How to Calculate Gratuity in UAE?

Gratuity is one of the most important benefits provided to employees in the UAE, serving as a financial cushion at the end of their service period. Whether you are an employer or an employee, understanding how gratuity is calculated can help you plan your finances better and avoid disputes. The UAE Labour Law governs gratuity payments, ensuring fair compensation for employees based on their years of service and contract type. At Albasti Advocates, our team of experienced lawyers in Dubai provides expert legal assistance on employment matters, including gratuity disputes. In this blog, we break down everything you need to know about gratuity calculation, the factors that affect it, and how to ensure compliance with UAE laws.

1. What is Gratuity in UAE?

Gratuity is a lump sum payment made to employees upon the termination of their service. It is calculated based on the employee’s last basic salary and the duration of their employment. The UAE Labour Law (Federal Decree-Law No. 33 of 2021) sets clear guidelines on gratuity entitlements for employees working in the private sector.

2. Who is Eligible for Gratuity in UAE?

To qualify for gratuity, an employee must:

• Have completed at least one year of continuous service with the employer.
• Be working under a limited or unlimited contract.
• Not have been terminated for misconduct (Article 44 of the UAE Labour Law).

Government employees, freelancers, and domestic workers may have different gratuity entitlements based on their specific employment contracts.

3. How to Calculate Gratuity in UAE?

Gratuity calculation depends on the type of employment contract and the length of service. Below is a step-by-step guide for calculating gratuity under both limited and unlimited contracts.

A. Gratuity Calculation for Limited Contracts

A limited contract has a fixed end date, and if an employee completes the agreed term, they are entitled to full gratuity.

If the employee has completed between 1 to 5 years of service:

• Gratuity is 21 days of basic salary per year of service.
• Formula:

(Basic Salary ÷ 30) × 21 × Number of Years Worked

If the employee has completed more than 5 years of service:

• Gratuity is 21 days of basic salary for the first 5 years.
• 30 days of basic salary for each additional year.
• Formula:

[(Basic Salary ÷ 30) × 21 × 5] + [(Basic Salary ÷ 30) × 30 × Additional Years]

B. Gratuity Calculation for Unlimited Contracts

Unlimited contracts do not have a fixed term, and the gratuity calculation varies based on the resignation or termination scenario.

If the employer terminates the employee:

• Less than 1 year: No gratuity.
• 1 to 5 years: 21 days of basic salary per year.
• More than 5 years: 21 days for the first 5 years + 30 days for additional years.

If the employee resigns:

• 1 to 3 years of service: Entitled to one-third (1/3) of full gratuity.
• 3 to 5 years of service: Entitled to two-thirds (2/3) of full gratuity.
• More than 5 years of service: Entitled to full gratuity.

4. Factors That Affect Gratuity Calculation

Several factors impact gratuity calculation, including:

A. Basic Salary

• Gratuity is calculated based on basic salary only and does not include allowances like housing, transport, or bonuses.

B. Deductions and Unpaid Leave

• Any unpaid leave taken during the employment period is not counted in the gratuity calculation.

C. Termination Due to Misconduct

• If an employee is terminated for gross misconduct, they may lose their gratuity entitlement.

D. Early Resignation Under Unlimited Contracts

• Employees resigning before 5 years receive a reduced gratuity payout.

5. How to Avoid Gratuity Disputes in Dubai?

Disputes over gratuity payments are common in the UAE. Employers and employees should take the following steps to prevent conflicts:

A. Seek Legal Advice

Consulting the best lawyers in Dubai can help clarify gratuity entitlements and ensure compliance with UAE Labour Law. At Albasti Advocates, our commercial lawyer in Dubai can provide expert guidance on employment matters.

B. Maintain Accurate Salary Records

Employers should keep clear records of salary payments and employment history to avoid disputes over gratuity calculations.

C. Review Employment Contracts

Employees should thoroughly read their employment contracts and understand the terms regarding gratuity.

D. File a Complaint with the Ministry of Human Resources and Emiratisation (MOHRE)

If an employer fails to pay gratuity, an employee can lodge a complaint with MOHRE to seek legal intervention.

6. The Role of Albasti Advocates in Gratuity Disputes

At Albasti Advocates, our experienced advocates in Dubai provide comprehensive legal support for gratuity disputes, including:

• Legal consultation on gratuity entitlements.
• Representation in labour courts for unpaid gratuity claims.
• Negotiation and mediation between employees and employers.
• Ensuring compliance with UAE Labour Law.

Our team of best lawyers in Dubai has successfully handled numerous gratuity-related cases, ensuring fair outcomes for our clients.

Final Thoughts

Understanding gratuity calculation in the UAE is essential for both employees and employers. Whether you are resigning, being terminated, or simply want to ensure your rights are protected, knowing the rules can help you plan better and avoid disputes. If you are facing any issues with gratuity payments, seeking legal advice from Albasti Advocates can help you resolve conflicts swiftly and effectively. Our expert lawyers in Dubai are here to guide you through every step of the process. For professional legal assistance, contact Albasti Advocates today and ensure your rights are protected under UAE Labour Law.