If you have worked for a private sector company in the UAE for a year or more you will receive a lump sum called end of service gratuity. This is based on a formula provided by law and easy to calculate yourself using your payslip.
For a gratuity calculation in the UAE, you will need your basic salary, length of service and daily rate. The most common mistakes are using your total package (rather than just your basic salary), and still believing that resigning will affect your gratuity. However, this is not the case currently.
This guide shows you everything you need to know, from the rules to the 4 easy steps and 6 examples including resignation and part years.
Rules for calculating UAE gratuity
According to UAE labour law (Federal Decree-Law No. 33 of 2021, Article 51), full-time private sector employees will receive:
- Minimum 1 year's continuous service. If you haven't worked for 1 year there will be no gratuity.
- 21 days basic salary per year for the first 5 years.
- 30 days basic salary per year after 5 years.
- You will get a pro rata rate if you have worked for a part year. As long as you have worked for over 1 year you will be paid for the extra months.
- Unpaid leave will be deducted from your total.
- You cannot receive more than 2 years of wages.
- Only your basic salary will be used, not your total package.
Your employer must pay your final payments within 14 days of your contract ending (Article 53).
What is basic salary?
Basic salary is a value on your contract or payslip that says basic. This excludes housing, transport, phone and other allowances, commission and bonuses.
This is very important within the UAE as your basic salary is often half or less of your total package. If you earn AED 20,000 per month, your basic salary might only be AED 9,000. This is what your gratuity will be calculated on.
Who is excluded?
- Generally UAE and GCC Nationals will be covered by a pension scheme.
- Those working in the DIFC will have their gratuity paid into the DEWS savings scheme (more information below).
- Some employers on the mainland have moved staff over to the voluntary savings scheme (more information below).
- Part-time workers are included but will receive a pro rata rate.
How to calculate UAE gratuity (4 easy steps)
Most employers and online calculators will use the same method.
Step 1 – Calculate daily basic rate. Divide your monthly basic salary by 30.
Step 2 – Calculate length of service. Work out how long you have been working from your start date until your last working day. Subtract any unpaid leave.
Step 3 – Calculate number of days of gratuity. Multiply your first 5 years by 21. Multiply any years after 5 years by 30. Add these together.
Step 4 – Multiply. Multiply your gratuity days by your daily basic rate. Check against the 2 year limit.
Formula:
> Gratuity = ((basic / 30) x ((21 x years up to 5) + (30 x years after 5)))
Should I divide by 30 or multiply by 12/365?
Most calculators divide your monthly basic by 30. However, some payroll teams and courts will use the annual method. This is multiplying your monthly basic salary by 12 and dividing by 365. This will give you a slightly smaller daily rate.
Using the example of a basic salary of AED 12,000. Dividing by 30 will give you a daily rate of AED 400. Using the annual method will give you a daily rate of approximately AED 394.52. Over 7 years of service, this makes a difference of about AED 900. This is often why your settlement will look a little less than you were expecting. Try asking your HR team which method they have used.
Examples of calculating UAE gratuity
These examples all use the dividing by 30 method.
Example 1 – 3 years
- Basic Salary – AED 6000
- Daily Rate – 6000 / 30 = AED 200
- Gratuity Days – 3 x 21 = 63
- Gratuity – 63 x 200 = AED 12,600
Example 2 – 7 years
- Basic Salary – AED 12,000
- Daily Rate – 12000 / 30 = AED 400
- Gratuity Days – (5 x 21) + (2 x 30) = 105 + 60 = 165
- Gratuity – 165 x 400 = AED 66,000
Example 3 – Part year
- Basic Salary – AED 9000
- Service – 2 years 6 months
- Daily Rate – 9000 / 30 = AED 300
- Gratuity Days – 2.5 x 21 = 52.5
- Gratuity – 52.5 x 300 = AED 15,750
If this person had left after 11 months there would be no gratuity. The minimum is 1 year.
Example 4 – Unpaid leave
- Basic Salary – AED 10,000
- Service – 4 years, including 60 days unpaid leave
- Daily Rate – 10000 / 30 = AED 333.33
- Length of service (after unpaid leave) – 4 - (60 / 365) = 3.84
- Gratuity Days – 3.84 x 21 = 80.5
- Gratuity – 80.5 x 333.33 = AED 26,850
If there had been no unpaid leave this would have been AED 28,000. Taking 2 months off has cost them approx AED 1,150. Annual leave that has been paid will still count towards their service.
Example 5 – Resignation
- Basic Salary – AED 8000
- Service – 4 years, resigned
- Daily Rate – 8000 / 30 = AED 266.67
- Gratuity Days – 4 x 21 = 84
- Gratuity – 84 x 266.67 = AED 22,400
This is the full amount. See below for why.
Example 6 – 2 year cap
- Basic Salary – AED 15,000
- Service – 30 years
- Daily Rate – 15000 / 30 = AED 500
- Gratuity Days – (5 x 21) + (25 x 30) = 855
- Gratuity (before cap) – 855 x 500 = AED 427,500
- Gratuity (after cap) – 2 years basic = 24 x 15000 = AED 360,000
This will only affect you if you have worked for the same employer for around 25 years. Most people will not hit this cap.
Resignation
This is the most common misconception. In the old labour law, those on unlimited contracts that resigned early would only receive 1/3 or 2/3 of their gratuity. Many articles and calculators are still using this.
However, the new law came into place on 2 Feb 2022 and this has been removed. If you resign having worked for 1 year or more you will receive the same gratuity as if your contract had ended.
There is one exception to note. If a portion of your service was on an unlimited contract (old method) before Feb 2022, this may be calculated differently. If this is the case, ask your HR team to show you how it has been split up. Or check with MOHRE.
Resigning will affect other elements. You will need to complete your notice period. You will also not be able to claim unemployment insurance. See our emergency fund guide to see how ILOE and gratuities work together.
DIFC & Voluntary Savings Scheme
Not everyone will receive a lump sum.
If you work in the DIFC you will be part of the DEWS (DIFC Employee Workplace Savings). Instead of receiving a gratuity, your employer will pay into a savings plan each month. This will be 5.83% of your basic salary for the first 5 years and 8.33% after. This equates to 21 and 30 days per year, however it is paid in advance. The money will be invested meaning you may get more or less.
Some employers on the mainland have moved staff over to the voluntary alternative end of service scheme. This is set up via Cabinet Resolution No. 96 of 2023. This works in the same way and your employer will pay into an approved fund each month. This will be 5.83% and 8.33% again. You can also choose to pay into this.
If you are unsure which option you are on check your contract or ask your HR. If your employer is paying into a fund you will not get a separate gratuity.
Why your settlement may be less than you expect
Your employer may deduct money that you owe them. For example if you have an unpaid salary advance. Unpaid leave will also affect your length of service (see example 4). If your HR team used the 12/365 method your amount will be slightly less.
Your bank may also come into play. If you have a personal loan or credit card linked to your salary transfer, your bank may have asked your employer to write a letter to agree to pay your final settlement to them. This means your gratuity will go towards repaying your loan.
Many people fall into this trap. If you have a salary transfer loan contact your bank before your last day. Ask them how much they will be taking from your settlement. If you have any card debt, see our guide on credit card statement cycles to stop any interest building up whilst you sort it.
If your employer does not pay within 14 days you can complain to MOHRE. This can be done via the app, website or by calling 80084.
What should you do with your gratuity?
For many people in the UAE this will be the biggest amount they will ever receive from an employer. You can make the most of it by doing the following:
- Pay off any high cost debt. If you have any debt on your cards (3% per month) this will cost more than any savings account will earn.
- Top up your emergency fund. If you are between jobs this is what will buy you time.
- Save for your next big bill. If you have a rent cheque or school term coming up put this into a sinking fund.
Don't plan on this money until it is in your account. Settlements can be delayed or disputed.
Within Fixpenses you can set up a goal to save this money. You can track how close you are each month. To help you with the bigger picture see our guide on how to create a monthly UAE budget.
FAQs
Is gratuity calculated on basic or gross salary?
Basic salary only. Housing, transport and other allowances are not included.
Will I get gratuity if I resign before 1 year?
No. You need to have worked for at least 1 year continuously. Once you have worked for 1 year your gratuity will not be affected by resigning.
Is there an official calculator for gratuity in the UAE?
Some government bodies (such as the Dubai Development Authority) offer an online gratuity calculator. There are also many news and HR sites. Most use the divide by 30 method. Using the 4 steps above will give the same answer. All the numbers can be checked.
Is gratuity taxed in the UAE?
No. Personal income is not taxed in the UAE. This includes gratuity. If you are moving to another country check if they tax any money you bring in.
What if I am on probation?
Probation will generally count towards your service if you stay on. If you leave before you have completed 1 year there will be no gratuity.
Double check your number
Find your basic salary from your latest payslip. Work out your length of service and subtract any unpaid leave. Use the 4 steps above. Ask your HR team for their number in writing.
If they are different the reason will normally be one of the reasons above. It is much easier to sort before your last day.
