End of service Gratuity in UAE is mainly the lump-sum payment given to employees after their termination of service. To receive this payment, they have to give at least one year to the organization. If it’s less than one year, they can’t get this benefit.
Employees’ basic salary and tenure of service provided play a huge role in gratuity calculation. For the first 5 years, they get their 21 days’ basic salary as gratuity. But what if it exceeds 5 years? Keep reading to know. We will also guide you with a template to calculate end of service gratuity in UAE.
What Is End of Service Gratuity?
End of service gratuity, also known as end of service benefits, is a monetary benefit given to employees. They receive it when they leave the company after completing a minimum period of service. For example, in Dubai, employees should receive this service benefit upon completing at least one year of their service.
As per Article 51 of the UAE Labor Law, it’s mandatory to give end-of-service gratuity to employees working in the UAE. Many other Middle Eastern countries, particularly in the Gulf Cooperation Council (GCC), are mandated to provide a payment to employees when their service terminates.
Are gratuity and indemnity the same thing? Although the terms gratuity and indemnity are used interchangeably, they don’t exactly have the same meaning. Indemnity means compensation for any loss or damage that is related to agreements or insurance contracts. Meanwhile, gratuity is a payment given to employees upon their service duration.
What Are the End of Service Gratuity Rules in UAE? (2026 Updates)
UAE Labor Law (Federal Law No. 8 of 1980) states the rules of the end of service gratuity. Employees who have completed a minimum of one year of continuous service shall receive it. If an employee in the UAE serves 1 to 5 years, he will get 21 days’ salary per year as gratuity.
Now, how much gratuity after 5 years in UAE? If the employee serves more than 5 years, his gratuity pay will be 30 days’ salary for a year. And this amount will be applicable only for the additional years after the fifth year.
Maximum Gratuity in UAE
Article 51(6) of the Federal Decree-Law No. 33 2021 states the maximum gratuity for employees in the UAE. Employees’ maximum end of service benefits shall not be more than their two-year salary. Also, the maximum gratuity limit in UAE, in 2023, was limited to 5 years.
How to Calculate Gratuity in UAE?
Article 134 of UAE Labour Law clearly states the calculation of gratuity in UAE. It’s calculated based on the employee’s service duration and basic salary. It’s the method prescribed by the Ministry of Human Resources and Emiratisation (MOHRE) in the UAE. Here, the basic salary is mainly the last wage the employee was entitled to pay. As per the MOHRE guidelines, end-of-service gratuity is paid by multiplying the basic salary by 21 days for each year of the employee’s service. An employee can take 21 days’ salary only for the first five years. If it is beyond 5 years, then the basic salary will be multiplied by 30 days for each year of the employee’s service.
General Gratuity Calculation Formula
The general gratuity calculation formula is:
Gratuity = (basic salary/30) × 21 × total years of service
The basic salary here includes the dearness allowance of the employee as well.
For example, an employee’s last drawn salary, or the basic salary, is AED 2600. He served the organization for 4 years. So, his gratuity amount will be:
Gratuity = (2600/30) × 21 × 4 = AED 7,280
Note: This calculation applies only when the years of service are 5 years or less.
Again, let’s assume, an employee’s last drawn salary, or the basic salary is AED 3000. He served the organization for 7 years. So his gratuity amount will be:
For the first 5 years:
(3000/30) × 21 × 5 = AED 10500
For the next 2 years:
(3000/30) × 30 × 2 = AED 6000
Total Gratuity amount= (10,500 + 6,000) = AED 16500.
Calculation for Unlimited Contracts
The gratuity in UAE for unlimited contracts is more flexible than for limited contracts. It’s for the employees who intended to work permanently but are currently not undertaking further projects. The employee must provide notice 30 days before resigning. But Article 121 of the UAE Labor Law allows employees to resign without notice. Anyway, it’s mandatory to complete at least one year of service to get end-of-service gratuity, even if it’s an unlimited contract.
For 1 to 5 years, you are to multiply the basic salary by 21. And if the tenure is more than 5 years, you are to multiply the basic salary by 30.
Calculation for Limited Contracts
Limited contracts are the fixed contracts with a set time period. Here, the employee commits to serving the organization for a specific period of time. The calculation of end of service gratuity is no different for the limited contracts. If the employee resigns before 1 year, he won’t receive gratuity. He has to complete at least 1 year of the service period. However, for serving 1 to 5 years, the gratuity will be calculated by multiplying the basic salary by 21 days for each year worked. For service beyond 5 years, the gratuity for those additional years will be calculated by multiplying the basic salary by 30 days for each year worked.
How to Automate Gratuity Calculations in UAE HR Systems?
To automate gratuity calculations in UAE HR systems, HR professionals can rely on advanced HR softwares in the UAE. For Dubai, Sharjah, and UAE, Huduri is the best HR and payroll software to automate gratuity calculations. The software tracks employees’ service periods, keeps records, and thereby automates the end-of-service gratuity calculations. Thus, you can avoid human errors and get the results quickly. This solution also follows the terms of UAE labor law to calculate end-of-service gratuity.Â
Download Gratuity Calculation Template
Here is a template for gratuity calculation that you can follow to calculate your employees’ gratuity. You can use it as an end of service calculator UAE Excel.
End of Service Calculator UAE Excel Format
Who Is Eligible for Gratuity in the UAE?
The UAE Labour Law doesn’t entitle every worker for gratuity. They must meet the eligibility criteria at first.Â
Employees Eligible for Gratuity
In the UAE, both UAE national and expatriate workers are eligible for gratuity. They must be full-time workers and complete at least one year of service period to receive gratuity. Also, they should sign the employment labor contract in advance. It can be a limited contract or an unlimited contract. Lastly, employees’ service should end legally, like for resignation or termination.
End of Service Gratuity for Domestic Workers in UAE (Housemaids, Drivers)
In the UAE, both UAE national and expatriate workers are eligible for gratuity. They must be full-time workers and complete at least one year of service period to receive gratuity. Also, they should sign the employment labor contract in advance. It can be a limited contract or an unlimited contract. Lastly, employees’ service should end legally, like for resignation or termination.
What Are the Steps to Claim End of Service Benefits?
To claim the end of service benefits, employees must follow the below steps:
- Review the employment contract, period of service, and contract type.
- Verify final settlement components, like, gratuity, unused leave, notice pay, etc.
- Submit all necessary documents, like passport copy, labor contract, resignation or termination letter, etc.
- Follow up with the employer/MOHRE if payment is delayed.
Common Gratuity Disputes And Solutions
Below are some of the common gratuity disputes that you must solve as soon as possible.
- The employer may delay the payment. In that case, you can file a complaint via the MOHRE complaint process.
- There can be discrepancies in calculation. At that time, inform the HR and compare with the MOHRE calculator.
- Unpaid gratuity is not a surprise now. For that, you must approach the Labour Court.
Why Is Gratuity Important in UAE?
Gratuity has now become one of the most fundamental labor policies in the UAE. Here’s why:
- It gives financial security to expatriates.Â
- Encourages employees to be more loyal to the organization.Â
- Protects employees’ labor rights.
- Build trust among the UAE’s employers and employees.Â
- Supports employees even after the termination of their career.
Final Words
In the UAE, the Labour Law mandates end of service gratuity for employees who are eligible. If they work for one year or more, they must get gratuity from the organization. However, their termination of service should be legal without any gross misconduct.Â
For a smooth calculation of the end-of-service gratuity, it’s better to try best HR software, like Huduri. Then no miscalculations or misconduct of gratuity for employees is possible. However, this practice has literally given financial support to most employees even after their retirement or end of career.
