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29 November 2023

Gratuity should be calculated on basic salary: Labour Ministry

By Mohammed Al Sadafy

End-of-service gratuity should be calculated on the basis of the basic salary as per the employment contract signed between the employer and employee, the Ministry of Labour said.

According to the ministry, if the basic salary is not clearly stated in the employment contract, gratuity should be calculated on the basis of the last salary paid to the employee, as quoted by Dubai-based Arabic daily newspaper Emarat Al Youm.

Humaid bin Dimas, Executive Director for Labour Affairs, said “the basic wage in the employment contract should be written with the consent of the employee.”

Bin Dimas said end of service gratuity should be calculated on the basis of gross salary if the employment contract is not clear about basic salary.

The ministry expressed its view in response to demands of employees in private firms to calculate end of service gratuity on the basis of the total, rather than basic, salary.

Bin Dimas said: “When an employee signs an employment contract, he implicitly accepts the amount fixed in the contract as the basis for calculating end-of-service gratuity.”

Employees of private companies requested the Ministry of Labour to pass a law calling for calculating end of service gratuity on the basis  of total salary because employers often keep basic salary low to take unfair advantage of the law while paying gratuity.

Some said it would be fair if the basic wage is calculated at 60 per cent of total salary.

Rami, who works in an insurance company with a total monthly salary of Dh7,000 said his basic wage in the employment contract is Dh700.

He said he was forced to sign the contract because there was no other alternative.”

Rami urged the MoL to specify 60 per cent of the total salary as the minimum basic salary, especially as the law requires the employee to work for five years in the same company to get gratuity of one month’s basic salary for each year worked.

Mohammed Wanoos, who works in a contracting company, said the UAE regulations allows the worker to stay an extra month after the end of the employment contract, but asked how he could live for a month when the gratuity is enough for only a few days.

Wanoos urged the Ministry of Labour to calculate the end of service benefits on the basis of total salary or determine the ratio of basic wage to full salary.

He said he got Dh1,500 as end-of-service gratuity after he worked for three years in the same company despite a total salary of about Dh7,000 a month.

Bin Dimas said “the UAE’s Federal Labour Law mentions both basic salary and allowance but does not indicate their proportion to each other.

He added that the MoL asks employers to update employee contracts.

He added that the employment contract is signed with the mutual consent of the employer and employee.

The employee knows before signing the contract details of his salary and end-of-service benefits.