Understanding how to compute your UAE gratuity entitlement is important. The law ensures expat workers will have a safety net after their contract ends. Here is an easy guide to help you make sense of your UAE gratuity calculation in 2024.
Things you need to know
According to Article 51 of the UAE Labor Law, expat workers in the UAE private sector can receive gratuity pay. This is based on the period of service rendered and contract types, among other guidelines. The following are some essential provisions of the UAE labor law regarding gratuity pay:
- Employees who have completed at least one year of continuous service can receive gratuity pay.
- The last wage of the worker is the basis of the end-of-service gratuity calculation. Note that gratuity pay covers only the basic salary and does not include allowances, such as transportation and accommodation.
- The employer may deduct from the gratuity pay any amount an employee legitimately owes the company.
- Employers must settle all end-of-service entitlements payable within 14 days from the end date of the employment.
Types of contract
The Dubai Development Authority has made it easier for expat workers to compute their gratuity pay using this calculator. However, it always helps to have a deeper understanding of your gratuity calculation, for your own peace of mind and protection.
Before knowing how to calculate gratuity in UAE, the employee must determine whether he or she has a limited or unlimited contract.
1. Limited contract
A limited contract mentions the start and end dates of the employment period. This is automatically canceled upon expiration.
2. Unlimited contract
An unlimited contract, on the other hand, is open-ended, more flexible and common in the UAE. This can be terminated with mutual consent or by serving a notice period of anywhere from one to three months.
Read: Lost your job? No problem. Still get paid
Gratuity calculation for those with limited contracts
An expat employee who worked less than a year of their government-approved contract, whether he resigned or got terminated, will not receive any gratuity pay.
If an employee provided anywhere from 1 to 5 years of service, then he or she will receive full gratuity pay based on 21 days of basic salary for every year of service rendered.
If an employee has completed over 5 years of service, he will receive full gratuity based on 30 days of basic salary for each year of work.
Here’s how to compute:
- Identify the daily rate by dividing the monthly wage by 30
- Multiply the daily rate by 21 or 30
- The result is the amount the employee will receive for each year of service
Example:
If the monthly wage is AED10,000 and the employee has rendered 4 years of service. Given the formula, “(Monthly wage ÷ 30) x 21,” the amount the employee will receive for each year of service is AED6,999.30.
Please note that in all scenarios previously mentioned, the total gratuity an employee will receive should not exceed 2 years of his or her total wages, based on the basic salary, regardless of length of service.
Gratuity calculation for those with unlimited contracts
As in the case of workers with limited contracts, those who have not completed a year of service are not eligible to receive gratuity.
Those who have completed anywhere from 1 to 3 years will receive total gratuity that is one-third (1/3) of 21 days’ worth of salary. The formula for total gratuity is “Daily rate x 21 days x 1/3”. The daily rate is the monthly wage divided by 30.
For those who completed employment of between 3 to 5 years, the calculation of gratuity pay is two-thirds (2/3) of 21 days’ salary. In this case, total gratuity pay’s formula is “Daily rate x 21 days x 2/3”.
For those whose service ended after five years, full gratuity pay will be based on a 21-day salary multiplied by the number of years of work. Hence, gratuity pay computation is “Daily rate x 21 days x service period.”
Example:
Assuming a monthly wage of AED10,000, an employee who rendered 4 years of employment can compute his gratuity using the formula, “(Monthly wage ÷ 30) x 21 days x 2/3”. His gratuity pay will be equivalent to AED4,666.20 for each year of his service
No gratuity payment
Article 139 of the UAE Labour Law states that an employee may not get gratuity payment if:
- He or she gets dismissed from service for any of the reasons outlined in Article 120. Or, if the employee quits only to avoid being dismissed in accordance with the article.
- He or she resigns without notice in cases other than the ones set in Article 121 (if an employer breaches contract or in case of assault), and such with regards to unlimited contracts; or before the completion of five years of continuous service in limited contracts.
Get your gratuity benefits
Make sure that you understand the benefits you are entitled to, whether you resign or lose your job under any other circumstances. Your gratuity pay can help during your job search or as a means to support you during retirement.
For more on the economy, click here.
