Dubai: Whether you have resigned from a job, or have been asked to leave, the gratuity that you receive at the end of your service can act like a safety net, helping you transition to your next employment.

If you were confused about how you can calculate your gratuity, based on the UAE Labour Law, here is all you need to know.

Who is eligible?

Gratuity is paid under UAE law, regardless of the worker’s profession.

The end of service gratuity is calculated on the basis of the last basic salary which the employee was entitled to, namely the basic salary. Hence, it will not include allowances such as housing, conveyance, utilities, furniture, etc.

If the employee owes any money to the employer, the employer may deduct the amount from the employee's gratuity.

However, you would not be entitled to gratuity if you have been terminated under Article 120 of the UAE Labour Law, which involves allows an employer to terminate a contract without a notice period, due to issues related with the employee’s conduct or performance, as outlined within Article 120.

How to calculate gratuity

To calculate your gratuity, you would need to consider three factors:

1. What type of contract do you have?

The first aspect to check is whether you have a limited contract or an unlimited contract, as the calculations differ for both.

2. What is your daily basic salary?

Take a look at your contract of pay slip to find out what your ‘basic salary’ is. This would be your basic salary for a month. Divide this by 30, and you would get your daily basic salary.

3. What was the reason for termination of contract?

Under unlimited contract, the calculation would differ depending on whether you were terminated or if you resigned.

Limited contract

If you have spent one year or more in continuous service, you shall be entitled to an end-of-service gratuity upon the termination of your service.

The days of absence from work without pay will not be included in the calculation of the period of service.

The gratuity will be calculated as follows:

• Less than one year – you are not entitled to any gratuity pay.

• One to five years – you are entitled to full gratuity pay based on 21 days' basic salary for each year of work.

So, your gratuity will be:

Daily basic salary x 21 x years of service

According to Dr Hassan Elhais, legal consultant at Dubai-based Al Rowaad Advocates and Legal consultants, in this scenario, it is essential that you do not end your service before the contract is completed.

In case you resign before the contract is completed, you will not be entitled to a gratuity, as per Article 138 of the UAE Labour Law. However, this caveat only applies if your total years of service are less than five years.

• If an employee has served more than five years, he is entitled to full gratuity of 30 days' salary for each year of work following the first five years, as per Article 132.

So, your gratuity would be calculated in two parts:

For the first five years

Daily basic salary x 21 x 5

For the remainder of your service

Daily basic salary x 30 x total years of additional service (after five years)

In all cases, the total gratuity shall not exceed the basic salary of two years.

FORMULA FOR CALCULATING GRATUITY FOR LIMITED CONTRACT

Less than one year
Not entitled to gratuity
One to five years of service
Daily basic salary x 21 x years of service
Over five years of service
[Daily basic salary x 21 x 5] + [Daily basic salary x 30 x total years of additional service after five years]

Calculation example

For example, if your basic salary is Dh10,000, your daily basic pay would be Dh333.33

If you have served for over one year, but less than five years, your gratuity calculation for ONE YEAR would be

333.33 x 21 = Dh7,000

Depending on the number of years you have served, multiply the number with Dh7,000 to get your total gratuity pay for a service of less than five years.

If you have served for over five years …

1. The gratuity for the first five years would be Dh7,000 x 5 = Dh35,000

2. The yearly gratuity for the term of service after five years would be Dh333.33 x 30 = Dh10,000. Depending on the number of years you have served after the first five years, multiply the number with Dh10,000 to get the gratuity for the remainder of your service.

The total gratuity, however, cannot exceed the total of two years’ basic salary. So, regardless of the years spent at a firm, total gratuity in the above example cannot exceed Dh240,000.

Unlimited Contract

Under an unlimited contract, the calculation would depend on whether you resigned from the company, or whether you were asked to leave by your employer.

In the event where the employer terminates an unlimited contract, the calculation will be as follows:

• If an employee has served for less than 1 year, he is not entitled to any gratuity pay.

• If an employee has served more than 1 year but less than 5 years, he is entitled to 21 days' basic salary for each year of the first five years of work.

So, your gratuity will be:

Daily basic salary x 21 x years of service

• If an employee has served more than 5 years, he is entitled to 30 calendar days' basic salary for each additional year, provided the entire compensation does not exceed two years' pay.

So, your gratuity would be calculated in two parts:

For the first five years

Daily basic salary x 21 x 5

For the remainder of your service

Daily basic salary x 30 x total years of additional service (after five years)

FORMULA FOR CALCULATING GRATUITY FOR UNLIMITED CONTRACT, IN CASE YOUR EMPLOYER TERMINATES THE CONTRACT:

Formula for calculating gratuity for unlimited contract, in case your employer terminates the contract:
Less than one year
Not entitled to gratuity
One to five years of service
Daily basic salary x 21 x years of service
Over five years of service
[Daily basic salary x 21 x 5] + [Daily basic salary x 30 x total years of additional service after five years]

In the event where the employee – who is under an unlimited contract – resigns, the calculation will be as follows:

• If an employee resigns before completing 1 year of service, he is not entitled to any gratuity pay.

• If an employee has served between one and three years, he is entitled to one third (1/3) of 21 days' basic salary as gratuity pay.

• If an employee has served between 3 and 5 years, he is entitled to two-thirds (2/3) of 21 days' basic salary as gratuity pay.

• If an employee has served more than five years, he is entitled to full 21 days' basic salary for the first five years and for the remainder of his service, he would get paid a full 30 days’ basic salary per year as gratuity pay.

FORMULA FOR CALCULATING GRATUITY FOR UNLIMITED CONTRACT, IN CASE YOU RESIGN

Less than one year
Not entitled to gratuity
One to three years of service
Daily basic salary x 21 x 1/3 x Total years of service
Three to five years of service
Daily basic salary x 21 x 2/3 x Total years of service
Over five years of service
[Daily basic salary x 21 x 5]+[Daily basic salary x 30 x Number of years of service after five years]

For example, if your basic salary is Dh10,000, your daily basic pay would be Dh333.30

Your gratuity for 21 days would then be

333.30 x 21 = Dh6,999.30

If you have served for one to three years, your gratuity would be calculated as follows

Dh6,999.30 x 1/3 x Total years of service

If you have served for three to five years, your gratuity would be calculated as follows

Dh6,999.30 x 2/3 x Total years of service

If you have served for over five years, your gratuity would be calculated in two parts

For the first five years

Dh6,999.30 x 5

For the remaining years

10,000x remainder of the years (after five years)

How to calculate on a pro rata basis

According to Dr Elhais, in the real world, as many employees may not serve an exact number of years in service, they would need to calculate the gratuity for the fraction of the year served, by calculating the gratuity on a pro rata basis.

So, if you have served at an organisation for five years, 10 months and 15 days, the calculation would be as follows, if – for example – your basic salary is Dh10,000:

For the first five years, the gratuity would be

Daily basic salary x 21 x 5 = 35,000

To calculate the gratuity for the fraction of year spent (10 months and 15 days), you can calculate the gratuity for the 10 months first and then for the 15 days.

Gratuity for 10 months (after five years of service)

A month’s gratuity = Daily basic salary x 30 ÷ 12

So, in the example above, the monthly gratuity would be Dh833.33

Accordingly, the gratuity for 10 months would be Dh8,333.33

Gratuity for 15 days

A day’s gratuity would be = Monthly gratuity ÷ 30

So, in the example above, the daily gratuity would be Dh27.77

Accordingly, the gratuity for 15 days would be Dh416.66

So, total gratuity for a service of five years, 10 months and 15 days would be

35,000+8,333.33+416.66=Dh43,750

For further assistance

You can also reach out to the Ministry of Human Resources and Emiratisation (MOHRE) on 800 60 or through their website www.mohre.gov.ae, if you have any questions regarding your specific employment contract termination.

The UAE Labour Law

These are the federal laws that are applicable when it comes to calculating gratuity

FEDERAL LAW NO. 8/1980CONCERNING THE REGULATION OF LABOUR RELATIONS

Article 132 - Entitlement to End of Service Gratuity

As amended by Federal Law No. 12/1986 dated 29/10/1986:

The worker having spent one year or more in continuous service shall be entitled to an end of service gratuity upon the termination of his service. The days of absence from work without pay shall not be included in the calculation of the period of service, and the gratuity shall be calculated as follows:

1. The wage of twenty one days for each of the first five years of service.

2. The wage of thirty days for every additional year.

Always provided that the total gratuity does not exceed the wage of two years.

Article 133 - Condition for Gratuity

The worker shall be entitled to a gratuity for the served fraction of a year, provided that he completes one year of continuous service.

Article 134 - Calculation of End of Service Gratuity

As amended by Federal Law No. 15/1985 dated 15/12/1985:

Without prejudice to the provisions of certain laws on the pensions and retirement benefits granted to workers in certain establishments, end of service gratuity shall be calculated on the basis of the last wage due to monthly, weekly and daily-paid workers, and on the basis of the average daily wage set forth in Article 57 hereof for the workers getting paid by piece. The wage used as a basis for calculating the end of service gratuity shall not include payments made to the worker in rem, housing, transport and travel allowance, overtime pay, representation allowance, cashier's allowances, children education allowance, allowances for recreational and social services, and any other bonuses or allowances.

Article 135 - Deduction of Amounts Due

The employer may deduct from the end of service gratuity any amounts due to him by the worker.

Article 137 - End of Service Gratuity in Undetermined Term Contract

Should the worker bound by an employment contract with undetermined term leave his work by his own choice after a continuous service of one year at least and three years at most, he shall be entitled to one-third of the end of service gratuity set forth in foregoing Article.

Should his continuous service be of three years at last and five years at most, he shall be entitled to two thirds of the said gratuity, and to the full gratuity should it exceed five years.

Article 138 - End of Service Gratuity in Determined Term Contract

Should the worker bound by an employment contract with determined term leave his work by his own choice prior to the expiry of the contract, he shall not be entitled to an end of service gratuity unless the duration of the service period exceeds five years.

Article 139 - Depriving of End of Service Gratuity

The worker shall be deprived of his end of service gratuity in the following two cases:

• a. Should he be dismissed from service for any of the reasons set forth in Article 120 hereof or should he leave his employment in view of avoiding the dismissal therefrom in accordance with the said Article.

• b. Should he leave his employment of his own accord, and without notice in cases other than the ones set forth in Article 121 hereof, and such with regards to contracts with undetermined term, or prior to the completion of five years of continuous service with regards to contracts with determined term.

Article 123 - Court Award of Compensation for Arbitrary Dismissal

As amended by Federal Law No. 12/1986 dated 29/10/1986:

• a. Should the worker be arbitrarily dismissed; the competent court may order the employer to pay a compensation to the worker. The court shall assess such compensation, taking into account the type of work and the extent of damage incurred to the worker as well as the duration of employment and after the investigation of the work conditions. In all cases, the amount of compensation shall not exceed the wage of the worker for a period of three months calculated on the basis of the last due wage.

• b. The provisions of the preceding paragraph shall not breach the right of the worker to the gratuity entitled thereto and the compensation in lieu of notice provided for herein.