Knowing your gratuity pay is an important part of living and employees right in the UAE. Gratuity in the UAE is a type of pay that an employee would receive once his or her service ends. It begins from the first full year of employment. Employees who have worked between 1-5 years and who have worked 5 years and beyond are qualified to receive gratuity. Employees who have worked for less than a year do not receive gratuity. The computation varies if an employee was resigned or terminated.

Factors considered for calculation of gratuity in the UAE

  • How the employee plans to leave his/her job
  • The type of employment contract
  • The free zone’s employment law
  • Profession
  • Location of employment

When is the employee not entitled to gratuity in the UAE?

  • The employee cannot avail gratuity if he hasn’t completed 1 year of full employment service
  • If the employer dismisses the employee without notice
  • When an employee under limited contract resigns, they will not receive gratuity unless their time of service exceeds 5 years. 

As per UAE labor law, there are two types of different contracts:

  1. Limited contract 
  2. Unlimited contract. 
As per the UAE labor law, the gratuity calculation is different for both. 

1. Limited Contract:

Under the limited contract, the employee signs an agreement to stay in the firm for a particular time. Both parties can terminate or extend the contract through mutual understanding. If the employee resigns before the end period then it can result in labor ban, loss of employment or compensation or loss of payment

Calculation of gratuity for a limited contract under UAE Labor Law

  • If the employee has worked from 1-5 years 

21 Days Basic Salary * Number of years
  • If the employee has worked for more than 5 years and above

21 Days Basic Salary * Number of years + 30 Days Basic Salary * Number of additional years 

2. Unlimited Contract:

In an Unlimited contract, there is no time period provided. By mutual agreement, the employee can offer his services for the amount of time he wants to serve. However, 1 to 3 months of the notice period is required if the employer decides to resign.

Calculation of gratuity for Unlimited contract under UAE Labor Law:

  • If the employee resigns

⅓ of 21 Days Basic Salary * Number of years
  • If the employee is terminated

⅔ of 21 Days Basic Salary * Number of years
  • If the employee has worked 5 years and up – resigned

21 Days Basic Salary * Number of years + 30 Days Basic Salary * Number of years
  • If the employee has worked 1-3 years – terminated and 3-5 years  – terminated:

21 Days Basic Salary * Number of years 
  • If the employee has worked 5 years and up – terminated

21 Days Basic Salary * Number of years + 30 Days Basic Salary * Number of years 

End of service benefits explained in simple words:

If the employee resigns before 1 year of full employment service then he is not entitled to receive gratuity in the UAE. If he has served 1 full year then he is entitled to service benefits. The calculation is based on the last salary which the employee is entitled to but does not include any allowances such as accommodation, conveyance, utilities, furniture, etc. If the employee owes money to the company (loan) then the employer can deduct the amount from the employee’s gratuity.  For further guidance and better understanding contact MSZ Consultancy. Our team of experts will provide you the perfect business solutions.  

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