What is UAE Gratuity Calculation Formula and Eligibility

Gratuity increases the employee’s loyalty and encourages them to stay longer with a company. As per the UAE’s Labor Law, expatriate workers in the Emirates are entitled to end-of-service gratuity payment; however, no gratuity is paid if the employee resigns from a job or gets terminated earlier than one year of service.

UAE gratuity calculation 2024 is based on the UAE service rules, contract type, and end-of-service method. Whether you’re an employer or an employee, you need to know how much gratuity your employees are entitled to from you or how much gratuity will be paid to you by your organization. This article will provide a comprehensive guide to both parties. So, let’s dive into the topic in detail!

You can Check UAE Gratuity Online.

How Online Gratuity Calculator Work for UAE Employees?

The gratuity calculator is an online, free, and easy-to-use tool for an exact estimation of gratuity based on specific formulas. Whether you resigned from your job, got terminated, or your contract tenure ends, an online gratuity calculator facilitates UAE workers to compute their end-of-service benefits with just a few clicks.

An online gratuity estimator gives an approximate estimation of gratuity perks by taking into consideration the following key factors such as:

• What is your last drawn basic salary?
• What is the total duration of your service?
• Whether you resigned from your job, completed the tenure, or got terminated by the company?
• Under which contract type you have worked for your employer?

You can get an approximate value of the gratuity calculation in UAE by putting all this information in this gratuity computation tool.

Eligibility Criteria for Gratuity Entitlement in UAE

The UAE Labor Law describes the important rules and regulations for gratuity entitlement in public and private sector businesses. This law protects and governs the rights of both the parties, i.e., the employer and the employee, by giving in-depth detail about service matters such as employee’s overtime, leaves, end-of-service rules, proper safety plans, health, and gratuity payments.

UAE Labor law also explains gratuity calculation rules by considering your contract type details, such as full-time or part-time. It prohibits gender, religion, and race discrimination as well as better tackle issues such as harassment or physical violence against employees.

Article 51 of the UAE Labor Law mentions eligibility criteria for employees as follows:

• Completing one year of service is mandatory to be eligible for gratuity payment.
• In accordance with Article 44 of the Labour Law, termination of employment due to reasons such as violation of rules, misconduct, false representation, or other valid grounds precludes an employee from eligibility for end-of-service benefits.
• Expatriate workers are entitled to gratuity payments, while UAE nationals are eligible for mandatory pension plans.
• The gratuity calculation will be based on the employee’s last basic salary, excluding any additional service benefits.
• Any outstanding loans taken by the employee from the company will be deducted from the end-of-service payment.

Understanding your job contract type in the UAE (limited or unlimited) is essential to know your legal rights. Therefore, you must read your contract thoroughly and save a copy for record.

UAE Gratuity Calculation Rules

As mentioned earlier, the total gratuity amount of the Emirates employees is calculated based on their last basic salary (excluding allowances such as utility, conveyance, residence, extra working hours, children’s education allowance, etc.). For example, if your total salary is AED 5000 (basic salary-AED 3500 with additional benefits of AED1500), your gratuity computation will be based only on your basic salary, i.e., AED 3500.

• Gratuity is calculated based on the employee’s last basic salary, i.e., the fixed monthly wage excluding additional allowances or benefits.
• Any outstanding loans or liabilities owed by the employee to the company are deducted from the gratuity payment.
• The total gratuity amount can’t exceed the employee’s salary of 2 years.
• The gratuity entitlements must be disbursed within 2 weeks or per the company’s rules after the end of the contract.
• Employees with a tenure exceeding one year but less than five years are eligible to receive full gratuity payment calculated at 21 days’ salary for each year of service rendered.
• Employees who have served for more than five years are entitled to full gratuity equivalent to 30 days’ salary for each year of service beyond the initial five years.

How to Calculate Gratuity in UAE Based on Contract Types?

Limited Contract Gratuity Calculation

In fixed-term or limited contract jobs, the employee and the employer make a contract for specific service years with a set end date. Resigning before this period may cause a loss of labour rights to the employees. The UAE gratuity calculation for a limited contract depends on the number of service years.

• Less than 5 years of service: The gratuity estimation in UAE is based on 21 days of basic salary for every year.
• More than 5 years: Gratuity calculation will be based on 21 days of basic salary for the initial 5 years and 30 days for subsequent years.

Unlimited Contract Gratuity Calculation

The unlimited contract is not time-bound, i.e., the employee doesn’t make a contract of specific years to stay with a company. Depending on the company rules, the worker can leave a job on notice for one to three months. In the unlimited contracts, the UAE gratuity calculation method differs based on whether the employee has resigned or been terminated.

Gratuity Computation on Resignation

• For 1-3 years of service: Gratuity is computed as 1/3^rd of 21 days basic salary for each year of service.
• For 3-5 years: Gratuity is calculated as 2/3^rd of 21 days basic salary for each service year.
• Above 5 years: Gratuity is calculated as a full basic salary of 21 days for every year of service.

Gratuity Computation On Termination

• For 1- 5 years of service: Gratuity computation as the full basic salary of 21 days for every year of service.
• Above 5 years: Gratuity computation is based on the basic salary of 21 days for 5 years and 30 days for each subsequent year.

UAE Gratuity Calculation Formula 2024 with Examples

Formula for Limited Contract

• Less than 5 years Gratuity Amount = (Basic salary X Total Service years X 21 days)/30
• Gratuity exceeding 5 years = (Basic salary X Total Service years X 30 days)/30

For example, you’ve worked for a business for 3 years where your basic salary is AED 20,000. For UAE gratuity calculation, multiply your basic salary by 21 and then multiply this figure by service years. Divide the obtained amount by 30. The calculated gratuity amount, in this case, is AED 42,000. The same formula will be applied in gratuity calculation in Dubai for more than 5 years of service using 30 days basic salary.

Formula for Unlimited Contract

Upon Resignation

• Gratuity Amount Calculation for 1-3 Service Years = (Basic salary X Total Service years X 7 days)/30
• Gratuity Amount for 3-5 Service Years = (Basic salary X Total Service years X 14 days)/30
• Gratuity Amount exceeding 5 Service Years = (Basic salary X Total Service years X 21 days)/30

For example, you’ve worked for a business for 2 years where your basic salary is AED 25,000. Multiple your basic salary by 7 and then multiply this amount with service years. The obtained amount will be divided by 30. The calculated gratuity amount, in this case, is AED 11,666. The same formula will be applied for 3-5 years or more than 5 years of service using 14 and 21 days, respectively.

Upon Termination

• Gratuity Amount Calculation (1-5 service years) = (Basic salary X Total Service years X 21 days)/30
• Gratuity (more than 5 service years)= (Basic salary X Total Service years X 30 days)/30

For example, you’ve worked for a business for 4 years where your basic salary is AED 15,000. Multiply basic salary by 21 and then multiply this figure by service years. The obtained amount will be divided by 30. The calculated gratuity amount, in this case, is AED 42,000. The calculation will apply the same formula for more than 5 years of service using 30 days.

No Gratuity Pay? Conditions to Deprive Gratuity in the UAE

As per UAE Labor Law, every worker in the United Arab Emirates is eligible for gratuity pay except those who have not completed one year of continuous service. However, in the case of unlimited contract types, employers may not get gratuity benefits despite completing more than one year of service due to the below-mentioned reasons:

• The employee resigns from a job without completing the notice period in an unlimited contract and before completing 5 years of continuous service in limited contract jobs.
• He/she doesn’t have legal proof of not getting gratuity pay against an employer.
• The employee can’t provide proof of physical or mental abuse or misbehavior by the employer or the company during service years.
• The employer terminates the employee’s service without providing notice due to false identity, illegal documentation, failure to perform well, property damage, violating the company’s rules and regulations, etc.

Bottom Line

Having a basic understanding of UAE gratuity calculation may be complicated for employees. However, an online gratuity calculator may ease all the technical aspects of gratuity calculation by providing reliable computational data according to your service details, such as job duration, contract type, and job leaving process.