Understanding Gratuity Payment Calculations in the UAE
Gratuity, often referred to as end-of-service benefits, is a financial compensation that employers in the United Arab Emirates (UAE) are obligated to pay their employees when they leave the company. The amount of gratuity that an employee receives is based on the duration of their employment with the company.
Detailed Breakdown of UAE Gratuity Calculation
- Qualifying for Gratuity: Employees become qualified to receive gratuity after they have worked continuously for at least one year.
- Detailed Gratuity Formula:
- Employment Less Than 1 Year: Employees are not entitled to gratuity if they have worked for less than one year.
- Employment from 1 Year to 5 Years:
- The gratuity is calculated as the daily basic salary multiplied by 21 days, then multiplied again by the total number of full years of service.
- For a more precise calculation:
- 1 to 3 Years: The employee receives one-third of the 21 days’ basic salary for each year of service.
- 3 to 5 Years: The employee receives two-thirds of the 21 days’ basic salary for each year of service.
- Employment More Than 5 Years:
- For each year of service beyond the initial five years, the employee receives a gratuity based on 30 days’ basic salary.
- For each of the first five years, the gratuity is calculated based on 21 days’ basic salary.
- Maximum Gratuity: The total amount of gratuity an employee can receive is capped at a maximum of two years’ worth of their basic salary.
Illustrative Example:
Consider an employee whose monthly basic salary is AED 10,000 and who has worked for 3 years:
- Daily Wage Calculation: AED 10,000 divided by 30 days equals AED 333.33.
- Gratuity Calculation: One-third of 21 days’ basic salary (AED 333.33) multiplied by 3 years, totaling AED 7,000 as the gratuity for 3 years of service.
Additional Key Points:
- The calculation of gratuity is based solely on the basic salary, not including any allowances or bonuses.
- Any days the employee was absent from work without pay are not counted in the total service period for calculating gratuity.
- An employer may deduct any debts or obligations owed by the employee from their final gratuity payment.
Resources for Further Information:
For comprehensive details and to review the official regulations, individuals are encouraged to visit the Ministry of Human Resources and Emiratization (MOHRE) website or to consult with a professional specializing in UAE labor law.
