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Understanding Gratuity Calculations

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.

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:

  1. 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.
  2. Duration of Service: The amount of gratuity payment depends on the duration of an employee’s service in a company. Resignations and terminations are considered for the first five years of service.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

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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)

  1. National workers (UAE citizens) are entitled to severance pay according to the UAE’s legislation governing pensions and social security.
  2. 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:
  1. For the first five years of service, the worker is entitled to 21 working days’ wage each year.
  2. After completing five years of service, the worker is entitled to 30 working days’ wage for each subsequent year.
  3. 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.
  4. 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.
  5. 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.
  6. The total severance pay for a foreign worker should not exceed two year’s wage.
  7. 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.
  8. 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.

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.