In the United Arab Emirates (UAE), employees receive a statutory benefit known as end-of-service gratuity when their employment comes to a close, provided they have completed at least one year of continuous service. Using an end of service calculator UAE can simplify the calculations significantly.

This gratuity acts as a financial acknowledgment of the time an employee has dedicated to their company and is determined by certain criteria established under UAE Labor Law.

To make the process easier, various governmental bodies have created online tools such as the end of service calculator UAE, which helps ensure that the gratuity is computed accurately and efficiently.

What is End of Service Calculator UAE?

End of service gratuity is essentially a lump-sum payment that employers must provide to eligible employees once their employment term ends.

The calculation of this gratuity follows UAE Federal Decree Law No. 33 of 2021, which outlines key details:

• Eligibility: Employees must have completed a minimum of one year of continuous service to qualify for gratuity.
• Calculation Basis: The gratuity amount is based on the employee's last drawn basic wage.
• Calculation Formula: For the first five years of service: 21 days' basic wage for each year served. For each additional year beyond five years: 30 days' basic wage for each year served.

The total gratuity payment should not exceed the equivalent of two years' wages. It's also worth mentioning that any unpaid leave days are not included in the total service period when calculating gratuity. For those navigating this process, using an end of service calculator UAE can simplify the calculations significantly.

Alternative End of Service Calculators UAE Benefits Scheme

To enhance employee benefits and align more closely with global best practices, the UAE has introduced a voluntary savings scheme as an alternative to the traditional end-of-service gratuity system. Under this new scheme, employers can contribute to a savings fund on behalf of their employees, giving them the chance to earn investment returns on their end-of-service benefits.

Employees will still keep the gratuity they earned prior to joining the scheme, and the new system will apply to earnings from the date they register onward.

Key considerations:

• Part-Time Employees: For part-time employees, gratuity calculations are proportional to the number of hours they work compared to a full-time schedule. This is done by dividing the actual working hours by the standard full-time hours, and then applying this ratio to the full-time gratuity entitlement.
• Contractual Agreements: Employers and employees have the flexibility to negotiate different terms regarding end-of-service benefits, as long as these terms are more favorable to the employee than what is outlined in statutory provisions.
• Legal Compliance: It's crucial for employers to adhere to the UAE Labor Law when calculating and distributing gratuity.

This helps to prevent any potential legal disputes and ensures that employees receive their rightful benefits. This alternative scheme presents a modern approach to employee compensation, reflecting a shift towards more personalized and potentially lucrative end-of-service benefits.

Let’s Talk About Gratuity

So, what exactly is gratuity? Basically, it’s a form of payment that your employer is legally required to give you when you leave the company. Think of it as a little thank you for all the hard work you’ve put in during your time there. In the UAE, the labor law states that if you’ve worked for a company, you're entitled to gratuity, as long as you meet a few key criteria outlined by law.

How much you receive is based on your last monthly basic salary, and while it’s usually handed over when you retire, you might have the chance to claim it sooner, depending on your company’s specific rules. You can use an end of service calculator UAE can simplify the calculations significantly.

Who Can Get Gratuity in the UAE?

Not every employee is automatically eligible for gratuity payments under UAE labor law. Here are the basics you need to know:

• If you resign from an unlimited contract without finishing your notice period or if you can’t prove that your employer hasn’t met their legal obligations, you might miss out on that end-of-service benefit.
• Both UAE nationals and expatriates can receive gratuity.
• You need to have an employment contract, whether it’s for a limited or unlimited term.
• If you’ve been dismissed under specific rules (like Article 120 of the labor law), you may not qualify for gratuity.
• You must have worked continuously for at least one year with your employer.

How to Calculate Gratuity When an Employee Resigns

When it comes to resignations, the gratuity calculation under UAE Labour Law depends on the type of employment contract, limited or unlimited. Although the formulas for both are similar, there’s a slight variation when an employee under an unlimited contract chooses to resign.

In such cases, the employee is entitled to only one-third or two-thirds of the total gratuity payout, depending on the number of years they’ve served the company.

Let’s look at an example using the end of service calculator UAE to understand how this works in practice.

Suppose your basic salary is AED 20,000, and you’ve worked with your employer for three years. Here’s how the gratuity would be calculated:

For 1–3 Years of Service

You’re entitled to one-third of your 21-day gratuity pay.
Formula:
(⅓ of 21 days × basic salary × years worked) ÷ 30

Example:
(7 days × 20,000 × 3) ÷ 30 = AED 14,000

For Service Between 3–5 Years

You’re entitled to two-thirds of your 21-day gratuity pay.
Formula:
(⅔ of 21 days × basic salary × years worked) ÷ 30

Example:
(14 days × 20,000 × 3) ÷ 30 = AED 28,000

Using an end of service calculator UAE can make these calculations faster and more accurate, helping employees and HR teams determine the exact gratuity amount owed at the end of a contract.

Steps to Calculate Gratuity for Limited Contracts

When working under a limited contract in the UAE, calculating your gratuity becomes quite straightforward. To simplify this, you can either follow the manual method outlined below or use an end of service calculator UAE for quick and accurate results.

Let’s take an example: suppose your basic salary is AED 15,000, and you’ve worked in the company for four years.

Here’s how the calculation works step by step:

1. Determine your daily wage
   Divide your monthly basic salary by 30 (the standard number of days in a month).
   Formula: 15,000 ÷ 30 = AED 500 per day
2. Calculate 21 days’ pay (since the total service is less than five years).
   Formula: 500 × 21 = AED 10,500
3. For service exceeding five years, you would instead calculate 30 days of pay:
   Formula: 500 × 30 = AED 15,000
4. Multiply by total years of service
   Formula: 10,500 × 4 = AED 42,000

So, the total gratuity payable at the end of a four-year limited contract would be AED 42,000.

Instead of doing this manually, many HR professionals and employees prefer using an end of service calculator UAE, which automatically factors in your salary, years of service, and contract type for precise results.

Gratuity Pay Calculations for Unlimited Contracts

For employees under unlimited contracts, the gratuity calculation depends on whether the employment ends through resignation or termination, and on how long the employee has served. Just like with limited contracts, using an end of service calculator UAE can simplify this process.

Here’s how the gratuity is structured under different circumstances:

In the Event of Resignation

• Less than 1 year of service: No gratuity entitlement.
• 1–3 years of service: Entitled to ⅓ of the 21-day gratuity pay for each year worked.
• 3–5 years of service: Entitled to ⅔ of the 21-day gratuity pay for each year worked.
• Over 5 years of service: Entitled to a full 21 days of basic salary for each year of service.

In the Event of Termination

• Less than 1 year of service: No gratuity entitlement.
• 1–5 years of service: Entitled to 21 days of basic salary for each year worked.
• Over 5 years of service: Entitled to 30 days of basic salary for each additional year worked.

Steps to Calculate Gratuity for Unlimited Contracts

Now, let’s look at an example to better understand how gratuity is calculated under an unlimited contract.

Suppose your basic salary is AED 15,000, and you have worked for four years.

1. Find your daily wage:
   15,000 ÷ 30 = AED 500 per day
2. Multiply by 21 days (as the service period is less than five years):
   500 × 21 = AED 10,500
3. Apply the ⅔ entitlement (for service between 3–5 years):
   ⅔ × 10,500 = AED 7,000
4. Multiply by the total years of service:
   7,000 × 4 = AED 28,000

Hence, the total gratuity payable after four years of service under an unlimited contract is AED 28,000.

An end of service calculator UAE can instantly compute this for you, saving time and ensuring accuracy, especially when handling different contract types or longer service periods.

Things to Remember When Calculating Gratuity

Type of Contracts

There are two main types of contracts in the UAE: limited and unlimited. Both have slightly different rules for calculating gratuity, and it's good to know the distinctions.

When it comes to calculating your gratuity, only your last basic salary counts. So, if you’re earning a total of AED 4,000, which includes extras like fuel allowances or housing, that AED 4,000 is what they’ll look at for your basic salary. Add-ons or deductions won’t factor into the calculation either.

Duration of Employment

You need to have been with the company for at least one year to qualify for gratuity. Keep in mind that they’ll only count the days you actually worked, extended leaves, like sabbaticals, won’t be included. For the clock to keep ticking, that’s all based on your first and last actual working days.

Understanding Contract Types

Before you jump into calculating your gratuity, it’s important to know what kind of contract you had with your employer.

Limited Contracts

These are fixed-term contracts with specific start and end dates, often used for particular projects. When the contract ends, it usually just automatically cancels unless it’s renewed. If you decide to leave early, you might face penalties like losing your rights or getting a labor ban.

Unlimited Contracts

On the flip side, unlimited contracts don’t have a fixed end date and offer more flexibility. They’re common in the UAE and can be terminated with a notice period of one to three months from either side. During that notice period, everyone involved should stick to their commitments.

In a nutshell, an unlimited contract means no set end date, and the gratuity you receive is based on how long you’ve worked there.

Frequently Asked Questions (FAQs)

How Is Gratuity Calculated in UAE?

In the UAE, gratuity, or end-of-service benefits, is calculated based on the employee’s basic salary and total years of service.

• Employees who have served between 1 to 3 years are entitled to a gratuity equivalent to 21 days of basic salary per year.
• Those who have worked more than 3 years but less than 5 years receive two-thirds of their basic salary for each year of service.
• For employees with over 5 years of service, the gratuity increases to 30 days of salary per year.

To simplify this process, you can use an end of service calculator UAE, which automatically applies the correct formula based on your salary and service duration, saving you time and ensuring accurate results.

Is Gratuity in UAE Calculated on the Basic Salary?

Yes. Gratuity in the UAE is calculated solely on the basic salary, as per UAE Labour Law. This means that bonuses, housing allowances, transportation, and other perks are not included in the calculation.

If you want to quickly determine your gratuity based on your last drawn salary, an end of service calculator UAE is a handy tool to generate the exact figure instantly.

What Is the New Gratuity Law in UAE?

Under the new UAE Labour Law (2023), all employment contracts are now limited to a maximum duration of five years. Gratuity is still calculated based on the employee’s most recent basic salary, with 21 days of pay for each year of service, and 30 days for every year beyond five years.

A major update in the 2023 law is that the same gratuity rules apply whether an employee resigns or is terminated. This change ensures greater fairness and consistency across all employment types.

For those unsure about how much they’re entitled to, the end of service calculator UAE can quickly compute your gratuity under the latest regulations.

Is Gratuity Added to the Monthly Salary?

No. Gratuity is not part of your monthly salary, it’s a separate benefit paid to employees after the end of their employment, based on their total years of service. It serves as a financial reward and recognition for long-term commitment to a company.

When Is Gratuity Not Paid?

According to UAE Labour Law, employees who resign before completing one full year of service are not eligible for gratuity.

Additionally, if an employee has any outstanding debts or financial obligations to the employer, the company may legally deduct the owed amount from the gratuity payment.

To check whether you qualify and estimate your exact payout, using an end of service calculator UAE is the easiest and most reliable way.

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