Understanding Gratuity Calculation in UAE
Employees are an organization’s integral part. Expatriates from a large number of areas live within the UAE, contributing to the Emirate’s financial development and success. It is the employer’s obligation to see after and settle an employee’s gratuity, and this need to be done in an accurate manner as per UAE Labour Law. HR Chronicle is the Leading Cloud-based HR and Payroll Management Solution in the UAE Region which automatically calculates the end-of-service gratuity and helps you do the final settlement of the employee without any manual calculations.
The UAE law entitles every worker (expatriates) to receive Gratuity, provided he/she has worked with the employer for a minimum period of one year.
Gratuity is a monetary payment eligible to an expat employee as a lump sum at the end of his tenure, provided that the period of service exceeds one year. The basis amount used to calculate is the employee’s last drawn basic salary. The amount of gratuity payout is calculated based on the type of contract, i.e., limited or unlimited contracts, and the type of separation, i.e., resignation or termination.
The calculation is done as below:
Scenario 1: Employee was Terminated, and Contract Type was both Limited and Unlimited.
As per Article 132 – As amended by Federal Law no. 12 dated 29/10/1986: states below.
The worker having spent one year or more in continuous service shall be entitled to an end of service gratuity upon the termination of his service. The days of absence from work without pay shall not be included in the calculation of the period of service, and the gratuity shall be calculated as follows:
- The wage of twenty-one (21) days for each of the first five years of service.
- The wage of thirty days (30) for every additional year. Always provided that the total gratuity does not exceed the wage of two years.
Scenario 2: Employee was Resigned, and Contract Type was Unlimited.
As per Article 137 of UAE Labor Law; Should the worker bound by an employment contract with undetermined term leave his work by his own choice after a continuous service of
- one year at least and three years at most, he shall be entitled to one-third of the end of service gratuity ( explained as 7 days of Basic Salary) set forth in the foregoing Article.
- Should his continuous service be of three years at last and five years at most, he shall be entitled to two-thirds of the said gratuity, (14 days of Basic Salary)
- and to the full gratuity should it exceed five years. (30 days of Basic Salary)
Scenario 3: Employee was Resigned, and Contract Type was Limited.
As per Article 138 of UAE Labor Law; Should the worker bound by an employment contract with determined term leave his work by his own choice prior to the expiry of the contract, he shall not be entitled to an end-of-service gratuity unless the duration of the service period exceeds five years.
On completion of 5 years, he will be paid gratuity on basis of Up to 5 years 21 days, and 5 years above 30 days.
Reference for Gratuity Formula: https://www.mohre.gov.ae/handlers/download.ashx?YXNzZXQ9NDYw
For legal advice always consult a legal professional like a lawyer or the Ministry. The contents of this article do not constitute legal advice.
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