How to Calculate Gratuity in UAE? [2024 Guide]

Navigating your entitlements regarding gratuity in the UAE is crucial for expatriate workers.

This legal provision acts as a safety net post-contract termination, ensuring fair compensation.

Here, we present a straightforward guide to demystify the process of calculating gratuity in the UAE for the year 2024.

Key Considerations Regarding Gratuity in UAE

In accordance with Article 51 of the UAE Labor Law, gratuity pay is a provision extended to expatriate workers in the private sector.

This compensation is determined by factors such as length of service and contract specifics. Below are fundamental aspects outlined by the UAE labour law concerning gratuity pay:

Eligibility: Employees who have completed a minimum of one year of continuous service are entitled to receive gratuity pay.
Calculation Basis: The calculation of end-of-service gratuity is based on the final wage of the employee. It's important to note that gratuity pay encompasses solely the basic salary and excludes additional allowances like transportation and accommodation.
Deductions: Employers reserve the right to deduct any legitimate amounts owed by the employee from the gratuity pay.
Settlement Period: Employers are obligated to settle all end-of-service entitlements within 14 days from the termination date of employment.

Understanding these crucial points is vital for ensuring a fair and transparent process regarding gratuity calculations in the UAE.

Contract Types and Their Implications

Understanding the type of contract you hold is essential for accurately calculating gratuity pay in the UAE.

While tools like the Dubai Development Authority's calculator can simplify the process, having a comprehensive grasp of your entitlements adds a layer of reassurance and protection.

Before delving into the gratuity calculation, it's crucial to ascertain whether you are under a limited or unlimited contract:

Limited Contract: A limited contract specifies both the commencement and termination dates of the employment tenure. It automatically ceases upon reaching the expiration date.

Unlimited Contract: In contrast, an unlimited contract lacks predefined end dates, offering greater flexibility. Termination can occur through mutual agreement or by adhering to a notice period, typically ranging from one to three months.

Understanding these distinctions ensures clarity regarding your contractual obligations and entitlements, facilitating a smoother gratuity calculation process.

Gratuity Calculation for Limited and Unlimited Contracts

For employees under limited contracts, the gratuity calculation varies based on the duration of service:

Limited Contracts:

Less than One Year: Employees who complete less than one year of their government-approved contract, whether due to resignation or termination, are not eligible for gratuity pay.
One to Five Years: Those with a service period ranging from one to five years are entitled to full gratuity pay, calculated at 21 days of basic salary for each year served.
Over Five Years: Employees who have completed over five years of service receive full gratuity based on 30 days of basic salary for each year worked.

Here's how to calculate:

Determine the daily rate by dividing the monthly wage by 30.
Multiply the daily rate by either 21 or 30, depending on the duration of service.
The resulting amount represents the gratuity for each year of service.

Example: If the monthly wage is AED10,000 and the employee has worked for four years, the gratuity for each year of service is calculated as follows: "(Monthly wage ÷ 30) x 21 days," resulting in AED6,999.30 per year.

It's important to note that regardless of the length of service, the total gratuity should not exceed two years' worth of the employee's total wages based on the basic salary.

For Employees under Unlimited Contracts:

Less than One Year: Similar to limited contracts, those with less than a year of service are not eligible for gratuity.
One to Three Years: Employees who have served between one to three years receive gratuity equal to one-third of 21 days' salary.
Three to Five Years: For service periods between three to five years, gratuity pay amounts to two-thirds of 21 days' salary.
Over Five Years: Those who complete over five years of service receive full gratuity based on 21 days' salary multiplied by the number of years worked.

Example: For an employee earning AED10,000 monthly, with four years of service, the gratuity calculation would be "(Monthly wage ÷ 30) x 21 days x 2/3," resulting in AED4,666.20 per year of service.

Exclusion from Gratuity Payment

Article 139 of the UAE Labour Law outlines scenarios where an employee may not receive gratuity payment:

Dismissal for Specified Reasons: If an employee is dismissed for reasons stipulated in Article 120 of the UAE Labour Law, or resigns solely to evade dismissal as per the same article, they are not entitled to gratuity payment.
Resignation Without Notice: Employees who resign without providing proper notice, except in cases outlined in Article 121 (such as employer contract breaches or assault), are ineligible for gratuity payment, particularly under unlimited contracts. Similarly, for limited contracts, resignation before completing five years of continuous service also disqualifies an employee from receiving gratuity.

Understanding these provisions ensures clarity regarding circumstances where gratuity payment may be withheld in compliance with UAE Labour Law regulations.

Securing Your Gratuity Benefits

To ensure you receive your gratuity entitlements as per the UAE Labour Law, it's essential to take proactive steps:

Familiarize Yourself with Contract Terms: Understand the specifics of your employment contract, including whether it's limited or unlimited, as this directly impacts your gratuity calculation.
Maintain Documentation: Keep thorough records of your employment tenure, including start and end dates, salary details, and any contractual agreements, to support your gratuity claim if needed.
Know Your Rights: Educate yourself about the provisions outlined in the UAE Labour Law regarding gratuity entitlements, including eligibility criteria and circumstances where gratuity may not be payable.
Communicate Effectively: Maintain open communication with your employer regarding any concerns or queries related to gratuity payments, ensuring clarity and transparency throughout the process.
Seek Legal Advice if Necessary: In case of disputes or uncertainties regarding gratuity entitlements, consider seeking guidance from legal professionals specializing in labour law to safeguard your rights.

By staying informed and proactive, you can navigate the gratuity process with confidence, ensuring you receive the benefits you're entitled to upon the termination of your employment contract in the UAE.

Final Considerations

Understanding how gratuity is calculated and the circumstances under which it may be withheld is essential for expatriate workers in the UAE.

By familiarizing yourself with the provisions of the UAE Labour Law and the specifics of your employment contract, you can ensure that you receive fair compensation for your service upon contract termination.

It's also crucial to maintain clear communication with your employer and keep detailed records of your employment history to support your gratuity claim if necessary.

Additionally, seeking legal advice in case of disputes or uncertainties can provide further clarity and protection of your rights.

Ultimately, by proactively managing your gratuity entitlements and staying informed about your legal rights, you can navigate the process with confidence and peace of mind, ensuring a smooth transition as you conclude your employment in the UAE.

Frequently Asked Questions

Can an employee receive gratuity if they resign before completing one year of service?

No, according to UAE Labour Law, employees must complete at least one year of continuous service to be eligible for gratuity.

Is there a maximum limit to the gratuity amount an employee can receive?

Yes, regardless of the length of service, the total gratuity should not exceed two years' worth of the employee's total wages based on the basic salary.

Are allowances included in the calculation of gratuity pay?

No, gratuity pay covers only the basic salary and does not include allowances such as transportation and accommodation.

See also: Average Salary in Dubai

What happens if an employer fails to settle gratuity entitlements within the stipulated timeframe?

Employers are required to settle all end-of-service entitlements within 14 days from the termination date of employment. Failure to do so may result in legal repercussions.

Can an employee claim gratuity if they are terminated for reasons not specified in Article 120?

Yes, if an employee is terminated for reasons other than those outlined in Article 120 of the UAE Labour Law, they are still entitled to gratuity payment.

Is gratuity applicable to all employees in the UAE?

Gratuity is generally applicable to expatriate workers in the private sector of the UAE. However, certain categories of employees, such as government employees, may have different entitlements or schemes in place.

Can an employee negotiate their gratuity entitlements with their employer?

While the basic calculation of gratuity is governed by the UAE Labour Law, employers and employees may negotiate additional gratuity terms as part of the employment contract. However, these terms must comply with the minimum requirements set forth by the law.

What happens to gratuity entitlements if an employee passes away before receiving them?

In the event of an employee's death, their gratuity entitlements may be passed on to their legal heirs or beneficiaries, as per the provisions outlined in the UAE Labour Law and any applicable regulations.

Are there any exceptions to the eligibility criteria for gratuity?

While the general eligibility criteria for gratuity are outlined in the UAE Labour Law, specific industries or occupations may have different regulations or exemptions. It's advisable to consult relevant authorities or legal experts for clarification in such cases.