Highlights
- End-of-service gratuity in the UAE is calculated on the employee’s last drawn basic salary and total years served.
- Eligibility requires completing at least one year of continuous service, with exceptions under specific labour law provisions.
- Gratuity rules differ for limited and unlimited contracts, depending on the resignation or termination circumstances of the employee.
- Standard calculation gives 21 days’ salary per year up to five years, then 30 days for subsequent years.
- UAE law caps gratuity at a maximum of two years’ salary, applying equally to both contract types.
End-of-service benefits hold great value for employees in the UAE, and knowing how they are calculated is essential. Companies today rely on modern tools like cloud HRMS to keep records accurate and ensure compliance. Still, individuals also want clear information about their own entitlements. Using the gratuity calculator UAE helps employees easily understand their benefits, while businesses depend on HRMS to simplify daily processes.
This article will explore who is eligible for gratuity and how the calculation works, giving employees and HR professionals a clear view of this important workplace benefit.
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What is End-of-Service Gratuity?
End-of-service gratuity is a one-time payment that an employer gives to an employee at the conclusion of their service. It is outlined in the UAE Labour Law and recognizes the employee’s contribution. The amount is calculated using the basic salary and the total years of service to determine the final payout.
To simplify this workflows, many employees and HR teams use the UAE gratuity calculator to estimate the payable amount quickly and ensure clarity before moving to the next settlement steps.
Who Is Eligible for Gratuity in the UAE?
According to the rules explained in the gratuity calculator UAE 2025, employees must meet certain conditions to qualify for end-of-service benefits:
- A valid employment contract must be in place, whether limited or unlimited.
- The employee should have completed at least one full year of service with the same employer without a break.
- Resignation under an unlimited contract without serving the full notice period can affect eligibility.
- Both UAE nationals and expatriates are entitled to receive gratuity if the conditions of the law are met.
- Employees dismissed under Article 120 of the UAE Labour Law may not qualify for gratuity.
- In some cases, adjustments like retro pay may be added if salary revisions or delays occurred during the service period.
How to Calculate Gratuity in UAE?
Gratuity is calculated based on an employee’s last drawn basic salary and total years of service. Many employees use the gratuity calculator UAE to make this process easier and ensure accuracy. So, elements like imputed income may differ depending on the employment terms, but the general calculation formula remains consistent and can also be applied when working with global teams.
Here are the steps and criteria for calculating gratuity:
- Determine the Daily Basic Wage
Start by dividing your last drawn basic monthly salary by 30 to find the daily wage rate. This figure forms the foundation of the gratuity calculation.
Example: If your basic salary is AED 10,000, your daily wage will be 10,000 ÷ 30 = AED 333.33.
- Apply the Formula Based on Service Years
- Less than one year: No gratuity is payable.
- One to five years: 21 days of basic salary for each completed year.
Formula: (Daily Basic Salary × 21) × Years of service. - More than five years: 21 days of basic salary for the first five years and 30 days for each additional year.
Formula: [(Daily Basic Salary × 21) × 5] + [(Daily Basic Salary × 30) × (Years – 5)].
- Check the Two-Year Salary Cap
The UAE Labour Law sets a maximum gratuity limit to ensure fairness. No matter the service length, the total gratuity cannot exceed two years ' salary.
Important Notes
- Basic Salary is Key: Gratuity is always based on the last basic salary drawn, not allowances or bonuses.
- Exclusion of Unpaid Leave: Any period of unpaid leave is not counted when calculating total service for gratuity.
- Continuous Service Required: Employees must complete continuous service to qualify, as breaks or non-compliance can affect entitlement.
How to Calculate Gratuity Pay for Limited Contracts?
For employees under limited contracts, gratuity is calculated based on the years of service and whether the contract ends through resignation or termination. This employee guide explains how the rules work, and many workers also use the gratuity calculator UAE to cross-check their final figures.
The rules vary depending on whether you resign or are terminated, so here’s how each case is handled:
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When Resigning
- No gratuity is paid if the employee resigns before completing one year of service.
- With less than five years of service, gratuity is 21 days of basic salary for each completed year.
- For more than five years, gratuity is 21 days of salary for the first five years plus 30 days for every year beyond that.
When Terminated
- With one to five years of service, gratuity is 21 days of basic salary for each completed year.
- For more than five years, gratuity is 21 days of salary for the first five years and 30 days for each year after the fifth.
Caps on Payment
The law sets a maximum gratuity limit to ensure balance. The total payout cannot exceed the equivalent of two years’ full salary, regardless of the employee’s service length or contract type. This cap applies equally in resignation and termination cases.
Example:
If the basic salary is AED 15,000 and service is four years, the daily wage is AED 500 (15,000 ÷ 30). Multiply by 21 to get AED 10,500 per year. For four years, the gratuity equals AED 42,000.
How to Calculate Gratuity Pay for Unlimited Contracts?
For employees on unlimited contracts, gratuity is calculated based on the years of service and how the contract ends, either resignation or termination. The process is simple to follow, just like filling in a timesheet, and it follows the rules set under UAE law.
Let’s look at how gratuity works in both cases:
When Resigning
- No gratuity is paid if the employee resigns before completing one year of service.
- With 1–3 years of service, the employee is entitled to one-third of 21 days’ basic salary for each completed year.
- With 3–5 years of service, the entitlement increases to two-thirds of 21 days’ basic salary yearly.
- After 5 years, employees receive a full 21 days’ basic salary for every year of service.
When Terminated
- Employees with less than one year of service are not entitled to gratuity.
- For 1–5 years of service, gratuity equals 21 days’ basic yearly salary.
- After 5 years, gratuity is calculated as 21 days for the first five years plus 30 days’ salary for each additional year.
Caps on Payment
No matter the length of service, the final gratuity cannot exceed two years’ total salary. This cap applies to both resignation and termination cases.
Example (4 Years, Resignation):
If the basic salary is AED 15,000, the daily wage is AED 500 (15,000 ÷ 30). Multiply by 21 = AED 10,500. Since the service is 3–5 years, take two-thirds = AED 7,000. Multiply by 4 years = AED 28,000 total gratuity.
Example (3 Years, Salary AED 20,000):
- For 1–3 years: (7 days × 20,000 × 3) ÷ 30 = AED 14,000.
- For 3–5 years: (14 days × 20,000 × 3) ÷ 30 = AED 28,000.
Summary
Gratuity is vital in securing fair settlements at the end of employment. The gratuity calculator UAE offers a clear and accurate way to estimate benefits, reduce disputes, and streamline HR processes. This ensures both employees and organizations handle end-of-service payments with transparency and confidence.
FAQs
How to Calculate Gratuity in UAE?
Gratuity is based on your last basic salary and total years of service. Generally, 21 days’ salary applies per year for the first five years, and 30 days for each year after. Using a reliable calculator helps ensure accuracy.
How to Calculate Gratuity in UAE for 2 Years?
First, find your daily wage for two years of service by dividing your salary by 30. Then multiply by 21 days for each year to get the total gratuity.
How to Calculate Gratuity in UAE for Unlimited Contract?
In unlimited contracts, gratuity varies by resignation or termination. Depending on service length, employees get one-third, two-thirds, or the full 21 days' pay yearly.
How to Calculate Gratuity in UAE for Limited Contract?
For limited contracts, the calculation depends on years of service and the contract ending. The first five years use 21 days per year, with 30 days added every additional year.
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