End-of-service benefits, also known as termination indemnities or end-of-service gratuities, are payable to all employees in the UAE at the end of their service – whether they quit their job on their own or their services are terminated.
The UAE Labour Law clearly specifies who is entitled to this end-of-term benefit, how it is calculated, what is deductible and cases when this payment is not due to the employees.
Are you entitled to gratuity in the UAE?
Everyone who’s worked for at least one continuous year with a UAE company is eligible for receiving gratuity.
According to Article 132 of the law (amended by Federal Law no. 12 dated 29/10/1986), an employee who has spent one year or more in continuous service shall be entitled to this payment upon the termination of her/his service.
However, the number of years in service shall not include the days of absence from work without pay.
So, when your boss or HR in your office calculates the number of years you’ve worked, your absence without pay shall not be included in the calculation of the period of service and, hence, gratuity payment.
Article 133 of the UAE Labour Law further states that a worker shall be entitled to a gratuity for the served fraction of a year, provided that s/he completes one year of continuous service.
How exactly is UAE gratuity payment calculated?
The gratuity payment as per law is calculated differently for the first five years of services as opposed to the sixth worked year and henceforth.
The wage of 21 days for each of the first five years of service is taken into account, and it is 30 days for every additional year. However, the total pay-out must not exceed the wage of two years.
The end-of-service gratuity is calculated on the basis of the last wage due to monthly, weekly and daily-paid workers.
Is it the same calculation for all kinds of contracts?
No. If any employee on an employment contract with undetermined term (unlimited contract) resigns in the first five years of employment, the end-of-service gratuity entitlement is reduced to 1/3rd if the employee has between 1 and 3 years of service, and to 2/3rd if the employee has between 3 and 5 years of service.
The employee may resign without suffering any reduction in gratuity if he has 5 years of service or more.
If an employee is engaged on a fixed term contract (limited contract), then he must complete the duration of the term in order to be entitled to gratuity.
If, however, s/he has 5 years or more of service, then s/he can resign without completing the term of his fixed term contract and will still be entitled to end-of-service gratuity as per the Labour Law.
Illustrated examples for an employee on unlimited contract
For the purpose of calculations, let’s assume the worker earns a Basic pay of Dh10,000 per month.
The daily pay would, therefore, be = (10,000*12)/365 = 328.77
And 21 days’ pay will be 328.77*21 = 6,904.17
Now, if the service is terminated before the completion of 1 year, then the employee isn’t eligible for any gratuity payment.
If the service is terminated after the completion of 1 year but before the completion of 3 years…
• The amount of 6,904.17 will be reduced to 1/3rd = 6,904.17/3 = 2,301.39
• This amount will then be multiplied by the number of years in service. For the purpose of calculations, let’s assume the service is terminated after 2 full years in service. In that case, the total gratuity payable to the employee will be 2,301.39*2 = 4,602.78
If the service is terminated after the completion of 3 years but before the completion of 5 years…
• The amount of 6,904.17 will be reduced to 2/3rd = 6,904.17*(2/3) = 4,602.78
• This amount will then be multiplied by the number of years in service. For the purpose of calculations, let’s assume the service is terminated after 4 full years in service. In that case, the total gratuity payable to the employee will be 4,602.78*4 = 18,411.12
If the service is terminated any time after the completion of 5 years…
• The full amount of 6,904.17 will be payable.
• This amount will then be multiplied by the number of years in service. For the purpose of calculations, let’s assume the service is terminated after 5 full years in service. In that case, the total gratuity payable to the employee will be 6,904.17*5 = 34,520.85
• For every additional year (or part thereof) after the completion of 5 years, the employee shall be entitled to 30 days' Basic pay as gratuity.
What’s excluded from the calculations?
While calculating this final payment from your company, remember it does not include everything that forms a part of your pay package.
The wage used as a basis for calculating the end of service gratuity shall not include payments made to the worker in housing, transport and travel allowance, overtime pay, representation allowance, cashier’s allowances, children education allowance, allowances for recreational and social services, and any other bonuses or allowances.
What else is deductible?
Even after excluding all the allowances that do not form a part of gratuity payment, there are certain deductions that an employer can make.
Article 135 of the law permits an employer may deduct from the end of service gratuity any amounts due to him by the worker.
For example, if you have taken any advance salary payment from the company, which has not been paid, will be deducted from the final payout to you.
In case of death of worker
In the event of the worker's death, his end of service gratuity shall be paid to the beneficiaries specified.
When can an employer withhold gratuity payment?
Article 120 of the UAE Labour Law specifies conditions under which gratuity will not be paid. These include:
• Termination during probation or on its expiry.
• If the worker has adopted a false identity or nationality or submitted forged certificates or documents.
• If a worker makes a mistake causing substantial material loss to the employer provided the employer notifies the relevant labour department within 48 hours of the accident.
• If the worker disobeys instructions regarding industrial safety or the safety of the workplace provided the instructions have been issued in writing and are posted conspicuously in the workplace in a language accessible to the employee or explained to him orally.
• If the worker does not perform his basic duties under the contract and persists in violating these despite being investigated and receiving a written warning notifying him of termination in the event of repeat offences.
• If the worker reveals his employer's trade or business secrets or confidential information.
• If the worker is finally sentenced by a competent court for an offence involving honour, honesty or public morals.
• If the worker is drunk or under the influence of an illegal drug during work.
• If while working the worker assaults the employer or his manager or a colleague.
• If the worker is absent from work without a valid reason for more than 20 non-consecutive days or more than 7 consecutive days.
Those working in another company without getting set approvals from the employer can also jepoardise their gratuity.
Disclaimer: The calculations above are for illustrative purposes only and must not be taken as final calculation. The UAE Labour Law is dynamic and is subject to change. Please ensure to double-check with the latest UAE Labour Law stipulations by contacting the Ministry of Labour.