End-of-service gratuity is one of the biggest employee costs a UAE business carries, and one of the most often miscalculated. This guide explains the rules under Federal Decree-Law No. 33 of 2021 (the UAE Labour Law) for private-sector employees, with worked examples.
The gratuity rules in brief
- Eligibility: at least one year of continuous service.
- First five years: 21 days of basic salary for each year.
- After five years: 30 days of basic salary for each additional year.
- Part years: paid pro rata.
- Daily wage: basic monthly salary ÷ 30.
- Cap: total gratuity can't exceed two years' basic salary.
- Unpaid leave: days of unpaid absence are not counted as service.
- Resignation: no reduction, the same calculation applies.
The formula
Daily wage = basic monthly salary ÷ 30
Gratuity = daily wage × (21 × years up to 5 + 30 × years above 5)
Example 1: three years of service
Basic salary AED 6,000. Service: exactly 3 years.
- Daily wage = 6,000 ÷ 30 = AED 200
- Gratuity days = 21 × 3 = 63
- Gratuity = 200 × 63 = AED 12,600
Example 2: seven and a half years
Basic salary AED 10,000. Service: 7.5 years.
- Daily wage = 10,000 ÷ 30 = AED 333.33
- First five years = 21 × 5 = 105 days
- Next 2.5 years = 30 × 2.5 = 75 days
- Gratuity = 333.33 × 180 = AED 60,000
Example 3: hitting the cap
Basic salary AED 8,000. Service: 30 years.
- Uncapped: (8,000 ÷ 30) × (105 + 30 × 25) = 266.67 × 855 = AED 228,000
- Cap = two years' basic = 8,000 × 24 = AED 192,000
- Gratuity = AED 192,000
Example 4: less than a year
An employee who leaves after 10 months is not entitled to gratuity.
Where the rules are different
- DIFC and ADGM have their own employment laws and end-of-service arrangements.
- Government and semi-government employees follow separate rules.
- UAE and GCC nationals are generally covered by pension schemes instead.
- Part-time work is calculated on the hours actually worked.
Paying gratuity
End-of-service dues, including gratuity, must be paid within 14 days of the employment ending. Employers should build up a gratuity provision in the books every month, so the cost doesn't arrive as a surprise.
Gratuity in your books
Under accounting rules, the gratuity your employees have earned so far is a liability. A monthly provision, recalculated as salaries and service change, keeps your balance sheet accurate and helps with Corporate Tax, where gratuity provisions have their own deductibility rules. Our payroll service keeps the provision up to date for you.
Running payroll yourself? Read WPS Payroll in UAE: A Guide for Employers.
Calculate it in seconds
Enter the basic salary and dates of service in our free UAE gratuity calculator.