Here we have covered a set of frequently asked questions that pertain to End of Service Gratuity in the UAE.

1. UAE Gratuity policy and settlement
Article 51 of the new UAE labor law Federal Decree-Law No. 33 of
2021 states as follows regarding End of Service gratuity:
A full-time foreign worker, who completed a year or more in continuous
service, shall be entitled to end of service benefits at the end of his service,
calculated according to the basic wage as per the following:
1. A wage of (21) twenty-one days for each year of the first five years of
service;
2. A wage of (30) thirty days for each year exceeding such period.
Here we have covered a set of frequently asked questions that pertain to End
of Service Gratuity in the UAE.
1. What is Gratuity?
Gratuity is a monetary payment eligible to an employee as a lump sum
at the end of his tenure provided that the period of service exceeds one
year. Gratuity payment is a liability to the employer which accrues as
the employee service period progresses.
2. When does an employee working in UAE become eligible for
gratuity?
Employees are eligible for gratuity pay at the end of their service period,
at termination or at resignation. According to article 51, the worker shall
be entitled to a fraction of the year worked provided he has completed
more than one year of continuous service.
3. What is the basis amount that is used to calculate gratuity?

2. The basis amount used to calculate is the employee’s last drawn basic
salary. Any amounts due to the employer may be deducted from the
gratuity pay by the employer.
4. Who is eligible for gratuity?
The provision of gratuity pay in the UAE is only applicable to expatriate
workers. Workers who are UAE nationals are precluded from these
provisions. This is because UAE Nationals are eligible for mandatory
National pension plans. Expatriate workers do not qualify for UAE
pension.
5. Does gratuity payable have a limit?
The amount of gratuity payable to an employee during final settlement
cannot exceed the employee’s current total two-year salary.
6. What is the number of days used to accrue gratuity?
The criteria of calculating the gratuity accrued to an employee is based
on a set number of days for each year of service.
Accrual: gratuity accrues at the following rate.
o Below five years at 21 days per year.
o Five years and above at 30 days per year.
The following simple example shows the gratuity accrual at a given
time.
Service period Less than 5 years
Hire date 12/05/2018
Basic salary 7,250.00

3. One day Basic salary (= Basic salary/30) 241.67
Payroll Month Jan-20
Number of days in service as of 31st January 2020 630.00
Gratuity Days
For the first five years (21 days per year) 36.25
Five years and above (30 days per Year) N/A
Total Gratuity Days 36.25
Gratuity Amount (Gratuity days*One day Salary) 8,759.59
The method applied to calculate the one-day salary is the 30-day
method i.e. salary/30. The common methods used are either the current
month method or the annualized method i.e. salary*12/365. Employers
are not legally restricted to the two methods in determining the daily
salary.
7. Do the types of contracts provisioned in the UAE labor law affect
gratuity payout?
Yes, the amount of gratuity payout is determined by various factors
among them.
o Type of contract – Limited and unlimited contracts
o Type of separation – Resignation or Termination
The two types of contracts and the separation method affect the gratuity
payout as we explain further below.
Limited contract
Calculation of gratuity is as follows under limited contracts when the
separation type is resignation.
o If the service period is less than one year, no gratuity is paid.

4. o If the service period is more than one year but is less than five years, no
gratuity is paid.
o If an employee resigns at the end of contract period, fully accrued
amount is paid.
o If the service period is more than five years, the gratuity pay is based on
21 days per year for the first five years and 30 days per year for each
additional year. See below table breakdown of the number of days
qualifying for each slab of service period.
Type of contract; Limited Contract
Separation type; Resignation
Period of service Number of days used t
Less than one year No gra
Resignation at end of contract period Full Accrue
One to Less than 5 years No gra
Year 5 and above Full Accrue
Please see below sample showing gratuity calculation for
resignation under limited contract.
Resignation under Limited contract
Service period Less than 1 year Resignation at end of contract One to Le
Hire date 14/08/2019 01/02/2018 12/
Basic Salary 7,250.00 7,250.00 7
Last working day 31/01/2020 31/01/2020 31/
Number of days in service 171 730.00 6
Number of years in service 0.47 2
Gratuity Days
For the first five years (21 days per year) – 10,150.00
Five years and above (30 days per Year) N/A N/A
Total Gratuity Days
Gratuity Amount No gratuity is paid 10,150.00 No gra

5. If the separation type is termination under the limited contract, then the
calculation of payout accrued is as follows.
o If the service period is less than one year, no gratuity is paid.
o If the service period is more than one year but less than five years,
accrual is at 21 days per year.
o If the service period is more than five years, accrual is at 21 days per
year for the first five years and at 30 days per year for each additional
year.
As shown below
Type of contract; Limited Contract.
Separation type; Termination.
Period of service Number of days used to calcu
Less than one year No gratuity
One to Less than 5 years 21 days per year
Year 5 and above 30 days per year
The following sample calculates the accrual for a termination case
under the limited contract.
Termination under Limited contract
Service period Less than 1 year One to Less than 5 y
Hire date 14/08/2019 12/05/2018
Basic Salary 7,250.00 7,250.00
Last working day 31/01/2020 31/01/2020
Number of days in service 171 630.00
Number of years in service 0.47 1.73
Gratuity Days
For the first five years (21 days per year) – 36.25
Five years and above (30 days per Year) N/A N/A

6. Total Gratuity Days 36.25
Gratuity Amount No gratuity is paid 8,759.59
Unlimited contract
If the employer terminates the unlimited contract, calculation of gratuity
is as follows:
o If the service period is less than one year no gratuity is paid.
o If the service period is more than one year, but less than five years, the
gratuity paid is based on 21 days salary for each year of service.
o If the service period is more than five years, the gratuity paid is based
on 21 days for the first five years and 30 days per year for each
additional year.
Refer to following tabular breakdown on the number of days used
to accrue the gratuity under this type of separation.
Type of contract; Unlimited contract.
Type of separation; Termination
Period of service
Less than one year
One to Less than 5 years
Year 5 and above
Please see sample calculation of gratuity payment for termination.
Termination under unlimited contract
Service period Less than 1 year One to Less than 5 y
Hire date 14/08/2019 12/05/2018
Basic Salary 7,250.00 7,250.00
Last working day 31/01/2020 31/01/2020
Number of days in service 171 630.00

7. Number of years in service 0.47 1.73
Gratuity Days
For the first five years (21 days per year) – 36.25
Five years and above (30 days per Year) N/A N/A
Total Gratuity Days 36.25
Gratuity Amount No gratuity is paid 8,759.59
If the employee terminates the unlimited contract, the calculation
of gratuity is as follows.
o If the service period is less than one year, no gratuity is paid.
o If the service period is more than one year, but less than three years,
the gratuity paid is based on 7 days salary (1/3 of 21 days)for each year
served.
o If the service period is between 3-5 years, the gratuity paid is based on
14 days salary (2/3 of 21 days) for each year of service.
o If the service period is more than five years, the gratuity paid is based
on 21 days salary for each additional year of service.
Type of contract; Unlimited Contract
Separation type; Resignation
Period of service Number of days used to calc
Less than one year No gratuity
One to less than 3 years 7 days per year
Three to less than 5 years 14 days per year
5 years and above Full accrual
The following example describes the accrual under this scenario.
Resignation under unlimited contract
Service period Less than 1 year One to less than 3 years
Three to le
ye
Hire date 14/08/2019 07/11/2017 10/0
Basic Salary 7,250.00 7,250.00 7,2

8. Last working date 31/01/2020 31/01/2020 31/0
Number of days in service 171 816.00 1,8
Number of years in service 0.47 2.24 4
Gratuity Days
For the first three years (7 days per year) N/a 15.65 21
For year 3 to year 5 (14 days per year) N/a N/a 27
For the first five years (21 days per year) N/a N/a
Five years and above (30 days per Year) N/a N/a N
Total Gratuity Days 15.65 48
Gratuity Amount No gratuity is paid 3,781.92 11,7
8. Is the gratuity policy at DIFC different from the provisions outlined
in the labor law?
The end of service policy at Dubai International Financial Centre has
recently been changed and replaced by a new plan called DIFC
Employee Workplace Savings (DEWS). This plan requires employers
operating in this economic zone to make compulsory monthly
contributions to this defined contribution scheme. Please refer DIFC
Employee Workplace Savings Plan for more information on the new
plan.
9. What is the effect of unpaid leave taken during the period of
service?
Any period taken by the employee as unpaid leave is excluded when
determining the service period. That means unpaid leave days are
excluded when accruing gratuity. The period of service is reduced by
the number of days served as unpaid leave.

9. 10. How is Maternity unpaid leave and sick leave unpaid leave
treated when determining the service period?
The period taken as either maternity unpaid leave or sick leave unpaid
do count as part of the service period. The period of service is not
affected by any period taken during tenure by employees for these two
types of leaves. Please refer to A Guide on statutory leaves in UAE to
see how specific statutory leaves affect the service period.
For information on the payroll process in UAE click on this link
Disclaimer:
Whilst every effort has been made to ensure the accuracy of this information,
HLB HAMT will not accept any liability arising out of errors or omissions.
Please note that this blog is not all-inclusive. Our guidance is designed only to
give general information on the issues/topics covered. It is subjected to
change and not intended to be a comprehensive summary of all laws which
may be applicable to your situation, treat exhaustively the subjects covered,
provide legal advice, or render a legal opinion.
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10. UAE Gratuity policy and settlement
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