Definitive Guide to UAE Gratuity Calculation as Per New Labour Law-Updated for 2023

Detailed Guide to UAE Gratuity Calculator (End of Service Benefits)

If you live and work in UAE or are doing business in UAE, you must make yourselves familiar with the Labour Laws that are present here. The UAE Labour Law provides you with your rights and protection through Ministry of Labour. (Ministry of Human Resources and Emiratisation).

Gratuities are a fantastic strategy to increase employee retention and they also motivate workers to work for their companies for extended periods of time.

Employees working in the UAE whether they are in government, semi-government or private regardless of the profession are entitled to gratuity based on certain criteria or the guidelines as per UAE Labour Law.

Gratuity or End of Service is paid after the termination of the employment contract on an accumulated basis for the tenure served.

You may have the following doubts or clarifications on UAE Gratuity Calculations or end of service benefits (EOSB) in UAE:

• How gratuity is calculated in UAE?
• What is gratuity in UAE?
• How can I calculate Gratuity in UAE?
• What are the rules for Gratuity in UAE 2023?
• How is 2022 gratuity calculated?
• How much is gratuity after 5 years?
• How much end of service is calculated in UAE?
• How is unlimited contract gratuity calculated in UAE?
• How much gratuity will I get if work for certain years in UAE? (Ex: 1 year, 5 years etc)

One of the most important topics under UAE Labour Law is Gratuity Calculation or End of Service Benefits/Remuneration – EOSB. When you resign or are terminated, you are eligible for Gratuity as per UAE Labour Law. In both the cases resignation or termination the gratuity that you receive at the end of your service can act like a safety net, helping you transition to your next employment. Understanding your employee rights is a very important part of living and working in the UAE. All you need to know about how much gratuity you will get, according to the UAE Labour Law.

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What are the rules for Gratuity in UAE 2023?

According to the UAE law on pensions and social securities, the end of service benefits for Emiratis working in the private sector will be in accordance with the legislation.

According to Article 51 of the UAE Labour Law, The worker is entitled to a gratuity for the served fraction of a year, provided that he completes one year of continuous service.

1. A foreign full-time worker who completes one or more years in continuous service is entitled to a severance pay, 21 days’ basic salary for each year of the first five years of employment and 30 days’ basic salary for each year of work after the first five years.
2. The End of service benefit is calculated basis of the basic wage.
3. Under the law, no gratuity is paid for employees who do not complete one year of employment. A foreign worker shall be entitled to a severance pay for the fractions of the year in proportion to the period of service, provided that he or she has completed one year of continuous service.
4. Days of absence from work without pay shall not be counted within the period of service.
5. The employer has the right to take money from the employee’s gratuity if the employee owes the employer any money.
6. The severance pay for a foreign worker shall not exceed in aggregate two years’ wage.
7. After the contract’s end date, all end of service entitlements must be paid within 14 days.

There can be many possible conditions to calculate gratuity. In this article I will provide you a most comprehensive and easy way to understand and calculate gratuity. By the end of reading this article, you’d have understood various scenarios and possibilities of calculating gratuity.

As per the new Labour Law, all contracts are limited and hence gratuity is calculated on 21 days of basic salary for every year of service completed, up to five years. Post completion of five years of service, gratuity is calculated on 30 days for every year thereon. Hence, Gratuity is calculated on

• 21 days for first five year and
• 30 days for every year where the period of service is more than five years.

An employee who resigns under an unlimited contract should be paid according to the old law one year after their old labour contract expires, unless their firm has opted to adhere to the new labour legislation even if the contract is still in effect.

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What is the difference between Old Law and New Law for Gratuity calculation?

According to the new Labour Law, all contracts are limited, thereby resulting in an increased gratuity calculation of 21 days of basic salary for every year of service completed up to five years, up to five years after service completion. After five years of service, gratuity is paid for 30 days for each subsequent year.

Gratuity is therefore paid for 21 days in the first five years of service and 30 days for each subsequent year.

The old Labour Law treated the termination and resignation differently in calculating gratuity pay. Specifically, the calculation was different for the old Labour Law for calculating gratuity pay in case of employee termination. Here’s how it worked.

Under the old Labour Law, gratuity pay was calculated differently depending on whether an employee had been terminated from his job or had resigned.

It is important to realise that a worker who leaves his occupation before completing one year of service is not entitled to gratuity pay. When an employee joins a business for 1 to 3 years, he is eligible for one-third of the 21-day gratuity pay. The employee is entitled to two-thirds of the 21-day gratuity pay when he reaches 3 to 5 years of service.

The employee is entitled to full 21 days’ regular pay for the first five years of his service, and he continues to receive 30 days’ regular pay for the remainder of his occupation as gratuity pay.

The new law gives more clarity to employees in terms of how gratuity is calculated. It helps employees calculate it in an easy way and ensure that employers are paying them as per law.

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New gratuity-related legislation for flexible work patterns

The Labour Law has created three types of work contracts in an effort to enhance job satisfaction and family life balance. To decide on the kind of work contract that best suits you, you may take into account the new type of contract, temporary, part-time, or flexible work.

At the end of their service, gratuity will be paid to workers if they have opted for one of these work contracts. The gratuity will be calculated in proportion to full-time workers, as specified in their labour contracts.

A worker who outlines 48 hours a week, eight hours a day will be deemed a full-time worker, and his or her gratuity will be calculated based on the number of hours worked.

The following is how the end-of-service benefits for employees with part-time contracts or other types of work arrangements are calculated, according to Article 30 of Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree Law No. 33 of 2021 Regarding the Regulation of Labour Relations:

The proportion on which the end-of-service benefit should be calculated is equal to the number of working hours in the employment contract per year divided by the number of working hours in the full-time contract per year multiplied by 100. The value of the end-of-service benefit owed for the full-time contract should then be multiplied by this percentage.

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Fundamentals of Gratuity Calculation!

The end of service law applicable to all UAE employees , make sure you know how to calculate your end-of-service gratuity pay correctly.

UAE Labour Law lay downs specific guidelines on the disbursement of gratuity whether they are employed in government or semi government or private or in free zone. However, not every worker is entitled to gratuity benefit.

Who is eligible for gratuity?

Gratuity is paid under UAE law, regardless of the worker’s profession. According to Article 51 of the UAE Labour Law, The worker is entitled to a gratuity for the served fraction of a year, provided that he completes one year of continuous service.The end of service gratuity is calculated on the basis of the last basic salary which the employee was entitled to, namely the basic salary (without the allowances such as housing, conveyance, utilities, furniture, etc.)

If the employee owes any money to the employer, the employer may deduct the amount from the employee’s gratuity.

Who is not eligible for gratuity?

• If an employee  has served for less than 1 year, he is not entitled to any gratuity pay
• If an employee did not give one month legal notice before leaving the job employee is not eligible for gratuity (however this is depend on company discretion)
• If an employee is absent for 7 days continuously or 21 days per year without notice to the employer
• If an employee is terminated as per Article 120 of the UAE Labour Law

What type of labour contract do you have?

As per UAE Labour Law, there is now only one type of employment contract recognized, which is the Limited. Under this new law, the previous distinction between limited and unlimited contracts has been removed.

To calculate gratuity, you need to know two things.

1. What is your base daily salary?

According to the Ministry of Human Resources and Emiratization (MOHRE) the end-of-service gratuity is calculated on the last due basic wage of the employee. You can refer to your employment contract to learn more about your basic compensation, which is distinct from your total monthly salary.

To determine your daily basic wage, multiply your monthly basic wage by 30 (for each day of the month).

For example : If your basic salary is AED 6000. Per day salary would be =6000/30=Dh200

2. How long have you been employed by this company?

If you have worked for a company for five years, you are entitled to 21 days of basic pay for each year of service, per Article 51(2) of the UAE Labour Law.

UAE Labor Law Article 51 (2).

A full-time foreign employee who has worked continuously for a year or longer is entitled to end-of-service benefits, which are determined using the basic pay in the following ways:

• a salary of 21 days is paid for the first five years of employment;
• a salary of 30 days is paid for each year beyond that.

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Gratuity calculator

Formula for workers who have completed less than five years of service:

Daily basic wage x 21 x [Number of years of service]

A worker who has completed two full years of employment, for instance, and whose final basic wage was Dh6,000, is entitled to a gratuity of Dh6,000 ÷ 30 x 21 x 2 = Dh8,400.

Formula for workers who have completed more than five years of service:

Daily basic wage x 21 x 5 – [For the first five years of service]
+
Daily basic wage x 30 x [remaining years of service]

For example, if an employee has worked for seven continuous and complete years and the last basic salary paid to him or her is Dh6,000, he or she shall be entitled to a gratuity of Dh6,000 ÷ 30 x 21 x 5 = Dh21,000’ for the first five years of service, plus Dh6,000 ÷ 30 x 30 X 2 = Dh12,000’; for the remaining years of service. The total gratuity would come up to Dh33,000.

Formula for calculating the gratuity for fraction of a year:

[Gratuity for the last year of service] ÷ 12 ÷ 30 x number of days which are part of the fraction of the year of service

As per the Article 51 (3) of the UAE Labour Law

The foreign worker shall be entitled to a benefit for parts of the year in proportion to the period spent at work, provided that he completed one year of continuous service.

“For fraction of a year, you need to divide one year’s gratuity by 12 – for each month – and then divide it by 30 – for each day of the month. Multiply this with the number of days which are part of the fraction of the year of service,” 

For example, if you have worked for two years and two months (March & April), for a basic salary of Dh6,000, here is how you can calculate the gratuity:

Gratuity for two years: Dh6,000 ÷ 30 x 21 x 2 = Dh8,400
+
Gratuity for two months:  Dh4,200 (Gratuity for the last year of service) ÷ 12 ÷ 30 x the number of days in the two months(31+30 days)= Dh711.66

Total Gratuity =Dh9111.66

You should receive your gratuity within 14 days

According to information posted by MOHRE on its website, if you do not receive your gratuity within 14 days, you are entitled to raise a labour complaint.

For further assistance you can reach out to the Ministry of Human Resources and Emiratisation (MOHRE) on 80060 or through their website www.mohre.gov.ae.

The information provided in this article on UAE gratuity calculation is for general informational purposes only. It should not be considered as legal or financial advice. The accuracy and applicability of the content may vary depending on individual circumstances and the prevailing regulations. You are advised to consult with relevant professionals or refer to the UAE Labor Law for precise and up-to-date information.

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Frequently Asked Questions FAQs on UAE Gratuity Calculation (End of Service Calculation)