT

  • Less than 1 year of service provided to the company: Termination of employment within one year of service, results in no gratuity pay awarded.
  • Between 1-5 years of service provided to the company: Termination of employment between 1-5 years, results in full gratuity pay of 21 days’ salary for every one year of work.
  • Beyond 5 years of service provided to the company: Termination of employment after 5 years, results in full gratuity pay of 30 days’ salary for every one year of work.
  1. Unlimited Contract
  • An unlimited contract has no restricted time period or specific years mentioned for the existence of the contract. It only has the start date mentioned, and the end date is later on decided by mutual agreement between the employer and employee for termination of the contract.
  • The termination of the contract is valid according to the UAE labor laws, if a minimum of 30 days’ notice is provided to the employer or if otherwise mutually agreed for a longer period. The termination is also possible if the reason for termination is gross misconduct. However, in the latter situation, there is no requirement of notice to be provided, and no gratuity will be provided.

CALCULATION OF GRATUITY FOR AN UNLIMITED CONTRACT

  • Less than 1 year of service provided to the company: Termination of employment within one year of service, results in no gratuity pay awarded.
  • Between 1-3 years of service provided to the company: Termination of employment between 1-3 years, results in 1/3 of the 21 days’ salary for every one year of work.
  • Between 3-5 years of service provided to the company: Termination of employment between 3-5 years, results in 2/3 of the 21 days’ salary for every one year of work.
  • Beyond 5 years of service provided to the company: Termination of employment beyond 5 years, results in full gratuity pay of the 21 days’ salary for every one year of work.

The gratuity calculation can help the employee to understand how much should he expect from the company when he decides to leave the job. For any further clarification or any dispute resolution in the area of gratuity, it is advisable for the employee to approach a lawyer to get a better understanding of the gratuity pay.

Legal Consultants in Dubai

It is often noted that employees receive benefits lower than what they should be given; in such cases, gratuity calculations can often get complex for people. It is in the best interest to approach a lawyer or legal consultant in Dubai through HHS Lawyers and Legal Consultants. At HHS, you will be provided with the best legal advice by a team of qualified lawyers that will help make the process of exiting a job trouble-free.

Hassan Humaid Al Suwaidi., LL.B. is a Senior Partner in HHS Lawyers. He has 20 years of experience dealing with high-value and complex cases. Frequently featured in local and international legal directories and commended for his ability to attain favorable outcomes for clients, Hassan has been involved in some of the largest legal settlements. A major part of his work is providing expert legal advice on UAE legislation and acting for individuals and businesses during disputes and litigation. Read more