UPDATED! New Gratuity Rules in UAE 2024: Entitlement & Calculation

Gratuity Rules UAE

The UAE Labour Law is revised in the year 2022. The New Federal Decree Law No.33 of 2021 has updated the gratuity rules in UAE that all employers and employees should know.

Knowing the gratuity rules help the employer to understand the law and the process to calculate gratuity of the employee. The employees should also learn about the gratuity rules in UAE to know their right to end-of-service benefits i.e. gratuity.

Gratuity Rules in UAE

The Gratuity Rules in UAE state that every expat worker who has worked under the same employer for one year or longer, is entitled for gratuity.

The gratuity is also known as the end-of-service benefits for the expat workers in the UAE. Both the old and new gratuity rules provide end-of-service benefits (gratuity) to the foreign workers/employees without any reduction in the benefits.

So, it is important to know which gratuity rules are changed/updated and how these rules affect the employers and the employees working in the private sector in United Arab Emirates.

Elimination of Unlimited Contracts

The expat workers/employees get a job in UAE with either a limited contract or an unlimited contract. The limited contract has a starting date and and an ending date, while the unlimited contract has only a starting date with some specific conditions.

The MOHRE has eliminated Unlimited Contracts in the Amended Federal Decree Law No.33 of 2021. The New gratuity rules are implemented from February 2022 and all the employers & employees are required to obey the rules.

The UAE Labour Law has prevented the employers from creating new unlimited contracts after February 2022. In addition, the employers have to convert existing unlimited contracts into limited contracts by December 2023.

The Government of UAE has eliminated Unlimited Contracts to reduce disputes between the employers and the employees as well as provide equal end-of-service benefits to all foreign workers in the private sector in the UAE.

Gratuity Rules on Resignation and Termination

The gratuity rules are different for resignation, termination or end of contract and other circumstances causing the end of employment.

Based on the circumstances, the employer can check the gratuity rules to know if the employee is entitled for gratuity or not.

#1. Resignation by the Employee:

  • Voluntary Resignation in less than one year of joining – The employee is Not entitled for gratuity.
  • Resignation without Prior Notice or Notice Period – The employee is Not entitled for gratuity.
  • Voluntary Resignation at anytime after one year of continuous service – The employee is entitled for gratuity for all completed years of service.

#2. Termination by the Employer:

  • If the employer terminates the employment contract in less than one year – The employee is not entitled for gratuity but s/he is entitled for compensation if it is mentioned in the employment contract.
  • If the employer terminates the employment contract after one year but before expiry without a valid reason (employee’s fault) – The employee is entitled for gratuity and all end-of-service benefits.
  • If the employer terminates the employment contract with a valid reason and evidence(s) for the employee has violated the contract terms – The employee is Not entitled for gratuity or any other benefit.

#3. Termination with Mutual Consent:

  • If the employer and the employee mutually agree to terminate the employment contract after one year – The employee is entitled to receive gratuity for all completed years of service.
  • If the employer and the employee mutually agree to terminate the employment contract in less than one year – The employee is Not entitled for gratuity.

#4. Termination by Contract Expiry:

  • If the limited contract expires and the employee or employer do not want to renew it – The employee is entitled for gratuity for all completed years of service.
  • If the employment contract expires in less than one year – The employee is Not entitled for gratuity.
  • If the employment contract expires after one year but the employee has not worked continuously for one year – The employee is Not entitled for gratuity.

#5. Termination by Court Order or Police Arrest:

  • If the employment contract is terminated due to the court order – The employee is entitled for gratuity if it is stated in the court order. If it is not stated in the court order, the employee is Not entitled for gratuity.
  • If the contract is terminated because police has arrested the employee and a case is filed – The employee is Not entitled for gratuity until the case is resolved by the police and court.

#6. Termination by Redundancy or Restructure:

  • If the employer terminates the employee due to redundancy (lack of work) in the company – The employee is entitled for gratuity if worked for one year or longer otherwise Not entitled for gratuity.
  • If the company goes through restructure process and the employer terminates the employee – The employee is entitled for gratuity if completed minimum one year of service otherwise Not entitled for gratuity.
  • Besides gratuity, the employee is also entitled for one to three month’s salary as compensation as mentioned in the employment contract if the employer terminates the contract due to redundancy or restructure.

#7. Termination Due to Pandemic:

  • If the employer has to stop the work in the company due to pandemic like Covid-19 and the employee is dismissed – The employee is entitled for gratuity if this happens after one year  of continuous service otherwise Not entitled for gratuity.

In this way, the employer can take decision on the employee’s entitlement for gratuity based on the termination reason and circumstances.

Old vs New Gratuity Calculation Rules in UAE

The gratuity calculation rules are updated in UAE, so the employers need to calculate gratuity for their employees as per new rules. Here I am sharing a comparison between old gratuity rules and new gratuity rules to help you understand the difference.

Gratuity Calculation RulesOld Gratuity Rules in UAENew Gratuity Rules in UAE
On Resignation or TerminationLimited ContractLimited Contract
For Less than One Year of ServiceNo GratuityNo Gratuity
For 1 to 5 Years of Service21 Days Basic Salary for Each Completed Year21 Days Basic Salary for Each Completed Year
After 5 Years of Service30 Days Basic Salary for Each Completed Year from 6th Year30 Days Basic Salary for Each Completed Year from 6th Year
 
On ResignationUnlimited ContractUnlimited Contract
For Less than One Year of ServiceNo GratuityEliminated by the Law
For 1 to 3 Years of Service7 Days Basic Salary for Each Completed YearEliminated by the Law
For 3 to 5 Years of Service14 Days Basic Salary for Each Completed Year for 4th & 5th YearEliminated by the Law
After 5 Years of Service21 Days Basic Salary for Each Completed Year up to 5 Years30 Days Basic Salary for Each Completed Year from 6th YearEliminated by the Law
 
On TerminationUnlimited ContractUnlimited Contract
For Less than One Year of ServiceNo GratuityEliminated by the Law
For 1 to 5 Years of Service21 Days Basic Salary for Each Completed YearEliminated by the Law
After 5 Years of Service30 Days Basic Salary for Each Completed Year from 6th YearEliminated by the Law

As shown in the above table, you can see that the UAE Labour Law has eliminated the Unlimited Contract to provide equal gratuity benefits to all expat workers (foreign employees) working in the United Arab Emirates.

Rules for Gratuity Payment

The rules for gratuity payment are applicable to the employer as it is the employer’s duty to pay gratuity to the employee on termination of employment.

  • The employer has to pay gratuity to the employee within 14 days from the last working day of the employee.
  • The total gratuity amount must Not exceed the employee’s total salary of past two years.
  • If the employer delays or denies to pay gratuity, the employee can register a complaint against the employer to the Labour Department.

Do Unlimited Contracts Still Exist in UAE?

No, the Unlimited Contracts do not exist anymore in the UAE. As per government order, the employers have converted all unlimited contracts into fixed term limited contracts.

So, there are expat workers who were on unlimited contracts earlier and now they are on limited contracts. But there is not a single active unlimited contract available in UAE.

Considering the New Gratuity Rules, the UAE Labour Law allows the employers to hire new expat workers/employees on a limited contract only. The maximum contract period can be up to 3 years and can be renewed with mutual consent/agreement on expiry.

New Optional End-of-Service Scheme in UAE [Gratuity Investment Scheme]

In September 2023, the Government of UAE announced a New End-of-Service Gratuity Scheme for private sector workers and free zone employees. The new scheme allows employees to invest their gratuity in funds to grow their savings.

Is New Gratuity Scheme Mandatory?

No, the New end-of-service scheme is optional, the employers can choose to adopt the new gratuity scheme if they want or they can continue with the old scheme.

The employers who adopt the new end-of-service gratuity scheme in UAE, can also choose the categories of employees to add to the new scheme and the non-selected categories of employees will remain in the old gratuity scheme.

What is the New Gratuity Scheme in UAE?

Let me explain what the new gratuity scheme is and how it is beneficial or risky for the employees.

The new gratuity scheme is a system that allows private sector employees (expat workers) to invest their gratuity regularly. The new gratuity scheme is also applicable/available for free zone employees in the UAE.

Under the new scheme, the employers have to pay the gratuity amount on monthly basis to all eligible employees’ gratuities funds. The employees are required to choose one of the 3 investment schemes to invest their gratuity.

Gratuity Investment Options

The Government of UAE has introduced three gratuity investment schemes for private sector employees and free zone employees in the country.

  • Risk-Free Investment (No Capital Loss Guarantee)
  • Risk Based Investment with Low, Medium and High Risk Options
  • Sharia Compliant Investment (Strictly Based in line with the Islamic Sharia Law)

The employees can choose one of the 3 investment options given above. If an employee chooses risk based investment, s/he can also select the risk level as low, medium or high.

Who Will Take Care of Gratuity Investment Funds?

The Ministry of Human Resources and Emiratisation (MOHRE) and the Securities and Commodities Authority will take care of gratuity investment funds.

Both the authorities will supervise the gratuities fund to protect employees’ savings and take necessary action if required.

Summary:

The gratuity rules in UAE are applicable to all private sector and free zone employees in the country. In this article, I have explained new gratuity rules and the changes made by the UAE Labour Law Department.

I have also shared the New Optional Gratuity Scheme in UAE for expat workers in the private sector and the free zone. If you still have a query or question, feel free to ask it in the comment section.

FAQs

What is the big change in new gratuity rules in UAE?

The big change in new gratuity rules in UAE is that the Unlimited Contracts are eliminated. From now, all expat employees in UAE are on a limited contract.

When is the employee entitled for gratuity in UAE?

What are new gratuity rules on resignation?

When does the employee received gratuity?

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