How to calculate Gratuity in UAE

Gratuity is considered one of the components of salary. It is rewarded to the employees who have worked in an organization for more than a year continuously. Usually, it is provided at the end of service in that particular company. Gratuity in UAE is offered at most of the companies.

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Types of Employment Contract

There are 2 types of contract that is usually followed by every organization. Limited Contract and Unlimited Contract.

Limited Contract– This is when an employee signs an agreement to stay at the company for a particular time. Both the parties are allowed to terminate the contract or extend it on mutual understanding.

Unlimited Contract– Under this no particular time period is provided. On mutual agreement, an employee can offer his services for how much ever time he wants to.   

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How to compute Gratuity in UAE?

Calculation of gratuity in the UAE is quite simple.

For Limited Contract–

• If an employee has worked for 1-5yrs in the company, 21 days salary is considered each year and calculated.   
• If an employee has worked for more than 5 yrs in the company, 30 days salary is considered each year and calculated.

Gratuity computation in UAE for limited contract

• Calculate per day wage according to the service in the company
• Multiply it with 21 or 30(depending on total service) and the result will be your annual gratuity
• Multiply it with the number of years worked in the company

Let the basic salary be AED 15000 and an employee has worked for 3 yrs in the company.

• Calculate daily wage: 15000/30 = 500
• Multiply with 21(as worked for less than 5 yrs): 500*21 = 10500
• Multiply it with the number of years worked in the organization: 10500*3 = 31500

Therefore, you would get a gratuity of AED 31500.

For Unlimited Contract–

• If an employee has worked for 1-3 yrs in the company, ⅓ of 21 days salary is considered each year and calculated.   
• If an employee has worked for 3-5 yrs in the company, ⅔ of 21 days salary is considered each year and calculated.
• If an employee has worked for more than 5 yrs in the company, 30 days salary is considered each year and calculated.
• Gratuity calculation in UAE in case of resignation is different from termination. If an employee is terminated from the organization with no complaints then 30 days salary is considered each year and calculated.

Gratuity computation in UAE for unlimited contract

• Calculate per day wage according to the service offered in the company
• Multiply it with 21 or 30(depending on total service) and the result will be your annual gratuity
• Take ⅓ or ⅔ of the result(depending on the tenure)
• Multiply it with the number of years worked in the company

Let the basic salary be AED 15000 and an employee has worked for 3 yrs in the company.

• Calculate daily wage: 15000/30 = 500
• Multiply with 21(as worked for less than 5 yrs): 500*21 = 10500
• Take ⅔ of the annual gratuity calculated: ⅔*10500 = 7000
• Multiply it with the number of years worked in the organization: 7000*3 = 21000

Therefore, you would get a gratuity of AED 21000.

Points to be noted while calculating gratuity in UAE:

• An employee who has worked for less than 1 yr in an organization is not eligible for gratuity
• According to the UAE Labour Law- Article 132, gratuity provided will not be more than 2 years salary
• According to the UAE Labour Law- Article 134, only basic salary will be considered while computing gratuity. Food, transport and other allowances are not added
• From UAE Labour Law- Article 135, if an employee loaned from the organization, then the employer can deduct that amount from the gratuity
• Expats are eligible for gratuity but not pension

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What can make you ineligible for gratuity?

There are certain things that can make you lose your end of service gratuity. Like,

• Under the limited contract, if a worker leaves the organization before the contract ends, then he will not be eligible for gratuity unless he has served the company for more than 5 years.
• If he leaves the company without any prior notice
• On submitting fake documents to the organization
• If the worker causes any material loss/damage to the organization
• If the worker fails in performing his basic duties at the organization

UAE Labour Law

According to the UAE Labour Law, an employee who has worked for an employer more than a year are subjected to gratuity irrespective of the contract type. The gratuity varies from each employee depending on the salary and the contract type.

*The values provided are for reference purpose only. Visit UAE Pensions and End of Services benefits for details*