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Gratuity: Overview & Calculation

HR MATTERS | May 01, 2022

Are you planning to resign from your current job? Have you been terminated, or leaving the UAE for good?

Under the UAE Labour Law, an expatriate employee who has completed at least one year of continuous service is entitled to an end of service gratuity payment on termination of employment. This is paid after the termination of the employment contract on an accumulated basis for the tenure served.

Your total gratuity depends on the following factors:

  1. Type of contract
  2. Total number of years served in the company
  3. Reason for termination of the contract
  4. Basic salary

What are the types of contracts an employee can have?

Previously, there were two types of contracts in the UAE* - limited contracts and unlimited contracts. However, with the recent changes in labour law, effective as of February 2, 2022, all employment contracts are now to be converted into limited contracts with a validity of up to 3 years.

Limited contract:

  • An employee agrees to stay with the company for the set date and number of years
  • Resigning before the end of this period could result in a labour ban, loss of labour rights or a loss in payment of compensation to the employer.

Unlimited Contract:

  • No number of years and no end date is set.
  • One to three months of notice period is required

How to calculate your gratuity payout?

The old gratuity calculation scheme shall apply to all private sector employees under unlimited contracts until their contracts are renewed to limited within the coming year. Companies have until February 2023 to renew all employee contracts. Regardless of your type of contract, gratuity is calculated using the employee’s basic salary excluding all additional allowances or bonuses.

To calculate your end of service gratuity, visit the UAE Ministry of Human Resources and Emiratisation (MOHRE) website.

Important notes when calculating Gratuity Payment:

  • Absence without pay from work is not included when calculating the period of service.
  • Employees who have their unlimited contracts terminated before they are converted to limited contracts, will be entitled to gratuity pay calculated according to the old law.
  • The total gratuity payment, regardless of the type of employment contract, will not exceed the amount of the employee’s 2 years’ basic salary.
  • An employee’s gratuity calculation is calculated based on the employee’s basic salary at the time of resignation.
*Reference to UAE Contracts applies to the emirates of Dubai, Abu Dhabi and Sharjah.

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