The labor laws of the UAE have clearly stated how end-of-service benefits are to be calculated, as they are a form of severance granted to employees upon the termination of their employment contract. This article will help you understand the basics of gratuity calculation in the UAE, keeping both employers and employees up to date with their rights and obligations.
What are End of Service Benefits in UAE?
End of Service Benefits (ESB), known as gratuity, is a statutory benefit that accrues to all employees in the UAE by virtue of the law when an employment relationship comes to an end, and the worker has spent a continuous service of not less than one year. It is a monetary benefit that helps the worker change jobs or withdraw from employment. The calculation basis is laid out by the UAE Labor Law, by Federal Decree-Law No. 33 of 2021, and Cabinet Resolution No. 1 of 2022, which ensure each worker receives a reward related to his/her length of service.
Eligibility for End-of-Service Benefits
An employee is entitled to gratuity in the UAE if he satisfies the following conditions:
- One Year’s Continuous Service: It is compulsory that the employee complete a minimum period of one year’s continuous service with the employer.
- End of Employment Contract: Gratuity is payable in case of termination or non-renewal of an employment contract, whether the employee is a national or foreign worker.
- Resignation or Termination: Every worker who resigns or is terminated, except for those under Article 44 of this Law, shall be paid a gratuity based on his/her years of service.
How to Calculate Gratuity in the UAE?
According to the UAE Labour Law:
- The full-time foreign worker who has completed a year or more in continuous service shall be entitled to end-of-service benefits at the end of his service, calculated according to the basic wage as follows:
- A wage of twenty-one (21) days for each year of the first five years of service;
- A wage of thirty (30) days for each year exceeding such period.
- 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/she completed one year of continuous service.
When Is Pro Rata Calculation Used?
- Incomplete Years of Service: Where a service period does not match up to a full year—for example, 3 years and 8 months—the gratuity for the fractional year is calculated on a pro-rata basis.
- When Employed on a Part-Time Basis: In the case of a part-time employee, gratuity may be proportional to working hours or salary earned by the employee, which form the basis of pro-rata calculation.
- Gratuity Pro-rata During a Year: In case of resignation or termination of service before an employee has completed a full year, the amount of gratuity shall be payable proportionate to the number of days worked.
Most Important Considerations
- Basic Salary Only: Gratuity is calculated only from the worker’s salary. It does not include housing, transportation, and bonuses.
- Unpaid Leave: The unpaid days of absence from work shall not be included in the calculation of the service term.
- Maximum Cap: The total gratuity to be paid to the foreign employee should not exceed two years of the worker’s salary.
- Deductions: The employer may deduct any amounts payable in execution of the law or a judgment from the end-of-service benefits by the conditions and procedures stipulated in the Implementing Regulation.
- Alternative Schemes: Based on the proposal of the Minister and after coordination with the concerned authorities, the UAE Cabinet may approve alternative schemes for end-of-service benefits. Each issued resolution determines the conditions, rules, and mechanisms of the contributions to those schemes.
- For National Workers: The end-of-service benefits for nationals working in the UAE will be governed by the legislation regulating pensions and social security in the country.
Check for Accurate Calculation of Gratuity
Working out gratuity can be time-consuming and prone to errors if done manually. Several free online gratuity calculators are available to assist employees and employers in calculating how much amount to be paid. In particularly complicated cases, or just to ensure accuracy, professional advice from accounting or HR services would be advisable.
How Farahat & Co. Can Assist You
Farahat & Co. can help with UAE gratuity calculation by providing expert advice on UAE labor law, accurate calculations based on an employee’s length of service and salary, customized solutions for both employers and employees, ensuring compliance and proper documentation, and ongoing consultation for changes in labor law. Their experience makes it easy to ensure everything is done correctly, giving peace of mind to both the employer and employee.
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