Gratuity Calculation UAE: A Comprehensive Guide on How to Calculate Gratuity in UAE

Estimated reading time: 10 minutes

Introduction to Gratuity Calculation in the UAE

Gratuity is an essential end-of-service benefit for employees in the UAE, mandated by the UAE Labour Law. It is a lump sum payment provided to employees upon completion of their service, provided they meet certain eligibility criteria. Understanding how to calculate gratuity in UAE is crucial for both employees and employers to ensure fair compensation and compliance with the law.

This guide provides a comprehensive overview of gratuity calculation in the UAE, covering eligibility criteria, calculation methods, and important considerations for both limited and unlimited contracts. Whether you're an employee seeking to understand your entitlements or an employer aiming to comply with legal requirements, this guide will provide you with the knowledge and tools necessary for accurate gratuity computation.

Who is Eligible for Gratuity?

General Eligibility Criteria

According to the UAE Labour Law, employees are generally eligible for gratuity if they have completed at least one year of continuous service with the same employer. This applies to both full-time and part-time employees, regardless of their nationality.

Specific Conditions

• Minimum Service Period: Employees must complete at least one year of continuous service to be eligible for gratuity.
• Termination Type: The reason for termination can affect eligibility. Employees who are terminated for gross misconduct may not be entitled to gratuity.
• Contract Type: The calculation method differs slightly based on whether the contract is limited or unlimited.

For more detailed information on eligibility, please refer to Who Is Eligible for Gratuity in UAE.

Gratuity Calculation Methods

Basic Salary Definition

Gratuity is calculated based on the employee's last drawn basic salary. This typically excludes allowances, bonuses, and other benefits.

Calculation Formula

The calculation formula varies depending on the type of contract and the length of service. Here are the general guidelines:

• For the first five years of service: 21 days' basic salary for each year.
• For each additional year after five years: 30 days' basic salary for each year.

To simplify the calculation, you can use a gratuity calculator UAE.

Gratuity for Unlimited Contracts

Service Less Than One Year

Employees who have worked for less than one year are not entitled to gratuity.

Service Between One and Five Years

For employees with service between one and five years, the gratuity is calculated as follows:

• 1-3 years: 1/3 of 21 days' basic salary for each year of service.
• 3-5 years: 2/3 of 21 days' basic salary for each year of service.

Service Exceeding Five Years

For employees with more than five years of service, the gratuity is calculated as follows:

• 21 days' basic salary for each of the first five years.
• 30 days' basic salary for each additional year after five years.

Gratuity for Limited Contracts

Completion of Contract

Employees who complete their limited contract are entitled to full gratuity as per the calculation method mentioned above.

Early Termination

If the contract is terminated early by the employer, the employee is still entitled to gratuity for the completed years of service. However, if the employee terminates the contract early without a valid reason, they may forfeit their gratuity rights.

For more detailed information, please refer to Gratuity Limited Contract UAE.

Additional Factors Affecting Gratuity

Absence Without Leave

Days of absence without leave may be deducted from the total service period, affecting the gratuity calculation.

Unpaid Leave

Unpaid leave may also affect the calculation, as only the days worked are considered for gratuity.

Gross Misconduct

Termination due to gross misconduct may result in the employee forfeiting their right to gratuity.

Practical Examples

Example 1: Unlimited Contract

An employee with an unlimited contract has worked for 4 years and has a basic salary of AED 10,000.

Calculation:
Since the service is between 3 and 5 years, the employee is entitled to 2/3 of 21 days' salary for each year. Gratuity = (2/3) * (21/30) * 10,000 * 4 = AED 18,666.67

Example 2: Limited Contract

An employee with a limited contract has completed 6 years of service and has a basic salary of AED 12,000.

Calculation:
For the first 5 years: 21 days' salary per year.
For the 6th year: 30 days' salary.
Gratuity = (21/30) * 12,000 * 5 + (30/30) * 12,000 * 1 = AED 54,000

Legal Updates and Amendments

The UAE Labour Law is subject to updates and amendments. It is important to stay informed about any changes that may affect gratuity calculation.

Recent Amendments

Keep an eye on official announcements from the Ministry of Human Resources and Emiratisation (MoHRE) for any recent changes.

Resources and Tools

Online Gratuity Calculators

Several online tools can help you calculate gratuity accurately. These calculators take into account the type of contract, length of service, and basic salary.

Legal Consultation

For complex cases or disputes, it is advisable to seek legal consultation from a lawyer specializing in UAE Labour Law.

Conclusion

Understanding how to calculate gratuity in UAE is essential for both employees and employers. By following the guidelines and using the available resources, you can ensure fair compensation and compliance with the UAE Labour Law. Whether you are using a gratuity calculator UAE or consulting legal experts, being informed is the key to a smooth and equitable end-of-service process.

Frequently Asked Questions

1. How is gratuity calculated for a 5-year service?

For the first five years of service, gratuity is calculated at 21 days' basic salary for each year.

2. What is the 1-year gratuity calculation?

If an employee has completed one year of service, they are entitled to 21 days' basic salary as gratuity.

3. Can I use a retirement gratuity calculator?

Yes, you can use a retirement gratuity calculator to estimate your end-of-service benefits accurately.

4. How to do gratuity amount calculation online?

You can use online gratuity calculators available on various websites to calculate the gratuity amount by entering your basic salary, years of service, and contract type.