Connection between Gratuity and Salary in UAE

Connection between Gratuity and Salary in UAE

The gratuity and salary of a worker are connected with each other. For every worker in the UAE, it is important to understand the connection between gratuity and salary. It helps the worker to calculate gratuity at the end of contract.

What is Salary?

Salary is a remuneration paid in cash to the employee who works at any firm/establishment or company. The owner of the company is called the employer and s/he is responsible to pay salary to all workers on monthly basis.

Basically, salary is the cash that an employee receives for the valuable work s/he does in a company.

What is Gratuity?

Gratuity is an end-of-service benefit for every employee working in the United Arab Emirates. The employee receives gratuity on resignation or termination or end of contract.

The gratuity is the cash benefit given to an employee when s/he leaves the job or the employment contract expires.

Is Gratuity a Part of Salary?

No, the gratuity is not a part of salary. Although the gratuity is calculated on the basis of salary but it is not a part of the salary in any circumstances.

Is Gratuity Deducted from Salary?

Some workers believe that gratuity is deducted from salary but it is completely wrong. The UAE Labour Law clearly states that the gratuity is calculated on a worker’s basic salary but it is neither a part of the salary nor it is deducted from the salary.

The gratuity is a part of end-of-service benefits given to an employee who has completed minimum one year of continuous service with an employer in the UAE.

How Gratuity and Salary are Connected

The gratuity and salary are two different things but they are connected with each other. You can see a clear connection between gratuity and salary at the time of calculation of gratuity of an employee/worker in the UAE.

As per the UAE Federal Decree Law No.(33) (Labour Law), The gratuity calculation formula considers the basic salary of a worker to find out the gratuity amount payable to the worker at the end of employment contract.

So, the only way to calculate gratuity in UAE is with help of the gratuity calculation formula which considers the basic salary of a worker in the gratuity calculation process.

So, this is how gratuity and salary are connected with each other.

Eligibility Criteria for Gratuity in UAE

The UAE Federal Decree Law No. (33) states that any employee/worker who has completed minimum one year of continuous service with an employer is eligible to receive gratuity on termination or end of contract.

The eligibility criteria conditions are same for full-time workers and part-time workers as well as industrial workers and domestic workers in the United Arab Emirates. But the gratuity calculation formula is different for different category workers in the UAE.

In case an employee/worker has worked for a period of less than one year, s/he is not eligible for gratuity.

The employer should consider the number of days to count total service period of the employee/worker. Here, the employer must not include the unpaid leaves (absent days) of the employee when counting the service period for gratuity.

How to Calculate Gratuity for Full-time Workers in UAE

The Article 51 of the UAE Federal Decree Law No.(33) provides an important guide for calculation of gratuity for full-time workers in the UAE. Here I am going to share the rules and formula for gratuity calculation as under;

  • For Less than One Year: Zero (No gratuity)
  • For first five years: 21 days basic salary for each completed year of service.
  • After five years: 30 days basic salary for each subsequent year of service.

To calculate gratuity, the employer should consider all completed years and part of years of service of an employee. For example: If an employee has worked for 2 years & 6 months, his/her service period is 2.5 years for which s/he is entitled for gratuity.

Please note that the basic salary of an employee does NOT include any allowance related to housing, dearness, education, medical/health, travel or any other.

The employer should exclude the unpaid absent days of the employee when calculating the total service period.

Gratuity Calculation Formula for Full-time Workers:

First Five Years: Gratuity = (Basic Salary/30 x 21) x Number of Service Years

After Five Years: Gratuity = (30 Days Basic Salary) x Number of Service Years

You can use the above formula to calculate gratuity of any worker in the UAE. If you have any doubt or confusion, use the Online Gratuity Calculator UAE to calculate gratuity effortlessly.

How to Calculate Gratuity for Part-time Workers in UAE

The part-time workers are entitled for end-of-service benefits including gratuity as per Article 52 of the UAE Federal Decree Law No.(33) and Article 30 of the UAE Cabinet Resolution No.(1) of 2022.

Just like full-time workers, the part-time workers in UAE are entitled for gratuity if they have completed minimum one year of continuous service with an employer.

Here, the unpaid absent days are excluded when counting the service term/period of the worker.

The employer should calculate gratuity of a part-time worker by considering the proportion of total number of hours in a service year as stated in the part-time employment contract compared to total number of hours in a service year of a full-time employment contract of a worker in similar category/work.

The employer should consider the gratuity amount of an equivalent full-time worker to calculate the gratuity of a part-time worker for all completed years of service.

Gratuity Calculation Formula for Part-time Workers:

Percentage of Working Hours = (Number of Hours in a Year Stated in Part-time Employment Contract/Number of Working Hours in a Year Stated in Full-Time Employment Contract) x 100

Part-time Worker Gratuity = Gratuity of an Equivalent Full-time Worker x Percentage of Working Hours

How to Calculate Gratuity for Domestic Workers in UAE

The UAE Labour Law provides end-of-service benefits (gratuity) to all domestic workers like housemaids, nanny and others. The domestic workers are entitled for gratuity if they have completed minimum one year of continuous service with an employer.

The domestic workers get gratuity on termination or end of contract but their gratuity benefit is less than the industrial workers in the UAE.

The UAE Federal Decree Law No.(15) of 2017, Article 26 states that a domestic worker is entitled for end-of-service benefits (gratuity). The domestic workers shall be paid gratuity of 14 days basic salary for each completed years of service including full years and part of years.

Gratuity Calculation Formula for Domestic Workers:

Domestic Worker Gratuity = (Basic Salary/30 x 14) x Number of Service Years

The bottom line

A worker received salary at the end of every month, while the gratuity is paid at the end of contract. The gratuity of a worker is calculated on the basis of his/her basic salary and total service period.

In this way, the gratuity and salary of a worker in UAE are connected. I hope that the information I shared above has brought clarity to your mind about the connection between gratuity and salary as well as the UAE gratuity calculation formula for foreign workers.

FAQs

Is a worker’s gratuity a part of his salary in UAE?

No, a worker’s gratuity is not a part of his salary in UAE but the gratuity is calculated based on the basic salary.

What is the difference between salary and basic salary?

What is the gratuity calculation formula in UAE?

Who is entitled for gratuity in UAE?

How do I calculate gratuity of a domestic worker?

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