UAE Gratuity Policy and Settlement_ Essential Insi.docx

Gratuity Calculation in the UAE
Gratuity in the UAE is a legally mandated end-of-service benefit, designed to recognize an employee’s contribution and provide financial security after their service ends. For employees, understanding how gratuity is calculated ensures transparency and better financial planning, while for employers, it helps maintain legal compliance and smooth final settlement.
Key Factors Influencing Gratuity
The total gratuity depends on a few essential legal and contractual elements:
Length of Service: Employees must complete a minimum of one year of continuous service to qualify for gratuity.


Contract Type: The method of calculation varies between limited and unlimited contracts, especially in resignation or early termination cases.


Last Drawn Basic Salary: Only the basic salary at the time of contract termination is used—allowances and bonuses are excluded.


Reason for Termination: Whether the employee resigns, retires, or is terminated affects the entitlement amount, particularly under unlimited contracts.


UAE Gratuity Formula
The UAE Labour Law provides a clear formula for gratuity calculation:
Basic Gratuity Formula:
Or simply:
Gratuity = (Basic Salary × 21 ÷ 30) × Years of Service

Up to 5 years of service: 21 days of basic salary per year.


More than 5 years: 30 days of basic salary for each additional year.


Partial years: Calculated proportionally on a pro-rata basis.
To calculate UAE Gratuity Click
https://gratuitycalculator-dubai.com/
📌 Example
If an employee earns AED 6,000 basic salary and has completed 6 years of service:
First 5 years: (6000×21÷30)×5=AED21,000(6000 × 21 ÷ 30) × 5 = AED 21,000(6000×21÷30)×5=AED21,000


Sixth year: (6000×30÷30)×1=AED6,000(6000 × 30 ÷ 30) × 1 = AED 6,000(6000×30÷30)×1=AED6,000
✅ Total Gratuity = AED 27,000


Conclusion
Gratuity calculation in the UAE is a well-structured legal process that safeguards employee rights and ensures employers fulfill their obligations fairly. By understanding the influencing factors and formula, both parties can avoid disputes, ensure accurate settlements, and maintain a professional end-of-service experience.

1. UAE Gratuity Policy and Settlement: Essential
Insights Without External Links
The UAE’s gratuity system is a legally mandated framework designed to reward employees for
their dedicated service by providing end-of-service benefits. Its clear guidelines ensure fairness
and compliance for both employees and employers in the private sector.
H1 Fundamentals of UAE Gratuity Law
Note: Federal Decree-Law No. 33 of 2021 unified employment contracts, establishing fixed-
term contracts with consistent gratuity rules across the UAE.
The law entitles employees to gratuity after completing a minimum of one year of continuous
service. Gratuity is calculated only on the employee’s last drawn basic salary, excluding
allowances such as housing or transportation. This system applies primarily to expatriate
workers, with UAE nationals covered separately through pension schemes.
Key points:
Eligibility starts after one continuous year of service
Contract type no longer affects gratuity entitlement
Resignation or termination does not preclude gratuity rights if conditions are met
This harmonized approach eliminates ambiguity, providing employees with predictable financial
benefits upon contract completion or termination.
H2 Gratuity Calculation Rules and Limits
Gratuity calculations reward longer tenure through a tiered system that caps payouts to a
maximum of two years’ salary.

2. H3 Calculation Structure
21 days of basic salary per year for the first five years of service
30 days of basic salary for each additional year after year five
Maximum payout capped at two years’ total salary
Calculation formula:
Gratuity=(
Basic Salary
30 )
×Days×Years of Service
H3 Example
For an employee earning AED 10,000 per month over seven years:
Period Formula Amount (AED)
First 5 years (10,000 ÷ 30) × 21 × 5 35,000
Next 2 years (10,000 ÷ 30) × 30 × 2 20,000
Total Gratuity 55,000
This system encourages employee retention while keeping employer liabilities manageable.
H2 Payment Timeline and Employer Obligations
Employees are legally entitled to receive all final settlements, including gratuity, within 14
days after their last working day.
H3 Timely Payment Rules
Final settlement must include gratuity, unpaid salary, and unused leave compensation
Employers may deduct legitimate debts owed by the employee
Delay beyond 14 days exposes employers to fines and legal claims
This prompt payment rule strengthens workers’ financial security and reduces labor disputes.

3. H2 Impact of Employment Termination Type
The nature of contract termination affects gratuity entitlement under the law.
Resignation after at least one year grants full gratuity
Employer-initiated termination provides full gratuity unless withdrawn for gross
misconduct
Gross misconduct leads to forfeiture of gratuity rights
Contract expiry triggers standard gratuity payments
H2 Essential Settlement Documentation
Comprehensive documentation underpins lawful and dispute-free gratuity settlements.
Signed employment contract and amendments
Payroll records confirming salary payments
Resignation or termination notices
Visa cancellation proofs
Any other records related to leave and final payments
Maintaining clear documentation ensures smooth processing and safeguards both parties’
rights.
The UAE gratuity framework exemplifies a balanced labor policy, offering transparent,
predictable, and fair end-of-service benefits. It promotes labor market stability by protecting
employee interests while setting clear, enforceable employer responsibilities.
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2.https://www.hr.simplysolved.ae/hr-and-payroll/uae-end-of-service-gratuity-calculation/

4. 3.https://huduri.com/end-of-service-gratuity-in-uae/
4.https://hlbhamt.com/a-comparison-of-new-law-on-uae-gratuity-with-previous-law/
5.https://u.ae/en/information-and-services/jobs/employment-in-the-private-sector/end-of-service-benefits-
for-employees-in-the-private-sector
6.https://dlp.dubai.gov.ae/Legislation Reference/2022/Decree No. (46) of 2022 Concerning the End-of-
Service Gratuity Management Schemes of Employees.pdf
7.https://dda.gov.ae/en/gratuity-calculator/gratuity-calculator
8.https://uaelegislation.gov.ae/en/legislations/1594/download
9.https://www.mohre.gov.ae/en/laws-and-regulations/Laws/faq.aspx
10.https://finflx.com/post/new-gratuity-rules