UAE End of Service Gratuity: How It Works and How to Calculate It

End of service gratuity is one of the most significant financial entitlements for employees in the UAE. Get it wrong — either as an employee who doesn’t know what they’re owed, or as an employer who miscalculates — and the consequences range from lost money to labour disputes.

This guide covers how UAE gratuity works, how to calculate it correctly, who qualifies, and what changed with the new labour law reforms.

What Is End of Service Gratuity?

End of service gratuity is a lump sum payment made by an employer to an employee when their employment ends. It’s calculated based on the employee’s length of service and final basic salary.

It applies to employees in:

• UAE mainland companies
• Free zone companies (most freezones follow UAE Federal Labour Law)

It does not apply to employees covered by the new DEWS (Dirhams for the Future) scheme at certain freezones, or to employees earning more than AED 30,000 per month who have opted into an alternative savings scheme.

Gratuity is governed by Federal Decree-Law No. 33 of 2021 (the new UAE Labour Law), which replaced the previous law and came into effect 2 February 2022.

Who Qualifies for Gratuity

You qualify for end of service gratuity if you:

• Have completed at least 1 full year of continuous service
• Are employed on a full-time basis under a UAE employment contract
• Are not subject to an alternative savings scheme

Employees who resign before completing 1 year are not entitled to gratuity. After 1 year, gratuity is paid regardless of whether the employee resigns or is terminated, with one exception: employees dismissed for gross misconduct under Article 44 of the Labour Law forfeit their gratuity entitlement.

Part-time employees can also receive gratuity, calculated proportionally based on their working hours.

How to Calculate UAE Gratuity

The calculation is based on your basic salary — not total remuneration. Allowances (housing, transport, phone) are excluded unless the employment contract or company policy specifies otherwise.

The Formula

For the first 5 years of service:

• 21 days of basic salary per year of service

For each year beyond 5 years:

• 30 days of basic salary per year of service

Total gratuity is capped at 2 years’ worth of basic salary, regardless of how long you’ve worked.

Step-by-Step Example

Say an employee has worked for 7 years and earns AED 15,000 basic salary per month.

Daily basic salary: AED 15,000 / 30 = AED 500 per day

First 5 years: 5 x 21 days x AED 500 = AED 52,500

Years 6 and 7: 2 x 30 days x AED 500 = AED 30,000

Total gratuity: AED 52,500 + AED 30,000 = AED 82,500

2-year cap check: 2 years x 12 months x AED 15,000 = AED 360,000

AED 82,500 is well under the cap, so the full amount is payable.

When the Cap Matters

The 2-year cap only becomes relevant for employees with very long tenures. At 24 years of service, the gratuity calculation exceeds the cap for most salary levels, so the cap kicks in at that point. For most UAE employees, the cap won’t affect their payout.

Resignation vs Termination: Does It Affect the Amount?

Under the current Labour Law (post-February 2022), the amount you receive is the same whether you resign or are terminated, provided you’ve completed at least 1 year of service.

The old law had a tiered reduction for employees who resigned before completing 5 years, which meant they received a fraction of their entitled gratuity. That rule no longer applies under Federal Decree-Law No. 33 of 2021.

The only exception remains gross misconduct dismissal under Article 44, where gratuity can be forfeited entirely.

When Does the Employer Pay Gratuity?

Gratuity must be paid within 14 days of the employment contract ending. This applies whether the contract expired, was terminated by either party, or the employee resigned.

If the employer fails to pay within 14 days, the employee can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE). MOHRE has the authority to pursue unpaid gratuity on the employee’s behalf, and courts have consistently ruled in favour of employees in straightforward non-payment cases.

Employers who wilfully delay payment can also face penalties under UAE labour law.

Gratuity and Unpaid Leave

Days of unpaid leave during the employment period are not counted as part of the service duration. If an employee took 30 days of unpaid leave over their 5-year tenure, the effective service period for gratuity calculation is reduced accordingly.

Sick leave taken within the permitted limits under the Labour Law does count toward service duration.

Gratuity During Redundancy

If you’re made redundant (the company restructures, your role is eliminated, or the business closes), you are entitled to full gratuity based on your complete length of service. Redundancy does not reduce your entitlement.

In practice, some employers try to dress up redundancy as resignation or mutual agreement to avoid additional obligations. If you believe you were effectively made redundant, document everything and seek a claim through MOHRE if needed.

Gratuity and Maternity / Parental Leave

Maternity leave (60 days under the current law) counts toward total service duration for gratuity purposes. The time does not reduce your entitlement.

Tax on Gratuity

Gratuity payments in the UAE are not subject to income tax — there is no personal income tax in the UAE. The full amount is paid net to the employee.

The DEWS Alternative Scheme

DIFC (Dubai International Financial Centre) employees are covered by a different system: the DIFC Employee Workplace Savings (DEWS) scheme. Under DEWS, employers make monthly contributions into an employee savings fund rather than paying a lump sum at the end.

DEWS contributions are:

• 5.83% of monthly basic salary for employees with under 5 years of service
• 8.33% for employees with 5 or more years

The DEWS pot is owned by the employee and managed by a regulated fund administrator. Employees can access it when they leave DIFC employment.

ADGM (Abu Dhabi Global Market) has a similar structure called the ADGM Employee Money Purchase Scheme.

If you work in DIFC or ADGM, check with HR whether you’re on the traditional gratuity model or the alternative savings scheme. It affects how your end-of-service benefits are structured.

For more on DIFC: DIFC Freezone Setup Guide.

Gratuity and the WPS

Gratuity is separate from your regular salary and is not processed through the Wage Protection System (WPS). WPS covers monthly salary payments; gratuity is a separate terminal payment.

For more on WPS: UAE WPS Guide.

What Employers Need to Do

If you’re running a UAE business and employ staff, here’s what to stay on top of:

Track service start dates accurately. This is your single most important data point for gratuity. A start date discrepancy of even a few months can create disputes.

Use basic salary, not total package. Confirm in employment contracts exactly what is and isn’t included in basic salary. If in doubt, keep basic and allowances clearly separated.

Budget for gratuity as a liability. Gratuity accumulates over time. For a 5-year employee on AED 20,000 basic salary, you’re looking at roughly AED 70,000 in gratuity liability. Factor this into your financial planning.

Pay within 14 days. Set a reminder the moment an employee hands in notice or their contract ends. The 14-day clock starts from the contract end date, not from when you get around to processing payroll.

Keep records. Maintain a clear record of employment contracts, salary history, and any periods of unpaid leave. You’ll need these if a gratuity amount is disputed.

If you need HR software to track this automatically, see our guide to best HR software for UAE SMEs.

Common Mistakes

Using total salary instead of basic salary. Gratuity is calculated on basic salary only. An employee earning AED 25,000 total with AED 12,000 basic has gratuity calculated on the AED 12,000 figure.

Not paying after 1 year of service. Some employers incorrectly assume gratuity only applies after longer tenure. One full year of continuous service triggers the entitlement.

Treating probation periods incorrectly. Probation periods (up to 6 months under UAE law) count toward total service duration for gratuity purposes, provided the employee passes probation and continues employment.

Ignoring part-time employees. Part-time workers employed under a UAE contract are entitled to proportional gratuity. It’s calculated based on their contracted hours relative to a full-time equivalent.

Gratuity Disputes

If you believe you’ve been underpaid or not paid at all, your options are:

1. MOHRE complaint — file through the MOHRE website or app, or visit a MOHRE service centre. MOHRE will attempt mediation first.
2. Labour court — if mediation fails, the case goes to the UAE labour courts. Cases under AED 100,000 are processed through a simplified fast-track procedure.
3. DIFC or ADGM courts — if you work in one of these financial centres, their courts have jurisdiction for employment disputes.

MOHRE complaints are free to file. Court proceedings involve filing fees, though successful claimants typically recover costs.

Summary

UAE gratuity law is employee-friendly and fairly straightforward once you know the formula. For employers, the key discipline is tracking service dates accurately and setting aside the liability as it accrues. For employees, knowing your entitlement means you can verify what you’re paid before you walk out the door.

For context on how UAE employment contracts and hiring works more broadly, see our guide to hiring employees in the UAE.

If you are managing gratuity calculations manually across multiple employees, the margin for error is significant. Horilla HRM via WireApps automates gratuity accrual, tracks service dates, and calculates final settlements accurately — built for UAE labour law.