Understanding Gratuity Law in the UAE - A Comprehensive Guide

Estimated reading time: 10 minutes

Introduction to Gratuity Law in the UAE

The foundational principles governing end-of-service benefits within UAE legal frameworks
In the UAE, employees become eligible for a statutory entitlement known as gratuity or end-of-service benefit upon finishing their employment term. Their commitment and work for the company earn them this monetary compensation.

This guide delivers an intricate examination of UAE gratuity law which includes eligibility standards, calculation techniques, recent modifications, and both employer and employee rights and duties.

Legal Framework Governing Gratuity

The primary regulation of gratuity law in the UAE emerges from Federal Decree Law No. The legal document 33 of 2021 stands as the official UAE Labour Law. The provisions governing end-of-service benefits in this law detail eligibility criteria alongside calculation methods and payment processes.

The law contains essential articles that examine different elements of gratuity including the eligibility conditions for employees to receive gratuity, the calculation methods for determining gratuity amounts, and the situations that allow for the forfeiture of an employee's gratuity rights.

Eligibility Criteria for Gratuity

An employee becomes eligible for gratuity in the UAE only after completing a minimum of one year of uninterrupted service with their current employer. Gratuity benefits apply to both full-time and part-time workers who fulfill the necessary service period.

Certain employee groups including probationary workers and those dismissed for severe misconduct find themselves ineligible for gratuity benefits.

Gratuity Calculation Method

The method of calculating gratuity in the UAE depends on the type of employment contract (limited or unlimited) and the length of service.

Limited Contracts

The following formula is used to determine the gratuity for workers with limited contracts (fixed-term contracts):

• For the first five years, each year of service is worth 21 days' basic salary.
• After five years, each extra year of service is worth 30 days' basic pay.

Unlimited Contracts

Depending on length of service, the gratuity is determined differently for workers with unlimited contracts:

• No gratuity for less than a year.
• 1/3 of 21 days' basic pay for each year of service, ranging from one to three years.
• Three to five years: two thirds of 21 days' basic pay for every year of service.
• Over five years: for the first five years of service, you will receive 21 days of basic salary for every year of service, and for each year after that, you will receive 30 days of basic salary.

Crucial Points to Remember

When calculating gratuities, only the base pay is taken into account. Benefits such as allowances are not covered.

There is a two-year salary cap on the gratuity amount.

Refusal of Gratuity

An employee may lose their right to a gratuity in specific situations. These situations usually entail egregious wrongdoing or policy violations.

The circumstances under which an employer may fire an employee without providing a gratuity are outlined in Article 120 of the UAE Labour Law. These circumstances include violent crimes, theft, the release of private information, and other grave transgressions.

Recent Updates to Gratuity Laws

In order to stay up with changing labor practices and economic conditions, the UAE Labour Law is periodically updated and amended.

The gratuity law underwent a number of amendments brought about by Federal Decree Law No. 33 of 2021, including clarifications regarding eligibility requirements, computation techniques, and payment protocols.

To maintain compliance and equitable practices, it is essential for both employers and employees to stay up to date on these updates.

Practical Examples

Example 1: Limited Contract

An employee with a limited contract has completed 6 years of service with a basic salary of AED 10,000 per month.

Gratuity Calculation:

• (5 years x 21 days x AED 10,000) / 30 = AED 35,000
• (1 year x 30 days x AED 10,000) / 30 = AED 10,000
• Total Gratuity = AED 35,000 + AED 10,000 = AED 45,000

Example 2: Unlimited Contract

An employee with an unlimited contract has completed 4 years of service with a basic salary of AED 8,000 per month.

Gratuity Calculation:

• (4 years x 21 days x AED 8,000) / 30 x (2/3) = AED 14,933.33

Employer Obligations

Employers in the UAE have several obligations related to gratuity, including:

• Calculating and paying gratuity to eligible employees upon termination of service.
• Maintaining accurate records of employee service and salary.
• Complying with all provisions of the UAE Labour Law related to gratuity.

Failure to meet these obligations may result in legal penalties and financial liabilities.

Employee Rights

Employees in the UAE have several rights related to gratuity, including:

• The right to receive gratuity upon completion of at least one year of service.
• The right to have their gratuity calculated accurately and in accordance with the law.
• The right to dispute any discrepancies in the gratuity amount.

Employees should be aware of their rights and seek legal advice if they believe their rights have been violated.

Dispute Resolution

Both employers and employees can use the legal system to settle disagreements about gratuities.

The UAE Labor Law offers conciliation, mediation, and litigation as methods of settling labor disputes.

If workers feel their gratuity rights have been infringed, they can lodge a complaint with the Ministry of Human Resources and Emiratization (MOHRE).

Conclusion

Employers and employees alike must be aware of the UAE's gratuity law in order to maintain compliance and equitable business practices.

Both parties can promote a productive and fair workplace by abiding by the UAE Labour Law's provisions and keeping up with any new developments.

Frequently Asked Questions

What is a gratuity?

In the UAE, employees are legally entitled to a gratuity, also referred to as an end-of-service benefit, when their employment is terminated.

Who is entitled to a gratuity?

Gratuities are given to workers who have worked for the same company continuously for at least a year.

How is a gratuity determined?

The length of service and the type of employment contract—limited or unlimited—determine how the gratuity is calculated.

Can a worker lose their gratuity rights?

Employees may lose their right to a gratuity in specific situations, such as egregious misconduct or breaking company rules.

What should an employee do in case of a gratuity dispute?

Employees can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) if they believe their gratuity rights have been violated.