How to Calculate Gratuity in UAE: A Complete Guide

Gratuity is an important benefit provided to employees in the UAE as part of the end-of-service package. When employees leave their jobs after completing a certain period of service, they are entitled to receive gratuity based on the UAE labor law. It serves as a way to reward employees for their dedication and contributions over the years.

In this guide, we will walk you through the essential aspects of gratuity calculation, including eligibility criteria, calculation formulas, and the factors that determine the amount employees are entitled to receive.

Understanding Gratuity in the UAE

Gratuity is essentially a severance payment given to employees when they leave a job after fulfilling the required service period. It is mandatory under the UAE Labor Law, and both the employee and employer should be aware of how it works to ensure fairness and compliance.

Eligibility for Gratuity

To be entitled to any gratuity, an employee must meet specific eligibility criteria for gratuity:

• Minimum Service: You must have completed at least one year of continuous service.

• Employment Type: The law applies to full-time foreign workers in the UAE private sector.

• Reason for Leaving: Under the new UAE labour law, employees are generally entitled to gratuity whether they resign or are terminated, provided they meet the one-year mark.

How Gratuity is Calculated

Gratuity is calculated based on a formula that takes into account the employee’s basic salary, the number of years they have worked, and the type of contract they are under. Here’s how it works:

1. Basic Salary: Only the basic salary is used to calculate gratuity. Other allowances, such as housing or transportation, are not included in the calculation.

2. Years of Service: The amount of gratuity increases with the number of years an employee has worked with the company. The longer the service, the higher the gratuity.

3. Contract Type: Employees on unlimited contracts and those on limited contracts have different gratuity entitlements. For instance:

   • Employees on Unlimited Contracts: Employees on unlimited contracts are entitled to 21 days of gratuity for each year of service for the first 5 years. After that, they are entitled to 30 days of gratuity for each additional year.

   • Employees on Limited Contracts: Employees on limited contracts are entitled to gratuity for the duration of their service. If they leave before the end of their contract, they may forfeit a portion of their gratuity.

Gratuity for Limited and Unlimited Contracts

The latest UAE labour law (Decree-Law No. 33) mandated a move toward limited and unlimited contracts being treated more uniformly, eventually phasing out unlimited terms.

• Limited Contracts: These have a fixed term (max 3 years, renewable). Entitled to full gratuity after one year, regardless of whether you resign or are terminated.

• Unlimited Contracts: Under previous rules, resignation often led to a reduction in pay. However, under the new UAE law, most workers are now on fixed-term "limited" contracts where these reductions are being eliminated.

Gratuity Calculation Examples

Here’s how the gratuity is calculated depending on the length of service:

• Less than 1 year of service: No gratuity is entitled if the employee leaves before completing one year of service.

• 1 to 5 years of service: Employees are entitled to 21 days of basic salary for each year of service.

• More than 5 years of service: Employees are entitled to 21 days of basic salary for the first 5 years, and 30 days of basic salary for each additional year beyond 5 years.

Step-by-Step Guide to Using the UAE Gratuity Calculator

Navigating the uae gratuity calculation is simplified by using a digital gratuity calculator uae, which helps you calculate the gratuity amount accurately. To know how much gratuity you are owed in Dubai or any other emirate, you must input specific details from your employment contract. The gratuity amount is calculated by processing your tenure and basic salary as gratuity based on the official formulas. Since the uae labor law dictates that all end of service benefits must be paid gratuity within 14 days of your final working day, using an online tool allows you to verify your final settlement promptly and ensure compliance with the latest uae labour regulations.

Benefits of UAE Gratuity Calculator

The UAE Gratuity Calculator simplifies the calculation in UAE by providing an accurate estimate based on the UAE labour law. It helps you determine your gratuity payment calculation by considering factors like your contract in the UAE, years of service, and the first 5 years of service, where gratuity is calculated at 21 days per year. For employees with more than five years of service, the calculator applies 30 days per year after the first 5 years. By using this tool, you can easily calculate how years of service impact your total gratuity, ensuring you receive the correct amount based on all relevant factors that affect gratuity.

Using a Gratuity Calculator

A gratuity calculator is an easy-to-use tool that helps employees and employers determine the exact gratuity amount an employee is entitled to. The calculator takes into account the employee's basic salary, contract type, and number of years worked. By simply inputting these details, you can get an accurate estimate of the gratuity amount.

The input parameters required to use the calculator include:

• Basic salary

• Contract type (limited or unlimited)

• Number of service years

The output will show the estimated gratuity entitlement, helping both parties understand the entitlement clearly.

Who Is Eligible for Gratuity in the UAE?

Under the current per uae labour law framework of UAE 2025, eligibility for end-of-service benefits is primarily determined by your length of service and employment status. To learn how to calculate gratuity, you must first confirm that you have completed at least one year of continuous service with your employer. While uae is calculated differently for various sectors, the per the uae labour standards generally apply to all expatriate workers in the private sector. If your salary is AED 5,000 or AED 50,000, your entitlement remains a statutory right, provided you haven't been terminated for gross misconduct as defined by the law.

UAE Labor Law and Gratuity Rules

The UAE Labor Law provides the framework for gratuity calculations. It ensures that employees are entitled to fair compensation based on their length of service. The law sets out the eligibility rules and how gratuity should be calculated, providing clarity and transparency in the process.

• Gratuity Limits: The law also sets a cap on gratuity payments, ensuring that employees cannot receive more than two years' worth of salary in gratuity.

• Changes in Gratuity Rules: If an employee is terminated, the employer is still obligated to pay gratuity. However, if an employee resigns before completing the necessary service period, they may only be entitled to a portion of the gratuity.

How Young & Right Can Help You with How to Calculate Gratuity in UAE

At Young & Right, we make it easy for both employees and employers to understand and calculate end-of-service benefits in the UAE. Whether you're eligible for gratuity or need help calculating your total gratuity, our experts guide you through the process with accuracy.

Our Services Include:

1. Gratuity Calculation: We help you calculate your gratuity pay based on basic salary, years of service, and contract type, ensuring compliance with UAE labor law.

2. UAE Gratuity Calculator: Our team assists you in using the UAE gratuity calculator for an accurate gratuity estimate, helping you calculate your gratuity quickly and accurately.

3. Expert Guidance: Stay updated with the latest UAE labor law regulations and end-of-service gratuity rules for 2025, ensuring all factors like contract type and last basic salary are considered.

4. Fast and Reliable: We ensure your gratuity calculation is completed promptly, with payments processed as soon as possible, typically within 14 days.

Conclusion

Calculating gratuity in the UAE is a straightforward process, but it is important to understand the rules and formulas that apply. By knowing how gratuity is calculated based on basic salary, contract type, and years of service, both employees and employers can ensure fairness and compliance with the UAE Labor Law.

If you need assistance in calculating gratuity or have any questions about the UAE labor laws, Young & Right is here to help. We provide comprehensive advisory services to ensure that businesses and employees understand their legal rights and obligations. Get in touch with us for expert advice and assistance.