Final Settlement calculations in UAE

Employees are an organization’s lifeline. Expatriates from a multitude of locations live in the UAE, contributing to the Emirate’s economic growth and prosperity. It is the employer’s responsibility to look after and settle an employee’s end-of-service benefits, and this should be done in an accurately and timely manner.

While calculating EOS, companies should include all the benefits as mentioned in the UAE Labor law and Employment agreement between the company and the employee.

Below are the components included in the Final Settlement Calculation.

1. Unprocessed Salary, if any: –

   An employee is entitled to receive salary until the last working day.

   If an employee resigns or gets terminated and the last working day is 10^th Aug 2021 and the employee had received July 2021 salary, then the employee should be paid for 10 days additional salary as part of the final settlement calculation. If an employee resigns or gets terminated and the last working day was 25^th July 2021 and the employee had received July 2021 salary, then 6 days of salary should be recovered from the employee and be included in the final settlement calculation.

2. Unused Annual Leave or excess leave used: – 

   If the employee has worked for more than six (6) months, then the employee will be paid for unused annual leaves which are accrued till the last working day of the employee. If the employee has used excess leave from the accrued leave till the last working day, then the excess used day amount will be recovered while calculating the final settlement.For more details about the leave policy in the UAE, please follow the link  UAE Leave 

3. Repatriation ticket to home country: –

   The employer should pay the employee for a one-way repatriation ticket to the employee’s country of origin. This is applicable only if the employee is travelling back to the country of origin. If a visa change is happening within the UAE by changing visa status, the employee is not eligible to get a repatriation ticket.

4. End of Service Gratuity: – 

   Gratuity is a monetary payment eligible to an expat employee as a lump sum at the end of his tenure, provided that the period of service exceeds one year. The basis amount used to calculate is the employee’s  last drawn basic salary.  The amount of gratuity payout is calculated based on the type of contract, i.e., limited or unlimited contracts, and the type of separation, i.e., resignation or termination. Please see the below table to get a fair idea of how to calculate gratuity under different scenarios.

   For more information about UAE Gratuity calculation click here

5. Notice Period Pay: – 

   The employer or employee can terminate an unlimited employment contract with a minimum of 30 days notice period. The employee will have to perform his duties during such a period as instructed by the employer. If either the employer or the employee fails to serve notice or shortens the notice period, the party obligated to serve the notice shall pay the other party compensation as Notice period pay. If the employer has terminated an employment contract for a limited period, he becomes liable for the payment of compensation, provided that the sum of compensation, in all events, may not exceed the total pay due to him for a period of three months or for the remaining period of the contract whichever is shorter, unless the terms of the contract provide otherwise. If the contract has been terminated by the employee, for reasons other than those mentioned under Article (121), the employee becomes liable for compensating the employer against losses incurred by him as a consequence of contract termination, provided that the amount of compensation, may not exceed half a month’s pay for a period of three months or for the remaining period of the contract, whichever is shorter, unless the terms of the contract provide otherwise.

6. Any Outstanding loan, advances, or deductions: – 

   If there is any unrecovered portion of the outstanding loan, advance or deduction, it can be recovered through final settlement.

   For example:- An employee has taken a loan of AED – 60,000.00 and the repayment is in 12 Equal installments. The employee has paid AED-50000.00 (10 instalments), and the remaining two installments (AED 10,000.00) are to be recovered from the employee when the final settlement is calculated.

7. Other payments or recovery: – 

   If there is any other payment or recovery due to the employee, it also can be settled in the final settlement calculation

   I.e., any overtime payment, bonus, commission, incentives, etc. that is pending to be paid with his final settlement calculation. If any amount is to be recovered (fines, telephone deductions, etc.), from an employee, it should be considered in the final settlement calculation.

8. Any other benefits or compensation mentioned in Employment Contract: – 

   As part of the separation, an employee is entitled to any other benefits or compensation mentioned in the employment contract.

Here, we are trying to answer some of the commonly asked questions related to final settlement.

1. Can a company in UAE terminate an employee without any End of service Gratuity or Notice period pay?

   Any employee whose employment is terminated by the employer under Article 120 is not eligible for any end-of-service gratuity or notice period pay. Article 120 of UAE Labor law includes the below conditions.

   1. If the employee adopts a false identity or nationality or if he submits forged documents or certificates.
   2. If the employee is appointed under a probationary period and dismissal occurs during or at the end of said period.
   3. If he commits an error causing substantial material loss to the employer, provided that the latter advises the labor department of the incident within 48 hours from having knowledge of the same.
   4. If an employee violates instructions regarding the safety of the place of business provided that such instructions are displayed in writing at conspicuous places and in the case of an illiterate employee, the latter must be informed verbally of the same.
   5. If he fails to perform his basic duties under the employment contract and continue to violate them despite a formal investigation and a warning that he will be fired if the same thing happens again.
   6. If he divulges any secrets about the establishment where he is employed.
   7. If he is awarded final judgment by the competent court in respect of an offence prejudicing honour, honesty or public morals.
   8. If during working hours, he is found drunk or under the influence of a drug.
   9. If in the course of his work, he commits an assault on the employer, the manager or any of his colleagues.
   10. If he is absent without lawful excuse for more than twenty intermittent days or for more than seven successive days during one year.

2. Do employees have the option to leave the company without serving notice period in UAE?

   As per Article 121 of UAE labor law, the employee may leave the service in a Company in UAE without notice period in the following cases:

   1. If the employer does not fulfill his obligations towards the employee as provided for in the contract or in this law.
   2. If the employer or his legal representative has committed an act of assault against the employee.

3. Is there is any deadline in labor law for processing EOS?

   There is no such deadline in the law for final settlement before cancelling Visa, as employees are asked to sign paperwork declaring that they have received all that is due to them ahead of visa cancellation.

4. Who bears visa cost? Can a company deduct visa cost from employee if he/she resigned from the job?

   As per UAE Labour law, employer has to bear all the visa expenses for an employee and cannot deduct this from employee.

5. How long can an employee stay in the UAE once their visa is cancelled by the company?

   Employee can stay a maximum 28 days in UAE after cancelling the visa.

6. Is WPS Payment processing mandatory for EOS?

   WPS is not mandatory for EOS, it is recommended. Company can issue cheque also.

7. Should a company intimate employee bank before processing final settlement to the employee?

   If company provided any letter to the bank saying that company will inform bank while processing final settlement, it is obligatory to inform bank. If there is no such letter issued by the company, it is not mandatory to inform bank that payment is final settlement.

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 clients’ entire payroll cycle that includes preparation of payroll reports, processing salary payment with WPS compliance, accrual management including Gratuity, 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, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

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