In the UAE, gratuity refers to the end-of-service benefit that an employee is entitled to receive when their employment ends, under the UAE Labour Law (Federal Decree-Law No. 33 of 2021). It is essentially a financial reward for long-term service. Here’s a detailed breakdown

Eligibility

• Any employee who has completed more than 1 year of continuous service with the employer is eligible.
• Employees who resign before completing 1 year are not entitled to gratuity (unless the contract specifies otherwise).

Calculation

Gratuity depends on the type of service and the duration of employment:

1. Less than 1 year: No gratuity.
2. 1 year to 5 years:
   • 21 days’ wage for each year of service.
3. More than 5 years:
   • 21 days’ wage for each of the first 5 years.
   • 30 days’ wage for each additional year beyond 5 years.

Notes:

• The daily wage is typically calculated based on the last basic salary (excluding allowances unless specified in the contract).
• Total gratuity cannot exceed 2 years’ wages.

Resignation vs Termination

• Resignation:
  • If the employee resigns after 1 year but less than 3 years, gratuity is reduced proportionally.
• Termination by employer:
  • Full gratuity is generally payable unless dismissal is due to misconduct.

Example Calculation

Suppose an employee worked for 6 years with a basic salary of AED 10,000/month:

1. Daily wage = 10,000 ÷ 30 = AED 333.33/day.
2. Gratuity for first 5 years = 5 × 21 × 333.33 ≈ AED 35,000.
3. Gratuity for 6th year = 1 × 30 × 333.33 ≈ AED 10,000.
4. Total gratuity ≈ AED 45,000.

Important Points

• Gratuity must be paid within 14 days after the end of service unless otherwise agreed.
• Employees on fixed-term contracts are also entitled, but rules may vary slightly.
• Some contracts include clauses for forfeiting gratuity in case of serious misconduct.