Step by step guide for a gratuity calculation under the UAE Laws

Gratuity, in common language, means an amount that is paid by the employer to the employee at the end of his service, in lieu of the services provided by him to the company. 

Under the United Arab Emirates, a foreign employee who works full term and has completed one year or more is entitled to receive an end-of-service gratuity upon the end of his service, in accordance with Federal Decree Law No. 33 of 2021 On the Regulation of Labour Relations (Labour Law). 

How to Calculate Gratuity 

According to Article 51 of the Labour Law, the gratuity is to be calculated in accordance with the basic salary in the following manner. 

1. Remuneration of 21 days for every year of service for the first five years. 
2. Remuneration of 30 days for each year after the first five years. 

In accordance with Article 51/5, the end-of-service gratuity will be calculated according to the last basic salary that the worker has received. 

The foreign worker is entitled to gratuity for fractions of the year in proportion to the period he has worked during the year, provided that he has completed one year of continuous service (Article 51/3). Additionally, the days of absence without pay shall not be included in the calculation of the length of service (Article 51/4). 

What is the maximum amount that can be paid to an employee as gratuity? 

In accordance with Article 51/7 of the Labour Law, the end-of-service gratuity payable to the foreign worker will not exceed two years remuneration in total. 

Can the employer deduct any amounts from the gratuity amount payable to the employee? 

Yes, the employer is entitled to deduct any amounts due, legally or by judicial ruling, from the end-of service gratuity, in accordance with the implementing regulations of the Labour Law. In accordance with Article 29 of the Cabinet Decision No. 1/2022 On the Implementing Regulation of Federal Decree-Law No. 33/2021 Regarding the Regulation of Employment Relationships (Implementing Regulations), the employer may deduct the amounts:

1. to recover the loans or other amounts paid to him in excess of his right;
2. for violations committed by the worker 
3. for repairing the damage caused by the worker, due to his fault or the employer’s instruction, leading to damage or destruction of tools, machines, products, material owned by the employer. 
4. to recover the amounts deducted for the purpose of calculating reward, retirement pension and insurance contributions.
5. As debts owed in implementation of a court ruling issued against the worker. 

What about the end-of-service benefits for non-full term employees? 

In accordance with Article 30 of the Implementing Regulations, the end of service benefits for workers working in part time jobs and not on a full time basis will be calculated in the following manner. 

• The number of working hours set out in the employment contract per year
• divided by the number of working hours in the full-time contract per year 
• multiplied by 100 equal to the percentage 
• multiplied by the value of the end of service benefit for the full-time employment contract. 

However, it should be noted that the end of service benefit shall not apply in the case of temporary employment if its duration is less than one year.