The Basics of Gratuity in the UAE
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The Basics of Gratuity in the UAE
Learn everything about UAE gratuity law, end of service benefits, and accurate settlement calculation.
Gratuity is a statutory end-of-service benefit owed to employees in the UAE. As of 2025, compliance under the UAE Labour Law requires companies to calculate and disburse gratuity correctly, based solely on basic salary.
Gratuity Rules in UAE: What the Law Mandates
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Gratuity in the UAE is governed by Federal Decree-Law No. 33 of 2021, enforced in February 2022. The key points include:
- Eligibility: Employees become eligible after 1 year of continuous service.
- Applicability: Applies to all private-sector companies, including those in free zones unless alternate systems exist (e.g., DEWS in DIFC).
- Calculation: Based only on basic salary; allowances and bonuses are excluded.
Gratuity Structure:
- 1–5 years: 21 days of basic pay per year
- 5+ years: 30 days of basic pay for each additional year
- Cap: Maximum payout is 2 years' salary
Employers must settle gratuity payments within 14 days of contract termination.
End of Service Benefits UAE: What's Included and Excluded
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End-of-service benefits go beyond gratuity. While gratuity is the most prominent component, others may include:
Included:
- Accrued, unpaid leave
- Unpaid salary
- Repatriation allowance (for expats)
Excluded:
- Bonuses or commissions not contractually guaranteed
- Housing or transportation allowances
Companies must issue a final settlement statement, summarising all entitlements.
Tip: Cross-check WPS payroll data and contract terms for compliance.
How to Calculate End of Service in UAE: A Simple Breakdown
Gratuity calculation can be manual or automated using government tools like the DDA Gratuity Calculator.
Steps:
- Identify employee's basic monthly salary
- Confirm length of continuous service
- Apply:
- 21 days x basic salary x years (for 1–5 years)
- 30 days x basic salary x years (after 5 years)
- Prorate for partial years (e.g., 2.5 years = 2 full + 0.5 x 21 days)
Example: AED 5,000 basic x 21 days = AED 3,500 gratuity/year (prorated)
Reductions apply if:
- Employee took unpaid leave
- Service terminated due to misconduct
Settlement Calculation UAE: Ensuring Accuracy & Compliance
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Final settlements are a legal obligation, and an employer brand statement.
Checklist for HR:
Best Practices:
- Use payroll software to ensure accuracy
- Maintain accurate time-off records
- Provide written breakdown to exiting employee
Inaccurate settlement is the most common cause of labour disputes in the UAE SME sector.
Why Accurate Gratuity Handling Matters
Getting gratuity right is not just about legality—it's about:
- Reducing attrition risks
- Building employer trust
- Avoiding fines or litigation
- Maintaining good standing with the Ministry of Human Resources & Emiratisation (MOHRE)
SMEs that proactively manage settlements often outperform peers in retention and reputation.
Partner with Experts to Simplify Compliance
Understanding UAE gratuity law is essential—but not enough. You need systems and expertise to execute correctly, every time.
People Partners offers:
- Fully managed outsourced HR services to handle compliance, payroll, and settlements
- Strategic recruitment support to help you refill roles smoothly and compliantly
Let us help you navigate complex laws, so you can focus on growth.
Ready to ensure gratuity compliance and hire with confidence? Contact us today to discuss how People Partners can help your business succeed in the UAE.
Gratuity is a statutory end-of-service benefit owed to employees in the UAE. As of 2025, compliance under the UAE Labour Law requires companies to calculate and disburse gratuity correctly, based solely on basic salary.
Gratuity Rules in UAE: What the Law Mandates
Gratuity in the UAE is governed by Federal Decree-Law No. 33 of 2021, enforced in February 2022. The key points include:
- Eligibility: Employees become eligible after 1 year of continuous service.
- Applicability: Applies to all private-sector companies, including those in free zones unless alternate systems exist (e.g., DEWS in DIFC).
- Calculation: Based only on basic salary; allowances and bonuses are excluded.
Gratuity Structure:
- 1–5 years: 21 days of basic pay per year
- 5+ years: 30 days of basic pay for each additional year
- Cap: Maximum payout is 2 years' salary
Employers must settle gratuity payments within 14 days of contract termination.
End of Service Benefits UAE: What's Included and Excluded
End-of-service benefits go beyond gratuity. While gratuity is the most prominent component, others may include:
Included:
- Accrued, unpaid leave
- Unpaid salary
- Repatriation allowance (for expats)
Excluded:
- Bonuses or commissions not contractually guaranteed
- Housing or transportation allowances
Companies must issue a final settlement statement, summarising all entitlements.
Tip: Cross-check WPS payroll data and contract terms for compliance.
How to Calculate End of Service in UAE: A Simple Breakdown
Gratuity calculation can be manual or automated using government tools like the DDA Gratuity Calculator.
Steps:
- Identify employee's basic monthly salary
- Confirm length of continuous service
- Apply:
- 21 days x basic salary x years (for 1–5 years)
- 30 days x basic salary x years (after 5 years)
- Prorate for partial years (e.g., 2.5 years = 2 full + 0.5 x 21 days)
Example: AED 5,000 basic x 21 days = AED 3,500 gratuity/year (prorated)
Reductions apply if:
- Employee took unpaid leave
- Service terminated due to misconduct
Settlement Calculation UAE: Ensuring Accuracy & Compliance
Final settlements are a legal obligation, and an employer brand statement.
Checklist for HR:
Best Practices:
- Use payroll software to ensure accuracy
- Maintain accurate time-off records
- Provide written breakdown to exiting employee
Inaccurate settlement is the most common cause of labour disputes in the UAE SME sector.
Why Accurate Gratuity Handling Matters
Getting gratuity right is not just about legality—it's about:
- Reducing attrition risks
- Building employer trust
- Avoiding fines or litigation
- Maintaining good standing with the Ministry of Human Resources & Emiratisation (MOHRE)
SMEs that proactively manage settlements often outperform peers in retention and reputation.
Partner with Experts to Simplify Compliance
Understanding UAE gratuity law is essential—but not enough. You need systems and expertise to execute correctly, every time.
People Partners offers:
- Fully managed outsourced HR services to handle compliance, payroll, and settlements
- Strategic recruitment support to help you refill roles smoothly and compliantly
Let us help you navigate complex laws, so you can focus on growth.
Ready to ensure gratuity compliance and hire with confidence? Contact us today to discuss how People Partners can help your business succeed in the UAE.
FAQs
How is the gratuity calculated in UAE?
In the UAE, gratuity is calculated using an employee’s final basic salary and their length of service. For the first five years, workers earn 21 days’ pay per year. Beyond that, it increases to 30 days per year. The total gratuity is calculated cumulatively but is subject to a legal cap.
What is the final settlement rule in UAE?
The UAE’s final settlement rule requires employers to clear all dues, including salary, gratuity, unused leave, and bonuses, within 14 days of termination. Any outstanding advances or financial liabilities owed by the employee can legally be deducted from the final payout.
What is the end of service gratuity payment in UAE?
Employees in the UAE who complete at least one year of continuous service are entitled to an end-of-service gratuity. This lump-sum payment is based solely on basic salary and calculated according to the number of eligible service years, with escalating benefits after five years.
What is the maximum limit of gratuity?
The maximum gratuity an employee can receive under UAE law is capped at the value of two years’ basic salary. Even if the service period exceeds 20 years, this statutory limit cannot be surpassed, ensuring consistency in employer liabilities.
