Gratuity is a monetary payment eligible to an expat employee as a lumpsum 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 Ministry of Human Resources and Emiratisation (MOHRE) has recently introduced the Federal Decree Law No. 33 of 2021 that will regulate labor relations and employment practice in UAE. The New UAE Labor Law came into effect on February 2nd, 2022 and it will replace the current UAE Labor Law entirely.
Responsibilities of Employers Regarding End of Service Gratuity in the UAE
Employers in the UAE have crucial responsibilities when it comes to managing end-of-service gratuity, as outlined in Article 51 of the Federal Decree-Law No. 33 of 2021. Here are the key responsibilities:
Gratuity Calculation
Employers must accurately calculate end-of-service gratuity for both national and foreign workers. National workers are entitled to benefits as per pension legislation, while full-time foreign workers are entitled to 21 days’ wages for each of the first five years of service and 30 days’ wages for each subsequent year.
Eligibility Awareness
It is essential for employers to recognize that foreign workers become eligible for gratuity after completing one year of continuous
service. Employers should also ensure that part-year service is compensated proportionately in gratuity calculations.
Leave Management
Employers should note that unpaid days of absence do not count towards the length of service for gratuity calculations, while fully paid maternity and sick leave are included in the total service duration.
Payment Basis
Gratuity payments must be based on the last basic wage received by the employee, including those employed on a monthly, weekly, or daily basis. For those on piecework contracts, the average daily wage should be considered for gratuity calculations.
Maximum Gratuity Limit
Employers must ensure that gratuity payouts for foreign workers do not exceed two years’ wages, adhering to the legal caps.
Deductions
Employers have the authority to deduct any amounts owed to them by the employee from the gratuity payment, following the conditions set out in the law.
Awareness of Alternative Schemes
Employers should stay informed about any alternative end-of-service benefit schemes approved by the Cabinet, as these may involve different conditions and procedures.
How HLB HAMT Helps Employers Stay Compliant with the New Labor Law?
Accurate Gratuity Calculations
Ensures gratuity payments are calculated correctly based on the last basic wage and length of service for both national and expatriate employees.
Guidance on Eligibility
Provides clear information on gratuity eligibility criteria, including the impact of unpaid leave on service duration.
Regulatory Updates
Keeps employers informed about changes in labor laws, ensuring compliance with the latest regulations regarding end-of-service gratuity.
Thorough Record Keeping
Maintains detailed records of employee service durations, salary histories, and gratuity calculations to support compliance and audits.
Consultation Services
Offers expert advice to help employers understand their responsibilities and implement compliant practices effectively.
Support in Managing Obligations
Assists employers in confidently fulfilling their end-of-service gratuity obligations to foster positive employee relations.
Why should you choose HLB HAMT as your staffing service provider in UAE?
At HLB HAMT, we are committed to providing exceptional staffing services to our partners in the telecommunications sector in the UAE, fostering long-term, prominent partnerships. Our staffing procedures are straightforward and efficient. When you need one or multiple employees, we carefully listen to your requirements and the demands of the job role. We analyze our extensive list of candidates to find those who best match your job description and organizational culture. Our team of skilled professionals selects a set of candidates that align with your needs. While we act swiftly to provide solutions, we never compromise on the quality of our services and strictly adhere to UAE regulations, both in staffing and within the telecommunications sector.
Are you an employer ready to ensure compliance with the new UAE Labor Law? Contact HLB HAMT today to find out how our expert team can assist you!
Frequently Asked Questions
What is UAE End of Service Gratuity?
UAE End of Service Gratuity is a monetary payment eligible to an employee as a lumpsum at the end of his tenure provided that the period of service exceeds one year. Gratuity payment is a liability to the employer which accrues as the employee service period progresses.
When does an employee working in UAE become eligible for gratuity?
Employees are eligible for gratuity pay at the end of their service period.
What is the basis amount that is used to calculate UAE End of service Gratuity?
The basis amount used to calculate is the employee’s last drawn basic salary.
Who is eligible for UAE End of Service Gratuity?
The provision of gratuity pay in UAE is only applicable to expatriate workers. Workers who are UAE nationals are precluded from these provisions. This is because UAE Nationals are eligible to mandatory National pension plans. Expatriate workers do not qualify for UAE pensions.
Does UAE End of Service Gratuity payable have a maximum limit?
Yes, the amount of gratuity payable to an employee during final settlement shall not exceed two years total salary(Wage).
How is UAE Gratuity accrued?
The criteria for calculating the gratuity accrued to an employee is based on a set number of days for each year of service.
21 days per year for the first five years
30 days per year from sixth year onwards
How many types of employment contracts are available in UAE? Does the type of contract have any impact in calculating gratuity payout?
As per the new UAE Labor Law there is only one type of employment contract i.e. Limited Contract or Fixed Term contract. Since there is only one type of contract, gratuity payout does not have any impact on the type of employment contract.
Should days of absence be reduced from the service days while calculating UAE End of service gratuity?
Any days of absence from work by the employee as leave of absence is excluded when determining the service period. The period of service is reduced by the number of days served as leave of absence.
How is maternity unpaid leave and sick unpaid leave treated when determining the service period?
The period taken as maternity unpaid leave or sick unpaid leave do count as part of the service period. The period of service is not affected by the these unpaid leaves.
Is the UAE End of Service Gratuity policy at Dubai International Financial Center (DIFC) different from the provisions outlined in the labor law?
The end of service policy at Dubai International Financial Centre has been replaced by a plan called DIFC Employee Workplace Savings (DEWS). This plan requires employers operating in this economic zone to make compulsory monthly contributions to this defined contribution scheme. Please refer DIFC Employee Workplace Savings Plan for more information on the DIFC DEWS plan.
Is there any timeline in new UAE labor law for processing EOS payment to the staff?
Yes, as per the new UAE Labor Law, time frame to pay End of service payment including Gratuity is 14 days from the last working day.