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How to Calculate Gratuity in UAE

If you are working in the UAE and want to know how to calculate gratuity, you should first know about the labour law. The UAE labour law requires businesses to pay employees gratuity for at least a year of continuous service. The law provides detailed information for both parties, including how to calculate gratuity. Gratuity is a compensation payment for a worker who has completed his or her employment in the UAE. The amount payable for the end of service is based on the basic wage of the employee. It does not include the employee’s allowances.

Your gratuity depends on the following factors: type of contract, number of years served with the company, reason for termination of the contract, and your basic salary.

Types of Contracts

In the UAE, there are two types of contracts a limited contract (fixed-term contract) or an unlimited contract. Limited Contracts are agreements made between an individual and company where the person agrees to work for a set period of time. The resignation of an employee before the end of this period can result in a labour ban, loss of labour rights or payment of compensation to the employer. On the other hand, Unlimited Contract has no end date and no number of years. In order to resign, one must give a notice period of one to three months.

Also Read: How to Check UAE Visa Status Online

How to Calculate Your Gratuity

Calculate Gratuity On Limited Contracts

If the duration of service:

  • Less than 1 year: Employees are not entitled to any gratuity pay or final settlement if they leave before a year of service.
  • 1-5 years:The employee will get full gratuity based on 21 days of pay.
  • 5+ years: Employees are entitled to full pay, based on 30 days salary for every year of employment.

Example:

Basic salary ÷ 30 = Daily wage

Daily wage x 21 = 1-year gratuity figure (Or x30 if applicable)

1-year gratuity figure x years of service = Total gratuity owed 

Calculate Gratuity On Unlimited Contracts

If the duration of service:

  • Less than 1 year: Not entitled to any gratuity pay
  • 1-3 years: The employee is eligible to receive one third (1/3) of the 21 days gratuity pay.
  • 3-5 years: Employees are entitled to two third (2/3) of the 21 days gratuity pay.
  • 5+ years: The employee is entitled to full 21 days gratuity pay.

Example:

Basic salary ÷ 30 = Daily wage

Daily wage x 21 = 1-year gratuity figure (Or x30 if applicable)

1-year gratuity figure x years of service = Total gratuity owed 

Total gratuity owed ÷ 3 = One third (1/3) of total gratuity (between 1 and 5 years)

Total gratuity owed ÷ 2 = Two-third (2/3) of total gratuity (between 3 and 5 years)

For over 5 years, the total gratuity owed will be payable.

Also Read: How to Check Labour Contract in UAE

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