What Are The End of Service Gratuity Benefits In The UAE?

How would you calculate it according to the UAE labour law

  • Publish date: Wednesday، 14 October 2020 Last update: Thursday، 25 February 2021
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For the services rendered by someone at their workplace, the gravity received can often ask as a cushion before one transition into a new job. 

Based on the UAE Labour Law, here’s how you can calculate your gratuity and here’s what you need to know. 

Who is eligible?

Gratuity is paid under UAE law, regardless of the worker’s profession.

The end of service gratuity is calculated on the basis of the last basic salary which the employee was entitled to, namely the basic salary. Hence, it will not include allowances such as housing, conveyance, utilities, furniture, etc.

If the employee owes any money to the employer, the employer may deduct the amount from the employee's gratuity.

However, you would not be entitled to gratuity if you have been terminated under Article 120 of the UAE Labour Law, which involves allows an employer to terminate a contract without a notice period, due to issues related with the employee’s conduct or performance, as outlined within Article 120.

How to calculate gratuity

To calculate your gratuity, you would need to consider three factors:

1. What type of contract do you have?

The first aspect to check is whether you have a limited contract or an unlimited contract, as the calculations differ for both.

2. What is your daily basic salary?

Take a look at your contract of pay slip to find out what your ‘basic salary’ is. This would be your basic salary for a month. Divide this by 30, and you would get your daily basic salary.

3. What was the reason for termination of contract?

Under unlimited contract, the calculation would differ depending on whether you were terminated or if you resigned.

Limited contract

If you have spent one year or more in continuous service, you shall be entitled to an end-of-service gratuity upon the termination of your service.

The days of absence from work without pay will not be included in the calculation of the period of service.

The gratuity will be calculated as follows:

• Less than one year – you are not entitled to any gratuity pay.

• One to five years – you are entitled to full gratuity pay based on 21 days' basic salary for each year of work.

So, your gratuity will be:

Daily basic salary x 21 x years of service

According to Dr Hassan Elhais, legal consultant at Dubai-based Al Rowaad Advocates and Legal consultants, in this scenario, it is essential that you do not end your service before the contract is completed.

In case you resign before the contract is completed, you will not be entitled to a gratuity, as per Article 138 of the UAE Labour Law. However, this caveat only applies if your total years of service are less than five years.

If an employee has served more than five years, he is entitled to full gratuity of 30 days' salary for each year of work following the first five years, as per Article 132.

So, your gratuity would be calculated in two parts:

For the first five years

Daily basic salary x 21 x 5

For the remainder of your service

Daily basic salary x 30 x total years of additional service (after five years)

In all cases, the total gratuity shall not exceed the basic salary of two years.

Unlimited Contract

Under an unlimited contract, the calculation would depend on whether you resigned from the company, or whether you were asked to leave by your employer.

In the event where the employer terminates an unlimited contract, the calculation will be as follows:

• If an employee has served for less than 1 year, he is not entitled to any gratuity pay.

• If an employee has served more than 1 year but less than 5 years, he is entitled to 21 days' basic salary for each year of the first five years of work.

So, your gratuity will be:

Daily basic salary x 21 x years of service

• If an employee has served more than 5 years, he is entitled to 30 calendar days' basic salary for each additional year, provided the entire compensation does not exceed two years' pay.

So, your gratuity would be calculated in two parts:

For the first five years

Daily basic salary x 21 x 5

For the remainder of your service

Daily basic salary x 30 x total years of additional service (after five years)

The UAE Labour Law

These are the federal laws that are applicable when it comes to calculating gratuity

FEDERAL LAW NO. 8/1980CONCERNING THE REGULATION OF LABOUR RELATIONS

Article 132 - Entitlement to End of Service Gratuity

As amended by Federal Law No. 12/1986 dated 29/10/1986:

The worker having spent one year or more in continuous service shall be entitled to an end of service gratuity upon the termination of his service. The days of absence from work without pay shall not be included in the calculation of the period of service, and the gratuity shall be calculated as follows:

1. The wage of twenty one days for each of the first five years of service.

2. The wage of thirty days for every additional year.

Always provided that the total gratuity does not exceed the wage of two years.

Article 133 - Condition for Gratuity

The worker shall be entitled to a gratuity for the served fraction of a year, provided that he completes one year of continuous service.

Article 134 - Calculation of End of Service Gratuity

As amended by Federal Law No. 15/1985 dated 15/12/1985:

Without prejudice to the provisions of certain laws on the pensions and retirement benefits granted to workers in certain establishments, end of service gratuity shall be calculated on the basis of the last wage due to monthly, weekly and daily-paid workers, and on the basis of the average daily wage set forth in Article 57 hereof for the workers getting paid by piece. The wage used as a basis for calculating the end of service gratuity shall not include payments made to the worker in rem, housing, transport and travel allowance, overtime pay, representation allowance, cashier's allowances, children education allowance, allowances for recreational and social services, and any other bonuses or allowances.

Article 135 - Deduction of Amounts Due

The employer may deduct from the end of service gratuity any amounts due to him by the worker.

Article 137 - End of Service Gratuity in Undetermined Term Contract

Should the worker bound by an employment contract with undetermined term leave his work by his own choice after a continuous service of one year at least and three years at most, he shall be entitled to one-third of the end of service gratuity set forth in foregoing Article.

Should his continuous service be of three years at last and five years at most, he shall be entitled to two thirds of the said gratuity, and to the full gratuity should it exceed five years.

Article 138 - End of Service Gratuity in Determined Term Contract

Should the worker bound by an employment contract with determined term leave his work by his own choice prior to the expiry of the contract, he shall not be entitled to an end of service gratuity unless the duration of the service period exceeds five years.

Article 139 - Depriving of End of Service Gratuity

The worker shall be deprived of his end of service gratuity in the following two cases:

• a. Should he be dismissed from service for any of the reasons set forth in Article 120 hereof or should he leave his employment in view of avoiding the dismissal therefrom in accordance with the said Article.

• b. Should he leave his employment of his own accord, and without notice in cases other than the ones set forth in Article 121 hereof, and such with regards to contracts with undetermined term, or prior to the completion of five years of continuous service with regards to contracts with determined term.

Article 123 - Court Award of Compensation for Arbitrary Dismissal

As amended by Federal Law No. 12/1986 dated 29/10/1986:

• a. Should the worker be arbitrarily dismissed; the competent court may order the employer to pay a compensation to the worker. The court shall assess such compensation, taking into account the type of work and the extent of damage incurred to the worker as well as the duration of employment and after the investigation of the work conditions. In all cases, the amount of compensation shall not exceed the wage of the worker for a period of three months calculated on the basis of the last due wage.

• b. The provisions of the preceding paragraph shall not breach the right of the worker to the gratuity entitled thereto and the compensation in lieu of notice provided for herein.

Lead image courtesy of unsplash/@tyler-franta-ius