UAE End-of-Service Gratuity: What It Is and How It Is Calculated
End-of-service gratuity is a statutory payment that may become due when an employment relationship ends. It is separate from salary and forms one part of the final settlement, which may also include unpaid wages, compensation for unused annual leave, notice pay, contractual benefits and lawful deductions.
Under the UAE Labour Law, a foreign worker employed full-time in the private sector generally becomes eligible for gratuity after completing at least one year of continuous service. The calculation is based on the last basic salary, without including housing, transport or other allowances. The standard calculation provides:
21 days of basic salary for each year of service during the first five years.
30 days of basic salary for each additional year after the first five years.
A proportionate entitlement for part of a year, provided that at least one year of continuous service has been completed.
A maximum total gratuity equivalent to two years of salary.
The final amount may be affected by the length of service, unpaid absences, work pattern, contractual terms and any deductions permitted under the law.
This guide explains what end-of-service gratuity is, when it becomes payable, how it is calculated and how it fits within the wider final settlement process. It applies primarily to private-sector employment governed by the federal UAE Labour Law. Separate rules may apply to UAE nationals, domestic workers, government employment and employment within the DIFC or ADGM.
What Is End-of-Service Gratuity in the UAE?
End-of-service gratuity is a lump-sum statutory benefit calculated by reference to an eligible worker’s basic salary and continuous period of service. It becomes payable when the employment relationship ends, provided that the legal eligibility requirements have been satisfied.
Gratuity is not a discretionary bonus and should not be confused with the complete final settlement. It represents one specific employment entitlement, while the final settlement is the overall calculation of all amounts payable or deductible at the end of employment. A final settlement may include:
End-of-service gratuity.
Salary due up to the final working day.
Compensation for accrued but unused annual leave.
Payment in lieu of notice, where applicable.
Outstanding commissions, incentives or contractual benefits.
Repatriation expenses, where legally or contractually payable.
Lawful deductions for amounts owed.
For eligible full-time foreign workers, the statutory gratuity is calculated using the last basic salary and the completed period of continuous service. UAE nationals are generally covered by the applicable pension and social security legislation rather than the standard gratuity calculation.
Who Is Eligible for UAE End-of-Service Gratuity?
Under the federal UAE Labour Law, end-of-service gratuity generally applies to foreign workers employed in the private sector who have completed at least one year of continuous service. The principal eligibility conditions are:
The employment relationship must fall within the scope of the federal UAE Labour Law.
The worker must have completed at least one full year of continuous service.
The traditional calculation applies directly to full-time employment, while part-time and other work patterns follow a proportionate calculation.
Periods of unpaid absence are excluded when determining the length of service used for the gratuity calculation.
No statutory gratuity is generally payable where continuous service is less than one year. Once the one-year requirement has been met, any additional part of a year is included on a proportionate basis. Different arrangements may apply in the following circumstances:
UAE nationals are generally covered by the applicable pension and social security legislation.
Domestic workers are governed by separate legislation.
Government employees are subject to the rules applicable to their employing authority.
Employment within the DIFC and ADGM is governed by the respective employment frameworks of those financial free zones.
Individuals enrolled in the voluntary alternative end-of-service benefits system are covered by the relevant savings scheme for the applicable service period.
Eligibility should therefore be confirmed by identifying the governing employment framework before applying the standard federal gratuity formula.
Which Salary Is Used to Calculate Gratuity?
The gratuity calculation is based on the last basic salary payable at the end of the employment relationship. It is not calculated using the employee’s total remuneration package. The following amounts are generally excluded from the statutory gratuity calculation:
Housing allowance.
Transport allowance.
Education allowance.
Travel allowance.
Overtime payments.
Bonuses and commissions.
Benefits provided in kind.
Any other allowance that does not form part of the contractual basic salary.
For a monthly-paid worker, the daily basic salary is generally calculated as follows: daily basic salary = Last monthly basic salary ÷ 30. The applicable number of gratuity days is then multiplied by the daily basic salary. For example, where the last monthly basic salary is AED 9,000: AED 9,000 ÷ 30 = AED 300 daily basic salary. The AED 300 daily rate would be used to calculate the gratuity based on the applicable years of service.
For workers paid by piece rate, the calculation is based on the average daily wage determined in accordance with the UAE Labour Law.
Where an employment contract or company policy provides a more favourable end-of-service benefit, the contractual entitlement should also be reviewed before the final amount is determined.
How Is UAE Gratuity Calculated?
The standard gratuity calculation for full-time employment depends on the completed period of continuous service.
Length of continuous service | Gratuity entitlement |
Less than one year | No statutory gratuity |
One to five years | 21 days of basic salary for each year of service |
More than five years | 21 days of basic salary for each of the first five years, plus 30 days for every additional year |
The calculation can be completed using the following steps.
Step 1: Calculate the Daily Basic Salary
Last monthly basic salary ÷ 30 = Daily basic salary
Step 2: Calculate the First Five Years
Daily basic salary × 21 days × Years of service within the first five years
Step 3: Calculate Service Beyond Five Years
Daily basic salary × 30 days × Years of service exceeding five years
Step 4: Add Both Amounts
Where the service period exceeds five years, the amounts calculated for the two service periods are added together to determine the total gratuity.
A proportionate amount is payable for any additional part of a year once at least one year of continuous service has been completed. Periods of unpaid absence are excluded from the service period used in the calculation. The total gratuity payable under the standard statutory formula must not exceed the equivalent of two years of salary.
UAE Gratuity Calculation Examples
The following examples use a final monthly basic salary of AED 9,000.
Daily basic salary: AED 9,000 ÷ 30 = AED 300.
Example 1: Four Years of Service
As the entire service period falls within the first five years, the 21-day rate applies. AED 300 × 21 days × 4 years = AED 25,200
The estimated gratuity is AED 25,200.
Example 2: Seven Years of Service
The first five years are calculated at 21 days per year: AED 300 × 21 days × 5 years = AED 31,500
The remaining two years are calculated at 30 days per year: AED 300 × 30 days × 2 years = AED 18,000
Total gratuity: AED 31,500 + AED 18,000 = AED 49,500
Example 3: Seven Years and Six Months of Service
The first five years are calculated at 21 days per year: AED 300 × 21 days × 5 years = AED 31,500
The remaining two and a half years are calculated at 30 days per year: AED 300 × 30 days × 2.5 years = AED 22,500
Total gratuity: AED 31,500 + AED 22,500 = AED 54,000
These examples assume continuous full-time service, no unpaid absences and no alternative contractual or savings arrangement. The actual calculation should be based on the precise service dates and the last basic salary payable when the employment relationship ends.
How Partial Years and Unpaid Leave Affect the Calculation
Once at least one year of continuous service has been completed, any additional part of a year is included in the gratuity calculation on a proportionate basis. For example, if the service period is four years and six months and the last monthly basic salary is AED 9,000: AED 9,000 ÷ 30 = AED 300 daily basic salary
then AED 300 × 21 days × 4.5 years = AED 28,350. The estimated gratuity would therefore be AED 28,350, assuming there were no unpaid absences.
Periods of unpaid absence are excluded from the service period used to calculate gratuity. Paid annual leave, maternity leave, sick leave within the applicable paid entitlement and other authorised paid leave generally remain part of continuous service.
For an accurate calculation, the service period should be determined using:
The official employment commencement date.
The final date of the employment relationship.
Any periods of unpaid absence.
Any earlier settlement or transfer of accrued gratuity.
Any period covered by an alternative end-of-service savings scheme.
Using completed years alone may understate the entitlement, while failing to deduct unpaid absences may overstate it. The calculation should therefore reflect the precise recognised period of service.
How Gratuity Is Calculated for Part-Time Work
Part-time and other non-full-time work arrangements use a proportionate calculation based on the contractual working hours.
The applicable percentage is calculated as follows: Annual contractual working hours ÷ Annual full-time working hours × 100. The resulting percentage is then applied to the gratuity that would have been payable under an equivalent full-time contract. For example:
Annual hours under the part-time contract: 1,040
Annual hours under the equivalent full-time contract: 2,080
Full-time gratuity based on salary and service: AED 25,200
The working-time percentage is: 1,040 ÷ 2,080 × 100 = 50%.
The estimated part-time gratuity is: AED 25,200 × 50% = AED 12,600.
The calculation should use the working hours stated in the relevant employment contracts and the full-time working pattern applicable to the establishment. Temporary work arrangements lasting less than one year do not generally qualify for gratuity under this method.
Does Resignation or Termination Change the Gratuity Calculation?
Under the current UAE Labour Law, the same statutory gratuity formula generally applies whether the employment relationship ends through resignation, termination or expiry of the employment contract, provided that the eligibility requirements have been satisfied.
The reductions previously associated with resignation under the former labour law no longer form part of the current federal calculation. The main factors are now:
The last basic salary.
The recognised period of continuous service.
Whether at least one year of service has been completed.
Any unpaid absences.
The applicable work pattern.
Whether an alternative end-of-service benefits scheme applies.
The method by which employment ends may still affect other elements of the final settlement. For example, payment in lieu of notice may become due if the required notice period is not served, while compensation may arise in cases involving unlawful termination.
These amounts are separate from gratuity and should not be combined with the statutory gratuity formula. A termination without notice under the disciplinary provisions does not automatically remove the right to end-of-service benefits.
Each final settlement should therefore distinguish between gratuity, notice-related payments, salary, leave compensation and any other contractual or statutory entitlement.
What Is Included in a UAE Final Settlement?
End-of-service gratuity is only one component of the amount calculated when employment ends. A complete final settlement should identify each entitlement and deduction separately because different components may use different salary bases.
Final settlement component | General calculation basis |
Salary up to the final working day | Outstanding contractual wage |
End-of-service gratuity | Last basic salary and recognised service period |
Unused annual leave | Accrued eligible leave calculated using the applicable basic salary |
Notice compensation | Wage for the unserved notice period, where payable |
Overtime, commission or incentives | Amounts earned and payable under the law, contract or company policy |
Contractual benefits | Entitlements expressly provided by the employment contract or applicable policy |
Lawful deductions | Documented amounts that may legally be deducted |
The final settlement should clearly distinguish between the basic salary and the total wage. Gratuity is calculated using the basic salary, while other components, such as notice compensation, may be calculated using a different wage basis. Before the settlement is finalised, the following records should be reconciled:
Employment commencement and termination dates.
Current employment contract and salary structure.
Payroll records and unpaid salary.
Annual leave balance.
Notice period served or waived.
Approved unpaid leave.
Outstanding loans, advances or other permitted deductions.
Commission, incentive and benefit arrangements.
Any previous gratuity settlement or savings-scheme contribution.
An itemised calculation creates a clear record of how the final amount was determined and reduces the risk of gratuity being confused with other end-of-employment payments.
What Can Be Deducted From the Final Settlement?
Amounts legally owed may be deducted from end-of-service entitlements, provided that the deduction is permitted under UAE law and can be supported by appropriate records. Potential deductions may include:
Outstanding loans or salary advances.
Amounts paid in excess and recoverable under the applicable rules.
Court-ordered payments.
Amounts due for damage or loss where legal responsibility and the permitted deduction have been established.
Other documented liabilities that may lawfully be recovered through the final settlement.
Deductions should not be applied automatically or based on an unsupported internal estimate. Each amount should be separately identified and supported by documents such as a signed loan agreement, payroll record, written acknowledgement, disciplinary record or judicial decision. The final settlement should present:
The gross amount of each entitlement.
The legal and factual basis for every deduction.
The net amount payable after deductions.
Unpaid absence should normally be reflected by excluding the relevant period from the gratuity service calculation rather than recording the same period again as a separate deduction. This avoids reducing the settlement twice for the same absence.
A clear, itemised statement provides evidence of how the net payment was determined and allows the calculation to be reviewed before the employment file is closed.
When Must the Final Settlement Be Paid?
Under the UAE Labour Law, the employer must pay outstanding wages and other statutory entitlements within 14 days from the date the employment contract ends. This deadline includes any end-of-service gratuity and other amounts due as part of the final settlement.
The settlement process should therefore be prepared before or immediately after the final working day. The required review may include:
Confirming the official termination date.
Closing the payroll calculation.
Verifying the recognised service period.
Reconciling annual leave and unpaid absence.
Calculating gratuity and notice compensation.
Confirming any contractual benefits.
Reviewing and documenting lawful deductions.
Preparing an itemised settlement statement.
Retaining evidence of the final payment.
The 14-day requirement should be considered when coordinating work-permit cancellation, visa procedures and the administrative closure of the employment file. Delaying the calculation until after these steps have been completed may create unnecessary compliance risk.
Where the amount is disputed, the calculation and supporting records should be reviewed promptly. Unresolved employment disputes may be referred to the Ministry of Human Resources and Emiratisation or the authority responsible for the relevant jurisdiction.
The Alternative End-of-Service Benefits System
The UAE also provides a voluntary savings-based alternative to the traditional gratuity system. Under this arrangement, an employer may enrol selected workers in an approved investment fund and make monthly contributions on their behalf. For full-time beneficiaries, the employer’s basic monthly contribution is:
5.83% of the monthly basic salary where continuous service does not exceed five years.
8.33% of the monthly basic salary where continuous service exceeds five years.
The contribution rate is based on the total continuous service with the employer, not only the period following enrolment in the scheme. The basic contribution is paid by the employer and cannot be deducted from the worker’s salary.
The funds are invested through an approved scheme. When the employment relationship ends, the beneficiary is entitled to the employer’s basic contributions and any investment returns generated during the subscription period. The funds may be withdrawn or left in the scheme for continued investment, subject to the applicable conditions.
The traditional gratuity accrued before enrolment must remain protected. The employer should therefore maintain clear records distinguishing:
The service period covered by the traditional gratuity system.
The gratuity accrued before the scheme began.
The service period covered by monthly investment contributions.
Employer contributions and any investment returns.
Additional voluntary contributions made by the beneficiary.
The alternative system changes how end-of-service benefits are funded and accumulated. It does not remove the need for accurate payroll, service and contribution records.
Common Gratuity Calculation Errors
Gratuity disputes often arise from applying an incorrect salary basis, using outdated rules or combining separate final-settlement components into a single figure. Common errors include:
Using the Total Salary Instead of the Basic Salary
The statutory gratuity calculation is based on the last basic salary. Housing, transport and other allowances are generally excluded unless a more favourable contractual arrangement applies.
Applying the Same Daily Rate to the Entire Service Period Incorrectly
The first five years are calculated at 21 days of basic salary per year. Only the service exceeding five years is calculated at 30 days per year.
Ignoring Partial Years
Once one year of continuous service has been completed, any additional part of a year should be included proportionately.
Including Unpaid Absence in the Service Period
Unpaid absence must be excluded from the recognised service period. Failing to remove these days may overstate the gratuity.
Applying Outdated Resignation Reductions
The current federal Labour Law no longer applies the resignation reductions used under the previous legal framework.
Combining Gratuity With the Entire Final Settlement
Salary, annual leave compensation, notice pay and gratuity may use different calculation bases. Each component should be calculated and presented separately.
Overlooking the Maximum Limit
The total statutory gratuity calculated under the traditional system cannot exceed two years of salary.
Applying the Federal Formula to Every Employment Relationship
DIFC, ADGM, domestic work, government employment, pension arrangements and the alternative savings scheme may follow different rules.
Missing the Payment Deadline
Outstanding wages and end-of-service entitlements must generally be paid within 14 days from the end of the employment contract.
A reliable calculation requires the applicable legal framework, salary records, service dates, leave history and contractual terms to be reviewed together.
Practical Gratuity and Final Settlement Checklist
An accurate calculation requires more than applying the standard gratuity formula. The applicable legal framework, employment terms, salary records and service history should all be reviewed before the final amount is confirmed.
Identify the applicable jurisdiction, such as the UAE federal private-sector framework, DIFC or ADGM.
Confirm the employment start date, final working date and total period of continuous service.
Verify the last basic salary separately from allowances and total remuneration.
Identify any unpaid absence that must be excluded from the service period.
Apply 21 days of basic salary for each of the first five years and 30 days for each additional year.
Calculate eligible partial years proportionately after at least one full year of service.
Adjust the calculation where a part-time or alternative work arrangement applies.
Check whether the individual participates in the voluntary alternative end-of-service benefits system or an applicable pension scheme.
Apply the statutory limit, under which traditional gratuity cannot exceed two years’ wage.
Calculate other final settlement components separately, including unpaid salary, unused annual leave and any applicable notice compensation.
Review all deductions to confirm that they are lawful, documented and not applied more than once.
Prepare an itemised statement showing how each amount was calculated.
Complete the payment within 14 days from the end of the employment contract, as required under the federal private-sector framework.
Maintaining accurate contracts, payroll records, leave balances and service dates throughout the employment relationship can significantly reduce errors and disputes when the final settlement becomes due.
Frequently Asked Questions About UAE Gratuity
Is UAE gratuity calculated on the basic salary or total salary?
Under the federal private-sector framework, gratuity is calculated using the last basic salary received. Housing, transport and other allowances are generally excluded from the calculation.
Is gratuity payable when the service period is less than one year?
No statutory gratuity is normally payable when continuous service is less than one year. Once one complete year has been served, any eligible additional part of a year is calculated proportionately.
How is gratuity calculated after five years of service?
The first five years are calculated at 21 days of basic salary for each year. Every additional year is calculated at 30 days of basic salary, subject to the overall statutory limit.
Are allowances included in the gratuity calculation?
Allowances are generally excluded because the calculation is based on basic salary rather than the employee’s total remuneration. Salary records and the employment contract should clearly distinguish between basic salary and allowances.
Does resignation reduce the gratuity amount?
Under the current UAE federal private-sector employment law, the previous reductions linked to resignation no longer apply. If the eligibility requirements are met, the standard calculation is generally used regardless of whether the employment relationship ends through resignation or termination.
Are unpaid leave days included in the service period?
Unpaid absence is excluded when determining the period of service used for the gratuity calculation. Accurate leave and attendance records are therefore important when establishing the final entitlement.
Is payment for unused annual leave part of gratuity?
No. Payment for an eligible unused annual leave balance may form part of the final settlement, but it is calculated separately from gratuity.
What is the maximum gratuity payable?
Under the federal private-sector framework, the total traditional gratuity payment cannot exceed the equivalent of two years’ wage.
When must gratuity and the final settlement be paid?
Amounts due at the end of the employment contract must generally be paid within 14 days from the contract’s termination date.
Does the same gratuity formula apply in DIFC and ADGM?
Not necessarily. DIFC and ADGM operate under separate employment frameworks, while UAE nationals are generally covered by an applicable pension and social security system. The governing jurisdiction and employment arrangement should therefore be confirmed before calculating the entitlement.
How NUR Advisors Group Can Help
End-of-service gratuity should be treated as an ongoing HR and financial obligation rather than a calculation performed only when an employment relationship ends. Accurate contracts, clearly structured salary components and reliable records of service, leave and payroll activity all contribute to a compliant final settlement process.
NUR Advisors Group supports UAE businesses with:
Employment documentation and HR record management
Payroll and leave record coordination
Gratuity and final settlement calculations
Review of salary structures and contractual benefits
Work permit and residency cancellation procedures
Outsourced HR and government liaison services
Coordination with specialist legal advisers when required
By bringing the contractual, financial and administrative elements together, businesses can manage employment exits with greater accuracy, transparency and consistency.
Contact NUR Advisors Group for practical support with UAE employment administration, HR compliance and final settlement procedures.
Disclaimer
The information contained in this article is provided by NUR Advisors Group for general informational purposes only. It does not constitute legal, tax, accounting, financial, immigration, employment or other professional advice and should not be relied upon as a substitute for advice tailored to your specific circumstances.
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