UAE Gratuity policy and settlement

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    Article 51 of the new UAE labor law Federal Decree-Law No. 33 of 2021 states as follows regarding End of Service gratuity:

    A  full-time foreign worker, who completed a year or more in continuous service, shall be entitled to end of service benefits at the end of his service, calculated according to the basic wage as per the following:

    1. A wage of (21) twenty-one days for each year of the first five years of service;
    2. A wage of (30) thirty days for each year exceeding such period.

    Here we have covered a set of frequently asked questions that pertain to End of Service Gratuity in the UAE.

    1. What is Gratuity?

      Gratuity is a monetary payment eligible to an employee as a lump sum 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.

    2. When does an employee working in UAE become eligible for gratuity?

      Employees are eligible for gratuity pay at the end of their service period, at termination or at resignation. According to article 51, the worker shall be entitled to a fraction of the year worked provided he has completed more than one year of continuous service.

    3. What is the basis amount that is used to calculate gratuity?

      The basis amount used to calculate is the employee’s last drawn basic salary. Any amounts due to the employer may be deducted from the gratuity pay by the employer.

    4. Who is eligible for gratuity?

      The provision of gratuity pay in the UAE is only applicable to expatriate workers. Workers who are UAE nationals are precluded from these provisions. This is because UAE Nationals are eligible for mandatory National pension plans. Expatriate workers do not qualify for UAE pension.

    5. Does gratuity payable have a limit?

      The amount of gratuity payable to an employee during final settlement cannot exceed the employee’s current total two-year salary.

    6. What is the number of days used to accrue gratuity?

      The criteria of calculating the gratuity accrued to an employee is based on a set number of days for each year of service.

      Accrual: gratuity accrues at the following rate.

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

      The following simple example shows the gratuity accrual at a given time.

      The method applied to calculate the one-day salary is the 30-day method i.e. salary/30. The common methods used are either the current month method or the annualized method i.e. salary*12/365. Employers are not legally restricted to the two methods in determining the daily salary.

    7. 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.

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

      Scenario 1

      Service period: less than one year

      Gratuity Amount = Basic Salary per day*Gratuity Days

      * Remarks No Gratuity to be paid as employee did not complete 1 year of service

      Scenario 2

      Service period: Between One to Five years

      Gratuity Amount = Basic Salary per day*Gratuity Days

      * Remarks Employee is eligible for 21 days for each completed years of service

      Scenario 3

      Service period: Above five years

      Gratuity Amount = Basic Salary per day*Gratuity Days

      * Remarks Employee is eligible for 21 days for the first 5 years and 30 days Above 5 years of service

    8. Is the gratuity policy at DIFC different from the provisions outlined in the labor law?

      The end-of-service policy at Dubai International Financial Centre has recently been changed and replaced by a new 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 new plan.

    9. What is the effect of unpaid leave taken during the period of service?

      Any period taken by the employee as unpaid leave is excluded when determining the service period. That means unpaid leave days are excluded when accruing gratuity. The period of service is reduced by the number of days served as unpaid leave.

    10. How is Maternity unpaid leave and sick leave unpaid leave treated when determining the service period?

      The period taken as either maternity unpaid leave or sick leave unpaid do count as part of the service period. The period of service is not affected by any period taken during tenure by employees for these two types of leaves. Please refer to A Guide on statutory leaves in UAE to see how specific statutory leaves affect the service period.

    11. 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.

    12. How is UAE gratuity treated from an accounting perspective?

    For information on the payroll process in UAE click on this link

    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 subjected to change and 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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