UPDATED! How to Calculate Gratuity in UAE 2024

How to Calculate Gratuity in UAE

The gratuity is an end-of-service benefit that a worker receives on job termination. For every expat worker, it is necessary to learn how to calculate gratuity in UAE to find the gratuity amount to receive from the employer at the end of contract.

As per UAE Labour Law, all expat workers are entitled for gratuity on job termination if completed at least one year of continuous service.

What is Gratuity in UAE?

In UAE, the gratuity is a lump sum amount paid by the employer to the employee at the end/termination of employment contract. The gratuity is payable on termination/end of contract to offer appreciation and some financial strength to the employee.

Who Can Get Gratuity in UAE?

An expat employee who has worked continuously for minimum one year with the same employer/company, can get gratuity in UAE.

According to the Federal Decree Law No.33, all expat workers/employees in UAE are eligible to receive gratuity as a part of end-of-service benefits if they meet the eligibility criteria for gratuity.

Here I provide eligibility criteria required to receive gratuity in UAE as under;

  • The employee must be working under a limited contract or an unlimited contract with a legal permit.
  • The employee must have completed minimum one year of continuous service under the same employer/company.
  • If the employee has worked less than one year i.e. not completed one year of service, for whatever reasons, s/he is not eligible to receive gratuity.
  • If the employer has terminated the employee for disciplinary reasons or illegal activities, the employee is not eligible for gratuity.
  • If the employee resigns without serving a notice period, the employer can deny to pay gratuity.
  • If the employee has absconded from work, s/he is not eligible to receive gratuity until the absconding case is resolved.

How to Calculate Gratuity in UAE

You need to know the gratuity calculation formula to understand how to calculate gratuity in UAE for a foreign/expat worker. Many expat workers already know about gratuity but they do not have knowledge about calculation of gratuity, I am here to help such workers/employees.

You can directly check your gratuity with our Gratuity Calculator.

Factors Affecting Gratuity Calculation in UAE

There are four main factors that affect the calculation of gratuity in UAE. In order to calculate gratuity at the end of contract, you must consider these four factors.

  1. Last Basic Salary [Excluding All Allowances & Perks]
  2. Contract Type [Limited Contract or Unlimited Contract]
  3. Employment End Reason [Resignation or Termination]
  4. Service Years [Job Start Date and Job End Date]

With all four factors above, the expat employee can calculate gratuity by using the gratuity calculation formula or with help of the Online Gratuity Calculator that is available for free.

[1] Last Basic Salary:

The last basic salary is the employee’s monthly salary right before the end of employment. It is the first important factor in calculation of gratuity.

The basic salary does not include travel allowance, house rent allowance, education allowance, dearness allowance, medical allowance and any other allowances/perks offered by the employer to the employee.

The basic salary must not include the wage/remuneration paid for doing overtime at work.

For example: Mr Abdul is an expat worker in Dubai, UAE. His last salary was AED 10000 in which the allowances were AED 3000 and the overtime wage was AED 2000. So, Mr Abdul’s last basic salary is AED 5000 and the same will be considered for the gratuity calculation.

[2] Contract Type:

There are two types of employment contract available in United Arab Emirates. The employer can hire an expat worker either with a limited contract or an unlimited contract.

The calculation of gratuity is different for expat workers under a limited contract and an unlimited contract.

What is a Limited Contract?

A limited contract is a fixed-term employment contract with a clear mention of contract start date and end date. The limited contract gets cancelled on its expiry date.

If the employee resigns before the contract expiry, s/he has to pay the compensation to the employer or may face a temporary labour ban in UAE.

If the employer terminates the employee (except for disciplinary reasons) before the contract expiry, s/he has to pay compensation to the employee.

What is an Unlimited Contract?

An unlimited contract is an open-ended contract. It has a clear mention of contract start date and it does not have any end/expiry date. The unlimited contract allows the employer and the employee to work together as long as they want.

If the employer or the employee wants to terminate the unlimited contract, s/he has to submit the notice to the other party before 1-3 months.

Update: Unlimited Contracts are No More

The unlimited contract is not valid anymore as the UAE Labour Department has removed/eliminated it. From February 2023, all the employers in UAE can hire an expat employee on a limited contract with a fixed period of 1-3 years.

In addition, the employers must convert the existing unlimited contracts into limited contracts on or before December 2023.

[3] Employment End Reason:

The third important factor for gratuity calculation is the employment end reason.

The employment can be ended when the employee resigns which is called resignation. The employment can also be ended by termination when the employer terminates the employee or the contract is expired.

[4] Service Years:

The last important factor in gratuity calculation is service years. The gratuity is payable to the employee for all completed years of service.

The minimum service years for gratuity entitlement in UAE is one year. If an expat employee has worked for one year or longer under the same employer, s/he is entitled for gratuity for the entire service period.

For example: If an expat employee has worked under a same employer for 2 years & 6 months, s/he is entitled to receive gratuity for 2.5 years from the employer.

UAE Gratuity Calculation Formula

The UAE Labour Law Department has stated the Gratuity Calculation Formula in the Federal Decree Law No.33 and I am going to share it here.

The gratuity formula is different for workers with a limited contract and an unlimited contract.

How to Calculate Gratuity in UAE for Limited Contract

The calculation of gratuity for expat workers with a limited contract is same for resignation and termination or end-of-contract. The gratuity calculation formula for limited contract is as under;

For less than one year of service: Zero Gratuity

For 1 to 5 years of service:

Gratuity = (Last Basic Salary x 21 Days x Service Years) ÷ 30 Days

After 5 years of service:

From 6th year, Gratuity = (Last Basic Salary x 30 Days x Service Years) ÷ 30 Days

The above formula can also be stated as;

From 6th year, Gratuity = Last Basic Salary x Service Years

How to Calculate Gratuity in UAE for Unlimited Contract

The calculation of gratuity for expat workers with an unlimited contract is different for resignation and termination or end of contract.

Gratuity on Termination/End of Contract

Termination in less than one year of service: Zero Gratuity

Termination during 1 to 5 years of service:

Gratuity = (Last Basic Salary x 21 Days x Completed Years of Service) ÷ 30 Days

Termination after 5 years of service:

For 1 to 5 years, Gratuity = (Last Basic Salary x 21 Days x Completed Years of Service) ÷ 30 Days

From 6th year, Gratuity = (Last Basic Salary x 30 Days x Completed Years of Service from 6th Year) ÷ 30 Days

Gratuity on Resignation

Resignation in less than one year of service: Zero Gratuity

Resignation during 1 to 3 years of service:

Gratuity = (Last Basic Salary x 21 Days x 1/3 x Completed Years of Service) ÷ 30 Days

Resignation during 3 to 5 years of service:

Gratuity = (Last Basic Salary x 21 Days x 2/3 x Completed Years of Service) ÷ 30 Days

Resignation after 5 years of service:

For 1 to 5 years, Gratuity = (Last Basic Salary x 21 Days x Completed Years of Service) ÷ 30 Days

From 6th year, Gratuity = (Last Basic Salary x 30 Days x Completed Years of Service from 6th Year) ÷ 30 Days

How to Calculate Gratuity in UAE Gratuity Calculator

You can do manual calculation of gratuity by using the gratuity calculation formula. If you want to save time then you can use the Online Gratuity Calculator to calculate gratuity in a few seconds.

  1. Scan QR Code above OR Click Here to Open the UAE Gratuity Calculator.
  2. Enter your last basic salary in AED.
  3. Select your contract type i.e. limited or unlimited.
  4. Select the employment end reason i.e. resignation or termination/end of contract.
  5. Enter your job start date and job end date.
  6. Click on Calculate to find your gratuity amount.

Maximum Gratuity Limit in UAE

According to UAE Labour Law, the maximum gratuity limit to an expat worker is the amount equals to his/her last two years’ salary.

The Labour Law Rules clearly state that the total gratuity payable to an expat employee/worker must not exceed his/her total salary of past two years.

So it is the employer’s duty to calculate gratuity of the employee and confirm that the employee’s gratuity amount is Not exceeding his/her two years’ salary.

Last Date for Gratuity Payment

The UAE Labour Law states that the employer has to pay gratuity and pending salaries to the employee in 14 days of resignation/termination or end of contract.

The gratuity is payable to the employee on resignation or termination or end of contract. The employer needs to calculate the employee’s gratuity only after the employee resigns or gets terminated or the employer contract ends/expires.

After calculating gratuity, the employer must settle all dues including the end-of-service gratuity in 14 days. If the employer delays gratuity payment, the employee can file a complaint against the employer to the UAE Labour Department.

How to Calculate Gratuity in UAE for 2 Years

You can calculate gratuity in UAE for 2 years by using the gratuity calculation formula, further details are as under; Let’s assume that your basic salary is AED 10000.

For Limited Contract:

For 1 to 5 Years: 21 Days Basic Salary for Each Completed Year of Service.

Gratuity = (Last Basic Salary x 21 Days x Service Years) ÷ 30 Days

= (10000 x 21 days x 2 years) ÷ 30 days

= 420000 ÷ 30

= 14000 i.e. AED 14000

For Unlimited Contract

On Termination/End of Contract

For 1 to 5 Years: 21 Days Basic Salary for Each Completed Year of Service.

Gratuity = (Last Basic Salary x 21 Days x Service Years) ÷ 30 Days

= (10000 x 21 days x 2 years) ÷ 30 days

= 420000 ÷ 30

= 14000 i.e. AED 14000

On Resignation

For 1 to 3 Years: 1/3rd of 21 Days Basic Salary for Each Completed Year of Service.

Gratuity = (Last Basic Salary x 21 Days x 1/3 x Completed Years of Service) ÷ 30 Days

= (10000 x 21 days x 1/3 x 2 years) ÷ 30 days

= (420000 x 1/3) ÷ 30

= 140000 ÷ 30

= 4667 i.e. AED 4667

In this way, you can calculate gratuity in UAE for 2 years for a limited contract and an unlimited contract.

Final Words:

All expat employees are entitled for end-of-service gratuity and they should learn how to calculate gratuity in UAE.

In this post, I have shared gratuity calculation formula for a limited contract and an unlimited contract. I have also explained important information about gratuity eligibility, gratuity limit and gratuity calculator.

FAQs

Are foreign workers entitled for gratuity in UAE?

Yes, all foreign workers are entitled for gratuity in UAE if they have completed minimum one year of continuous service.

When an employee is not eligible for gratuity in UAE?

What is basic salary in UAE gratuity formula?

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