UAE Gratuity Calculator 2025 - Calculate End of Service Benefits

What is End of Service Gratuity in UAE?

End of service gratuity, commonly known as gratuity pay or severance pay, is a mandatory benefit provided to employees working in the private sector of the United Arab Emirates. This financial compensation is calculated based on your basic salary and length of service with your employer, serving as a form of retirement benefit or acknowledgment of your contributions to the organization.

Under the UAE Labour Law and regulations enforced by the Ministry of Human Resources and Emiratisation (MOHRE), every employer must pay gratuity to eligible employees upon the termination of their employment contract, whether through resignation, termination, retirement, or contract completion. The gratuity amount must be paid within 14 days of the employee's last working day.

UAE Gratuity Calculation Formula

Mathematical Expression of Gratuity Formula

For employees with service duration exceeding 5 years, the complete formula can be expressed as:

Eligibility Criteria for UAE Gratuity

To qualify for end of service gratuity benefits in the UAE, employees must meet the following eligibility requirements established under UAE Labour Law:

• Minimum Service Requirement: You must have completed at least one full year of continuous service with the same employer. Employees who leave before completing one year are not entitled to gratuity.
• Employment Type: Gratuity applies primarily to full-time employees in the private sector. Part-time workers may be eligible if specified in their employment contract.
• Contract Status: Both limited-term and unlimited contracts are eligible for gratuity, though calculation methods may differ based on resignation circumstances.
• Termination Reason: Employees terminated for gross misconduct under Article 44 of the UAE Labour Law forfeit their right to gratuity. Valid reasons include resignation, employer termination without cause, contract completion, or retirement.

How to Calculate Gratuity in UAE

Step-by-Step Gratuity Calculation Process

Follow these detailed steps to accurately calculate your end of service gratuity:

1. Determine Your Daily Wage: Divide your last basic monthly salary by 30 days. For example, if your basic salary is AED 8,000, your daily wage is AED 266.67 (8,000 ÷ 30).
2. Calculate Total Service Years: Count the complete years, months, and days of your employment from start date to end date.
3. Calculate First 5 Years Gratuity: Multiply your daily wage by 21 days, then multiply by the number of years served in the first 5 years (maximum 5 years).
4. Calculate Additional Years Gratuity: If you worked more than 5 years, multiply your daily wage by 30 days, then multiply by the number of years beyond 5 years.
5. Apply Resignation Percentage (if applicable): For unlimited contracts with resignation, apply the appropriate percentage based on service duration.
6. Deduct Unpaid Leave: Subtract any periods of unpaid leave from the total gratuity amount.
7. Apply Salary Cap: Ensure the final gratuity does not exceed two years' total salary (24 months).

Detailed Calculation Example

Gratuity Rules by Contract Type

Limited Contract Gratuity

For employees on limited-term contracts (fixed duration), the gratuity calculation follows the standard formula regardless of who terminates the contract. Both employer-initiated termination and employee resignation receive the same calculation treatment, provided the minimum one-year service requirement is met. The 21-day and 30-day formula applies uniformly for limited contracts.

Unlimited Contract Gratuity

Unlimited contracts (open-ended) follow different rules when the employee resigns voluntarily. The gratuity percentage varies based on the length of service at resignation:

UAE Gratuity Calculation Chart by Years of Service

The following table demonstrates gratuity amounts for different service durations based on a monthly basic salary of AED 8,000:

Understanding the Two-Year Salary Cap

The UAE Labour Law imposes a maximum limit on gratuity payments known as the two-year salary cap. This cap ensures that no employee receives gratuity exceeding 24 months of their basic salary, regardless of how long they have worked for the employer.

Salary Cap Example

Special Cases in Gratuity Calculation

Retirement Gratuity

Employees retiring from their position after reaching retirement age are entitled to full gratuity benefits calculated using the standard formula, regardless of contract type or resignation status. Retirement is treated as a natural end to employment and qualifies for 100% gratuity entitlement.

Unpaid Leave Deduction

Any periods of unpaid leave taken during your employment must be deducted from the total service period used in gratuity calculations. The formula for unpaid leave deduction is:

Termination for Misconduct

Employees terminated for gross misconduct as defined under Article 44 of the UAE Labour Law forfeit all rights to end of service gratuity. Gross misconduct includes assault, fraud, breach of trust, disclosure of confidential information, intoxication at work, and other serious violations.

Prorated Monthly and Daily Calculations

Gratuity calculations include prorated amounts for incomplete years of service. Additional months and days beyond complete years are calculated proportionally using the same daily wage and applicable gratuity day rates (21 or 30 days based on total service duration).

Gratuity Payment Timeline and Process

According to UAE Labour Law and MOHRE regulations, employers must adhere to strict payment timelines for end of service gratuity:

• Payment Deadline: Gratuity must be paid within 14 days from the employee's last working day or contract termination date.
• Payment Method: Gratuity is typically paid via bank transfer to the employee's salary account or through a certified cheque.
• Final Settlement: Gratuity payment is included in the final settlement along with any outstanding salary, unused annual leave compensation, and other end-of-service benefits.
• Payment Currency: All gratuity payments are made in UAE Dirhams (AED).
• Documentation: Employers must provide detailed calculation breakdowns showing how the gratuity amount was determined.

Common Mistakes in Gratuity Calculation

Avoid these frequent errors when calculating or verifying your UAE gratuity entitlement:

1. Including Allowances in Calculation: Many employees mistakenly use their gross salary instead of basic salary. Only the basic wage component qualifies for gratuity calculation.
2. Ignoring Contract Type Differences: Unlimited contract resignations have different percentage applications than limited contracts or employer terminations.
3. Forgetting Unpaid Leave Deductions: All periods of unpaid leave must be subtracted from the gratuity calculation, which many employees overlook.
4. Misunderstanding the Salary Cap: The two-year cap applies to basic salary only, not total compensation including allowances.
5. Incorrect Service Period Calculation: Service duration must be calculated from the exact contract start date to the exact end date, including months and days.
6. Not Applying Resignation Penalties: For unlimited contracts with less than 5 years of service, resignation triggers reduced gratuity percentages that must be applied.

Tips for Employees Regarding Gratuity

• Keep Employment Documentation: Maintain copies of your employment contract, salary certificates, and all contract amendments showing your basic salary over time.
• Track Service Duration: Keep accurate records of your start date, any unpaid leave periods, and expected end date for precise calculations.
• Understand Your Contract Type: Know whether you have a limited or unlimited contract, as this significantly impacts gratuity calculations upon resignation.
• Calculate in Advance: Use online gratuity calculators before resigning or negotiating termination to understand your expected entitlement.
• Verify Employer Calculations: When receiving your final settlement, carefully review the gratuity calculation breakdown and verify it against the legal formula.
• Know Your Rights: Familiarize yourself with UAE Labour Law provisions regarding gratuity to ensure you receive your full entitlement.
• Consider Timing: If close to a service milestone (like 5 years), consider whether continuing employment would significantly increase your gratuity entitlement.
• Seek Professional Advice: For complex situations or disputes, consult with labour law specialists or MOHRE representatives.

Frequently Asked Questions (FAQ)

How is 1 year gratuity calculated in UAE?

For one year of service, gratuity is calculated as: (Basic Salary ÷ 30) × 21 days × 1 year. For example, with a basic salary of AED 5,000, the gratuity would be (5,000 ÷ 30) × 21 = AED 3,500. This applies to all employees with one complete year of continuous service.

What is the formula for calculating gratuity online?

The standard online gratuity formula is: Gratuity = (Basic Salary ÷ 30) × [(21 × First 5 Years) + (30 × Additional Years)]. Online calculators automate this formula, requiring you to input your basic salary, service duration, contract type, and leaving reason to instantly compute your end of service benefits.

How do I check my gratuity amount?

You can check your gratuity amount by using our online UAE gratuity calculator above, entering your basic salary and service details. Alternatively, contact your HR department for an official calculation breakdown, or use the official Dubai Development Authority (DDA) or MOHRE gratuity calculator for verification.

What is the gratuity rule in UAE for resignation?

For limited contracts, resignation entitles you to full gratuity after completing one year. For unlimited contracts, resignation benefits are: 0% for less than 1 year, 33.33% for 1-3 years, 66.67% for 3-5 years, and 100% for 5+ years. The calculation always uses the 21-day and 30-day formula based on service duration.

Is gratuity calculated on basic salary or gross salary?

Gratuity is calculated exclusively on your basic salary, which is the fixed wage component in your employment contract. Gross salary includes allowances like housing, transportation, and other benefits, which are not included in gratuity calculations. Always use only the basic salary figure for accurate gratuity computation.

What is the maximum gratuity amount in UAE?

The maximum gratuity amount is capped at two years of your basic salary (24 months). For example, if your basic salary is AED 10,000, your maximum gratuity cannot exceed AED 240,000 (10,000 × 24), regardless of how many years you worked for the employer.

Can I calculate my retirement gratuity?

Yes, retirement gratuity follows the same calculation formula as standard gratuity: (Basic Salary ÷ 30) × [(21 × First 5 Years) + (30 × Additional Years)]. Retirement qualifies for 100% gratuity entitlement regardless of contract type, as it is considered a natural end to employment rather than resignation.

How does staff gratuity calculation differ for different contract types?

Staff gratuity calculation uses the same base formula for both limited and unlimited contracts when the employer terminates the contract. The difference appears only in resignation scenarios for unlimited contracts, where reduced percentages (33.33% for 1-3 years, 66.67% for 3-5 years) apply before reaching full entitlement at 5 years.

What happens to my gratuity if I have unpaid leave?

Unpaid leave days are deducted from your gratuity calculation. The deduction amount is calculated as: (Basic Salary ÷ 30) × Number of Unpaid Leave Days. This amount is then subtracted from your total gratuity entitlement. Always track unpaid leave periods to accurately estimate your final gratuity.

When should my employer pay my gratuity?

Employers are legally required to pay gratuity within 14 days from your last working day or contract termination date. This payment is typically included in your final settlement along with outstanding salary and unused leave compensation. Delayed payments can be reported to MOHRE for enforcement action.