Is Gratuity a Part of CTC in UAE? [What’s Included in CTC]

Is Gratuity a Part of CTC in UAE?

Gratuity is an end-of-service benefit given to an employee on termination/end of contract. On the other hand, CTC is the cost to company that hires an employee for a specific work project.

The cost to company (CTC) includes all the benefits that the employer gives to an employee. So, the gratuity of an employee is also included in his/her CTC.

Is Gratuity a Part of CTC?

Yes, gratuity is a part of CTC because it is paid by the company/employer to the employee. When an employee joins a new job, the company offers the employee a package called CTC i.e. cost to company.

An employee’s CTC includes all types of benefits that s/he will receive from the employer. So, anything that an employee receives or going to receive from the employer is a part of his/her CTC.

Note: Some companies consider gratuity as a part of CTC, while others do not include gratuity in the CTC of an employee. So, it depends on the policy of a company whether to include gratuity in CTC or to keep it separate from CTC.

What is CTC of a employee in UAE?

The CTC of a employee in UAE is the total package that s/he is going to receive from the employer/company. As per UAE Labour Law, the employer has to provide minimum salary and other necessary benefits to each and every employee.

The Cost to Company (CTC) of a worker includes 3 types of benefits that I am sharing here with you.

  1. Direct Benefits
  2. Indirect Benefits
  3. End-of-Service Benefits

All three benefits are a part of the CTC. Let us have a close look on each benefit type to understand it properly.

#1. Direct Benefits:

During the employment contract period, the employee receives a sum of money from the employer. It is called the salary/wage or remuneration of the employee.

The employee’s salary is the direct benefit given by the employer. The salary includes basic salary/pay as well as dearness allowance, education allowance, medical allowance, travel/fuel allowance, housing allowance and other allowances.

#2. Indirect Benefits:

In addition to salary, the employer provides some additional facilities and perks. These facilities include accommodation on rent/lease, life insurance, family health insurance, tax savings, loan schemes, company sponsored car and others.

The additional facilities are called indirect benefits from the employer to the employee. The purpose of offering such facilities is to make the employee & his/her family’s life better, happier and healthier.

#3. End-of-Service Benefits:

The employer can hire an employee under a limited contract or a fixed term contract in UAE. On termination or end of contract, the employer has to pay end-of-service benefits (gratuity) to the employee.

The employment contract may have a fixed period of minimum 1 year and maximum 4 years. The end-of-service benefits are payable to the employee only if s/he has completed minimum one year of continuous service.

So, the CTC of an employee in the UAE is the accumulation of direct benefits, indirect benefits and end-of-service benefits given by the employer/company.

Is Salary/CTC Taxable in UAE?

No, the salary/CTC of a worker in UAE is not taxable because the UAE Government does not levy tax on any individual’s income. In other words, there is no income tax on individual’s earnings, so there is no need to worry if your salary is taxable in United Arab Emirates.

Is Gratuity Taxable in UAE?

No, the gratuity is not taxable in UAE. In fact, the UAE Government has strict guidelines on payment of gratuity to protect the employee’s rights.

The employer has to pay gratuity to the employee within 14 days of termination or end of contract or resignation. After receiving gratuity, the employee can spend or invest the money without worrying about tax.

Is Gratuity Deducted from an Employee’s Salary?

No, the gratuity is not deducted from an employee’s salary in UAE. If an employer/company deducts any amount from an employee’s salary in the name of gratuity, the employee must file a complaint to the UAE Labour Department.

The UAE Labour Department will review this complaint and take an appropriate action to resolve this issue ASAP.

Conclusion:

The employer calculates CTC (Cost to Company) by adding up all direct and indirect benefits payable to the employee. In UAE, some companies include gratuity in CTC and some do not include it.

Whether a company considers gratuity as a part of CTC or not, the employee is entitled for gratuity if s/he has worked for minimum one year with that company.

FAQs

Is my salary a part of CTC in UAE?

Yes, your salary is a part of the CTC in UAE, the CTC includes your salary, allowances, additional facilities and end-of-service benefits.

Are basic salary and salary the same?

Do I need to pay tax on my salary/CTC in UAE?

Can an employer deduct gratuity from a worker’s salary?

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