How to calculate Gratuity in UAE

There is a popular saying in my country that: One who works must eat.

Although the English translation has dampened the weight of the maxim, this simply emphasizes that there is dignity in labor.  

Gratuity, also known as end-of-service is a lump-sum monetary benefit paid by an employer to an employee as a token of appreciation when the employee leaves the employer. It is one of the many components that comprise the employee's gross salary.

According to Labour law in the UAE, workers who complete one or more years of continuous service are entitled to severance pay – 21 days for each of the first five years, plus 30 days for each year after that. There are two key points to consider. one, it is frequently misunderstood by businesses, resulting in costly liabilities. According to one study, over 88 percent of organizations in the UAE had no plan other than ad hoc settlements. The other point is about the UAE's problem with short-term jobholders, attracting and retaining talent.

It is critical to be calculating your end-of-service (gratuity) pay. Knowing how the total amount is calculated will assist you in identifying any errors made by your company.

1. The number of years served. 

2. Type of contract. 

(a)   Limited contract. 

(b)  Unlimited contract. 

3. Basic Salary. 

4. Reason for the termination. 

Firstly, let's clear this, if you leave your job before completing one (1) year of service, you are not entitled to any gratuity pay.

If you had worked between 1-5 years in service, you as an employee are entitled to full gratuity pay based on 21 days' salary for each year of work.

On the other hand, if you had worked between 5 years and more, you as an employee are entitled to full gratuity pay based on 30 days' salary for each year of work.

If the Basic Salary is Dh 10,000

a. 10,000 ÷ 30 = 333.30.  

Your daily wage is Dh333.30.

b. 330.30 x 21 = 6,936.30.  

21-days salary is Dh7,000 (Approx.) in gratuity entitlement

Multiply this figure for every year of service up to 5 years.

If calculating 30 days for those of 5 years of service and beyond.

c. 333.30 x 30 = Dh9,999.  

30-days salary is Dh9,999 in gratuity entitlement for annual years in service – so long as the total figure does not exceed the total salary of two years.

Therefore, regardless of the years spent at a firm, total gratuity in the above example must not exceed Dh240,000.

It is pertinent we clear this as well. if you had left work before completing a year in service, you are not entitled to any gratuity pay.

If you had stayed between a year to 3 years in service, you are entitled to one-third (1/3) of the 21-days gratuity pay.

If you had stayed between 3 to 5 years in service, you are entitled to two-thirds (2/3) of the 21-days gratuity pay.

Lastly, if you have done 5 years or more, as an employee, you are entitled to full 21-days gratuity pay for each year in service.

If the basic salary is Dh10,000

a. 10,000 ÷ 30 = 333.30.  

Your daily wage is Dh333.30

b. 333.30 x 21 = 6,999.30.  

This means the 21-days salary is Dh6,999.30

Going by this value, Dh6,999.30, only 1/3 is payable if the employee had worked between 1 to 3 years, so the total gratuity pay would be Dh2,333.10.

While only 2/3 is payable if the employee had worked between 3 to 5 years, hence, total gratuity pay is Dh4,666.20.

Kindly note that the full Dh6,999.30 is only payable if the employee had completed 5 years.

Please note that these calculations are for reference only and could vary over time, hence should not be treated as law. For any disputes or further clarification, kindly contact the UAE Ministry of Human Resources and Emiratization for your ease.

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