UAE Gratuity Calculation Formula and Eligibility Explained
The UAE gratuity calculation formula is based on the employee’s basic salary, length of service, and type of contract (limited or unlimited). It determines the lump sum payment owed to an employee when they leave their job after completing at least one year of service.
For anyone working in the private sector under UAE Labour Law, knowing how this is calculated can help you plan ahead especially if you’re thinking about changing jobs, retiring, or moving out of the country.
Let’s break it down step by step so you understand exactly what you’re entitled to, how it’s calculated, and who qualifies.
Who is Eligible for Gratuity in the UAE?
Any employee who has completed at least one year of continuous service with the same employer is eligible for gratuity. This applies to private sector workers under the UAE Labour Law.
Conditions for Eligibility:
- The employee must work under a limited or unlimited contract.
- The employee must not be terminated for misconduct as defined in Article 44 of the UAE Labour Law.
- Resignation before one year means no gratuity.
- Government sector employees follow different rules and are not covered under this formula.
If you switch employers or change your contract type midway, your calculation may differ. Also, unpaid leave and absences without valid reasons can affect the final amount.
What Is Considered Basic Salary?
Gratuity is calculated based only on the basic salary not your total salary. That means no allowances, commissions, or bonuses are included.
So if your total salary is AED 7,000 but your basic salary is AED 4,000, your gratuity will be based on AED 4,000 only.
This is where many people get confused. Your offer letter or contract will clearly mention the basic salary amount, usually 60-70% of the total.
UAE Gratuity Calculation Rules
To receive a gratuity, you must meet these conditions:
- You worked continuously for at least one year
- Your contract ended legally either through resignation or termination
- You were not dismissed for misconduct
- You were employed under the UAE Labour Law (not free zone rules unless specified)
Gratuity is not based on your full salary, but only on your basic monthly salary, excluding allowances like housing, travel, or bonuses.
The UAE has different rules for different types of contracts
UAE Gratuity Calculation by Contract Type
Gratuity calculations depend on whether you have a limited or unlimited contract. The rules for each contract type affect how much you’re entitled to based on your service duration. Your gratuity also differs if you resign or are terminated, with separate formulas for each situation.
Unlimited Contract Gratuity Calculation
For employees working under an unlimited contract in the UAE, the gratuity calculation is based on the total years of service and is not affected by the contract’s duration. Here’s how it works:
- First 5 years: You are entitled to 21 days of basic salary for each year of service.
- Beyond 5 years: You will receive 30 days of basic salary for each year after completing 5 years of service.
Example Calculation
If your basic salary is AED 5,000 and you’ve worked for 7 years:
- First 5 years: (21 ÷ 30) × AED 5,000 × 5 = AED 17,500
- Next 2 years: (30 ÷ 30) × AED 5,000 × 2 = AED 10,000
- Total gratuity = AED 27,500
Remember, if you resign before completing 5 years, your gratuity will be calculated based on the resignation formula and will be lower than if you were terminated by your employer.
Limited Contract Gratuity Calculation
For employees under a limited contract, the gratuity calculation can be slightly different depending on whether the contract ends due to resignation or termination. Here’s how it works:
- Resignation:
- If you resign before 1 year, you are not eligible for any gratuity.
- If you resign after 1 year but before 5 years, you will receive 21 days of salary for each year.
- After 5 years, the calculation follows the same as an unlimited contract, where you get 21 days for the first 5 years and 30 days for each year beyond that.
- Termination by employer:
- If the contract is terminated by the employer (except for misconduct), you are entitled to full gratuity based on your service.
Example Calculation
For an employee earning AED 5,000 under a limited contract with 6 years of service:
- First 5 years: (21 ÷ 30) × AED 5,000 × 5 = AED 17,500
- Sixth year: (30 ÷ 30) × AED 5,000 = AED 5,000
- Total gratuity = AED 22,500
In a limited contract, resignation before completing the contract period will result in a reduced gratuity compared to termination.
Gratuity Computation on Resignation
If you decide to resign from your job in the UAE, the calculation of your gratuity will differ based on the duration of your service. Here’s a straightforward breakdown:
- Resignation within the first 1 year: You are not eligible for gratuity if you leave before completing 1 full year of service.
- Resignation after 1 year but before 5 years: You will receive 21 days of basic salary for each completed year of service.
- Resignation after 5 years: You will receive 21 days of basic salary for the first 5 years and 30 days for each additional year of service beyond 5 years.
Example Calculation
If your basic salary is AED 4,000 and you’ve worked for 6 years:
- First 5 years: (21 ÷ 30) × AED 4,000 × 5 = AED 14,000
- Sixth year: (30 ÷ 30) × AED 4,000 = AED 4,000
- Total gratuity = AED 18,000
The amount you receive for resignation will be reduced if you leave before completing 5 years. Keep in mind that you must give proper notice as specified in your contract to qualify for the full amount.
Gratuity Computation on Termination
If your employer terminates your contract, the gratuity calculation depends on whether the termination is with or without cause. Here’s how it works:
- Termination for reasons other than misconduct: You are entitled to full gratuity based on your service.
- If employed for 1-5 years, you get 21 days of salary for each year.
- If employed for more than 5 years, the gratuity is calculated as 21 days for the first 5 years and 30 days for each additional year.
- Termination for misconduct: If you’re dismissed for serious reasons, such as violating company policies, you will not be entitled to gratuity.
Example Calculation
For someone earning AED 4,000 with 4 years of service, and being terminated:
- First 4 years: (21 ÷ 30) × AED 4,000 × 4 = AED 11,200
- Total gratuity = AED 11,200
Note that, even if your termination was not your fault, you will still need to check whether any terms of your contract affect your payout.
How to Calculate UAE Gratuity: Step-by-Step
Here’s a simplified way to do it:
Step 1: Identify your basic salary
Let’s say it’s AED 4,000.
Step 2: Check your contract type
Limited or Unlimited?
Step 3: Count your total years of service
Let’s say 6 years.
Step 4: Apply the formula
For the first 5 years:
21 days per year = (21 ÷ 30) × 4,000 = AED 2,800 per year
2,800 × 5 = AED 14,000
For year 6:
30 days = (30 ÷ 30) × 4,000 = AED 4,000
Total gratuity = 14,000 + 4,000 = AED 18,000
This amount is what you’re legally owed—unless your termination falls under misconduct.
If you want to skip the math and get your answer fast, try our easy UAE Gratuity Calculator on the homepage. Just enter your salary, contract type, and service years—it’ll do the rest.
Can Gratuity Be Withheld or Reduced?
Yes, in some cases:
- If the employee resigns before 1 year, no gratuity is paid.
- If the employee is dismissed for misconduct, the gratuity may be forfeited.
- If you resign under an unlimited contract before 5 years, a portion may be reduced.
Always check your contract and final settlement details carefully.
What About Part-Time Workers?
As per the updated UAE Labour Law, part-time workers are also eligible for end-of-service benefits. However, the calculation is proportional to the number of hours worked.
The Ministry of Human Resources and Emiratisation (MOHRE) uses a different formula based on actual work hours, not full months or years.
Common Misconceptions About UAE Gratuity
Let’s clear up a few myths:
- Myth: You get gratuity on your full salary.
Truth: It’s calculated on your basic salary only. - Myth: You must wait until retirement to claim it.
Truth: You can claim it whenever you leave the job, as long as you qualify. - Myth: Gratuity includes annual leave and airfare.
Truth: Those are separate benefits.
Understanding these points can save you from getting short-changed.
Conclusion
To calculate UAE gratuity, you need your basic salary, your total years of service, and your contract type. From there, the math is simple. The law is clear, and the benefits are there for those who earn them.
If you’re planning to resign or are nearing the end of your contract, take a moment to double-check your numbers. Ask your HR department for a breakdown if you’re unsure—better now than later.
Knowing your rights is the first step to making smart job decisions in the UAE.
