A Comparison of New Law on UAE Gratuity with Previous Law

Gratuity is a monetary incentive that employers provide to employees as a token of gratitude for their services. Any employee who has worked for a firm for a specific period of time is entitled to a gratuity, according to UAE labour law.

The Ministry of Human Resources and Emiratisation (MOHRE) has introduced the Federal Decree-Law No. 33 of 2021 that will regulate labor relations and employment practices in UAE. The New UAE Labor Law came into effect on February 2nd, 2022 and it replaced the current UAE Labor Law entirely.

Here, our payroll experts in UAE take you through a comparison between the previous labour law and the new one and the significant changes in gratuity calculation as per new labour law;

Comparison between the previous law and new law

How is Gratuity determined in the UAE?

There is just one sort of contract under the new law a fixed contract. Following a year of employment, employees become entitled to gratuity. After one year of employment, the employee is qualified for the entire gratuity regardless of whether they leave from the firm or are terminated by the employer. Eligibility of Gratuity after completing one year of service is:

• 21 days per year for the first 5 years
• 30 days per year from the sixth year onwards

Both the old legislation and the new law use the employee’s most recent basic salary as the base amount for calculating gratuities.

Period of time for End of Service Gratuity Payment

The new UAE labour legislation stipulates that the deadline for end-of-service payments, including gratuities, must be made within 14 days of the employee’s last day of employment.

In the instance of the employee’s demise, the employer must, within ten days of the employee’s passing, pay the gratuity to the employee’s family together with any other compensation or monetary entitlements owing to the employee.

For more details, please follow the link: Final settlement Payment timeline in UAE

Please see the below-mentioned scenarios for a better understanding of gratuity calculation

Scenario 1 – Service Period: Less than one year

Scenario 2 – Service Period: Between One to Five years

Scenario 3 – Service Period: Above five years

 

DIFC’s Gratuity Regulations

A programme termed Dubai International Financial Centre (DIFC) has just replaced Dubai International Financial Centre’s previous gratuity policy. Employers doing operations in this economic zone must pay the required monthly payments to this contribution plan under this program.

Please follow the link to know more about DIFC

Bottom Line

The UAE now has clear regulations controlling employee interactions thanks to the new labour law. By considering both the developments and the unusual situations that may emerge in a work relationship, the new reforms aim to offer flexibility as well as stability in the UAE’s employment sector.

Frequently Asked Questions

1. When does a worker in the UAE become qualified for gratuity?

   At the conclusion of their employment, workers are entitled for gratuity.

2. What is the main focus rate wherein the UAE End of Service Gratuity is calculated?

   The employee’s most recent basic salary is taken as the base rate in the calculation.

3. What is End-of-Service Gratuity in the UAE?

   End of Service gratuity in UAE refers if an employee has worked for the company for a duration longer than a year, they may be entitled for a gratuity, which is a lump sum payout at the conclusion of their employment.

4. How many different kinds of employment contracts are there in the UAE?

   There is just one sort of employment contract, known as a Fixed Term contract, in accordance with the current UAE Labor Law.

5. Does the form of contract affect how much gratuity is paid out?

   Gratuity payouts have no bearing on the kind of employment contract because there is just one of contract under the new law a fixed contract.

6. When calculating UAE End of Service Gratuity, would days of absence be deducted from the service days?

   When calculating the service duration, any days taken off by the employee on a leave of absence are removed. The number of days taken as a leave of absence is deducted from the length of service.

7. Are there any differences between the rules established in the labour legislation and the UAE End of Service Gratuity guideline at Dubai International Financial Center (DIFC)?

   At Dubai International Financial Centre, a programme known as DIFC Employee Workplace Savings has taken the position of the end-of-service policy. Employers doing business in this economic zone must pay required monthly contributions to this defined contribution plan under this plan.

8. How is Gratuity calculated in the UAE?

   The methodology used to determine an employee’s gratuity accrual is based on a predetermined number of days for each year of service.

   1. 21 Days per year for the first five years
   2. From sixth year – 30 Days per year

 

Payroll Service in UAE

The process of payroll is a little complicated and time-consuming; hence it is always recommended to outsource your company’s payroll function. Outsourcing payroll will ensure the assistance of a team of trained payroll professionals and it frees up the time of the organization, helping them focus on other projects that add value to their business. One should be extra vigilant while selecting their payroll provider, as payroll data is highly sensitive, and one should opt for a provider that can ensure high levels of data security.

As a leading payroll outsourcing company, HLB HAMT can help solve your payroll complexities through customized strategies. We take care of our client’s entire payroll cycle that includes the preparation of payroll reports, processing salary payments with WPS compliance, accrual management including Gratuity, and pension funds, an online portal for accessing payslips, and many more. Our leadership team spends the necessary hours in every project, ensuring our clients get refined consulting services to take your business forward.

To know more about our payroll process, click here

Disclaimer

Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all-inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subject to change and is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treats exhaustively the subjects covered, provide legal advice, or render a legal opinion.

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