How To Calculate Gratuity In UAE

As an employee, it is inevitable that you will change jobs in order to look for a better opportunity and salary.  However, before you sign an end of service agreement with your current employer, it’s important to know how to calculate gratuity in UAE, especially if you want to identify any potential error(s) made by your company.

As an employee, it is inevitable that you will change jobs in order to look for a better opportunity and salary.  However, before you sign an end of service agreement with your current employer, it’s important to know how to calculate gratuity in UAE, especially if you want to identify any potential error(s) made by your company.

Whether your employment is limited or unlimited the law ensures that you have the right to gratuity pay, provided that unless you are committed one of the matters stipulated in the Article (139) of the Federal Labour Law No. (8) of the year 1980 regulating labour relations; or in case you owed to the employer henceforth; he may deduct any amounts from your gratuity pay.

Do you know how your gratuity amount was reached?  

Gratuity in UAE:

An employee’s gratuity pay is based on the current salary minus any allowances or bonuses.  For further information and clarification on this point, check Article (139) of the Federal Labour Law No. (8) of 1980, which regulates labour relations.  If the employee has been terminated from their job, they are still entitled to their full gratuity pay unless they have broken the rules stated under this law.  

Depending on your contract type below, we have our gratuity calculator examples to help guide you through the process.

Limited Contract:

With a limited or fixed term contract, an employee has agreed to stay with the company for a certain number of years with a fixed end date.  If the employee decides to leave prior to completing their fixed term, this could result in one or all of the following; a labour ban, loss of labour rights or possible payment of compensation to the employer.

Calculations for Limited Contract Gratuity Pay:

1. Less than 1 year service
The employee who leaves work before completing a full 1 year of service means they are not entitled to any gratuity pay.

2. Between 1 – 5 years of service:
The employee is entitled to full gratuity pay based on a 21-day salary for each year of work.

3. Over 5 years of service:
The employee is entitled to full gratuity pay based on a 30-day salary for each year of work.  As a stipulation to the law, as long as this total figure does not exceed two years total salary figure, it is correct.

As a general note: The days of absence from work without pay shall not be included in calculating the period of service.

Gratuity Calculator UAE Example:

Basic salary: AED 10,000

Step 1) Calculate day wage

10,000/30 days = 333.33.  Your daily wage is AED 333.33

Step 2) Calculate 1-5 year gratuity pay

333.33 x 21 = AED 6,999.93.  Your 21-day salary is AED 6,999.93 in gratuity entitlement for each year service.  Multiply this figure for the number of years of service, up to 5 years.

Step 3) Calculate above 5 years gratuity pay

333.33 x 30 = AED 9,999.90.  Your 30-day salary is AED 9,999.90 in gratuity entitlement for each year service.  Multiply this figure for the number of years of service.

*Please note that these calculations are not to be treated as the law, they are for your reference only.

Unlimited Contract:

With an unlimited contract, the employee has no mandatory time period and therefore no fixed end date.  When either the employee or employer is looking to terminate the contract, a notice period of one to three months is applicable.

Calculations for Unlimited Contract gratuity pay:

1. Less than 1 year service
The employee who leaves work before completing a full 1 year of service means that you are not entitled to any gratuity pay.

2. Between 1 – 3 years of service:
The employee is entitled to 1/3 of the 21 days gratuity pay for each year of work.  

3. Between 3 – 5 years of service:
The employee is entitled to 2/3 of the 21-day gratuity pay for each year of work.

4. Over 5 years of service:
The employee is entitled to full 30 days gratuity pay.

Gratuity Calculator UAE Example:

Basic salary: AED 10,000

Step 1) Calculate day wage

10,000/30 days = 333.33.  Your daily wage is AED 333.33

Step 2) Calculate 21 day gratuity pay

333.33 x 21 = 6999.93.  Your 21-day salary is AED 6,999.93 in gratuity entitlement for each year service.  Multiply this figure for the number of years of service, up to 5 years.

Step 3) Calculate 1-3 years of service:

6999.93/ 3 = 2,333.31.  Your 1/3 of 21-day salary is AED 2,333.31 in gratuity entitlement

Step 4) Calculate 3-5 years of service:

2,333.31 x 2 = 4,666.62.  Your 2/3 of 21-day salary is AED 4,666.62 in gratuity entitlement.

Step 5) Calculate Over 5 years of service:

333.33 x 30 = 9,999.9.  Your full 30-day salary is AED 9,999.9 in gratuity entitlement for each year service.  Multiply this figure for the number of years of service.

*Please note that these calculations are not to be treated as the law, they are for your reference only.

Conclusion:

Do you know how your gratuity amount was reached?  

Whether your employment is limited or unlimited the law ensures that you have the right to gratuity pay, provided that unless you are committed one of the matters stipulated in the Article (139) of the Federal Labour Law No. (8) of the year 1980 regulating labour relations; or in case you owed to the employer henceforth; he may deduct any amounts from your gratuity pay.

The above examples are very brief overviews for the calculation of gratuity pay for employees on both the Limited and Unlimited contracts.  There may be other variations to consider such as calculating a fraction of a years’ gratuity pay, making all of the additional laws, rules and stipulations valuable information to know. 

For further advice on Employment in the UAE, Contact Us at 04 336 8833 or info@alkhoulilaw.com.

 

 

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