How Gratuity Is Calculated in UAE (Step-by-Step Guide)
End-of-service gratuity is a key financial right for employees working in the UAE.
It is governed by UAE Labour Law and depends on salary, service duration, and contract type.
This guide breaks down the gratuity calculation into clear and simple steps.
Formulas, rules, and examples are kept simple and practical.
What Is Gratuity in UAE?
Gratuity is a lump-sum payment paid by an employer to an employee when employment ends.
It applies to expatriate employees working in the private sector.
The amount is based on:
Basic salary
Total years of service
Reason for leaving the job
Gratuity is meant to reward long-term service.
It is not a bonus.
It is a statutory benefit under UAE Labour Law.
Only the basic salary is used.
Allowances such as housing or transport are excluded.
UAE Gratuity Law Overview
UAE gratuity rules are defined under Federal Decree-Law No. 33 of 2021.
The law applies to most private-sector employees.
Gratuity becomes payable when:
Employment ends
Minimum service conditions are met
The law sets:
Calculation formulas
Maximum limits
Conditions for reduction or denial
Understanding these rules helps avoid disputes.
Who Is Eligible for Gratuity in UAE?
An employee becomes eligible when:
They complete at least one full year of continuous service
The contract is legally registered
Termination follows labour law rules
Both limited and unlimited contracts are covered.
Full-time employees are included.
Part-time and temporary contracts may have different terms based on agreement.
When Gratuity Is Not Payable
Gratuity may not be paid if:
Service is less than one year
Employee is dismissed for serious misconduct
Termination violates labour law
In such cases, employers can legally withhold gratuity.
How Gratuity Is Calculated in UAE
Gratuity is calculated using a fixed daily wage formula.
The calculation is straightforward when rules are followed.
The key factors are:
Basic salary
Length of service
Contract type
Gratuity Calculation Formula
The standard formula is:
21 days’ basic salary for each year of service (first 5 years)
Employees earn one full month of basic pay for every year worked beyond the first five years.
Daily salary is calculated as:
Basic monthly salary ÷ 30
The final gratuity amount is the total of all eligible years.
Basic Salary vs Gross Salary
Only basic salary is used for gratuity.
Excluded from calculation:
Housing allowance
Transport allowance
Overtime
Bonuses
This distinction is critical.
Many disputes arise from incorrect salary assumptions.
Gratuity Calculation Based on Contract Type
Contract type affects gratuity entitlement.
UAE law recognizes two main types.
Limited Contract Gratuity Calculation
For limited contracts:
Gratuity is fully payable if the contract ends normally
Early resignation may reduce eligibility
If the employer ends the contract early without valid reason, full gratuity applies.
Unlimited Contract Gratuity Calculation
For unlimited contracts:
Full gratuity applies if termination follows legal notice
Resignation may reduce gratuity based on service length
Recent law updates have reduced major differences, but contract terms still matter.
Gratuity Calculation Based on Years of Service
Years of service directly impact the final amount.
Less Than 1 Year of Service
No gratuity is payable
Service must exceed 12 months
This rule is strict and non-negotiable.
1 to 5 Years of Service
21 days of basic salary per year
Calculated proportionally for partial years
This covers the majority of employees.
More Than 5 Years of Service
First 5 years: 21 days per year
Remaining years: 30 days per year
This significantly increases the final payout.
Gratuity Calculation After Resignation vs Termination
The reason for job exit affects gratuity.
Gratuity After Resignation
If an employee resigns:
Full gratuity applies if legal notice is served
Early or unlawful resignation may reduce entitlement
Contract terms should always be reviewed.
Gratuity After Termination
If the employer terminates:
Full gratuity applies unless dismissal is for misconduct
Unlawful termination strengthens employee claims
Documentation is essential in disputes.
Maximum Gratuity Limit in UAE
UAE law caps gratuity at:
Two years’ total basic salary
Even long-term employees cannot exceed this limit.
This rule protects employers from excessive liability.
Example: UAE Gratuity Calculation Step by Step
Basic Salary: AED 5,000
Service Duration: 7 years
Calculation:
Daily salary = 5,000 ÷ 30 = AED 166.67
First 5 years:
21 × 5 × 166.67 = AED 17,500Remaining 2 years:
30 × 2 × 166.67 = AED 10,000
Total Gratuity: AED 27,500
Use a UAE Gratuity Calculator for Accuracy
Manual calculations can lead to errors.
A UAE gratuity calculator saves time and improves accuracy.
Benefits include:
Instant results
Updated labour law logic
Easy salary input
EmiratesCalculator.com offers a simple and reliable UAE gratuity calculator.
It helps employees and employers plan with confidence.
Frequently Asked Questions About UAE Gratuity
Is gratuity taxable in UAE?
No. Gratuity is tax-free.
Is gratuity paid monthly?
No. It is paid once at employment end.
Can gratuity be delayed?
It should be paid within the final settlement period.
Does unpaid leave affect gratuity?
Yes. It may reduce the service period used in calculation.
Last Note
UAE gratuity rules are clear but detailed.
Using accurate formulas and updated calculators ensures fair results for everyone.