Updated How to Calculate Gratuity as per UAE Labour Law

Gratuity calculation  to be share in today’s guide, according to reports only seventy percent of employees are getting gratuity in UAE and it may be because of less info about UAE Gratuity law.

So, let's learn about the calculation of your end of service gratuity.

Important point before calculation is to know your contract type, if it is limited term contract or unlimited term contract, because end of service benefits depends up to your contract type and is based on the reason for end of service either it is Resignation or Termination?

Difference between Resignation and Termination?

Resignation means if employee (worker) quit or leave job before completing his/her contract while Termination means where company (employer) terminate (cancel) an Employee. 
Gratuity will always be calculating by basic salary of worker.

How to Calculate Gratuity for Limited Contracts:

No Gratuity without Completing Limited Contract:

It is clearly mentioned in UAE LABOUR Law Article 138 that if employee has not completed his/her limited contract period as signed in agreement, he/she will not be eligible for any gratuity.

In simple words, if someone signed a limited term contract which mostly is for 2 years or maximum 3 years but resigned after 6 months, 12 months, 14 months or without completing the contract, company will do not pay any gratuity to that worker.

Gratuity for 1-5 Years of Service:

If you have completed your limited contract and it is within 1 to 5 years, you are entitled for 21 day’s basic salary wage for every single year of work.

Gratuity for 5 Years of Service:

If you have completed 5 years of continuous service with your company and have resigned, then for the first 5 years of work you are eligible for 21 days’ basic wage & for the service above 5 years, you will get paid 30 day’s basic wage for each year of service.

What if Company Terminates the Employee under Limited Contract?

In case you have been terminated by your Company and you have not completed your 1 year yet, you will not eligible for any gratuity, but if you worked with the company for more than 1 year and less than 3 years, you will get 30 days of basic salary for No. of years your served before termination.

How to Calculate Gratuity for Unlimited Contracts:

No Gratuity for less than one year of service:

Please keep in mind that gratuity is only applicable when an employee completes 1 year of service with a company, so as per UAE LABOR Law Article 132, Section 2, if worker resigns with less than a year of service, he/she will not get any gratuity.

Gratuity for more than 1 & Less than 3 Years of Service:

If worker resigns and he/she worked between 1-3 Years, he/she should take 1/3rd of 21 days of basic salary for each year of employment.

Gratuity for more than 3 & Less than 5 Years of Service:

If worker resigns and he/she worked for more than 3 years but less than 5 years, he/she should take 2/3rd of 21 days for each year of work.

Gratuity calculation for more than 5 Years of Service:

If worker is resigning under unlimited contract after 5 years of continued service, the worker should take 21 days basic salary for every year he/she worked and the 30 days basic salary for additional years after completing 5 years.

What if Company Terminates the Employee?

In case of unlimited contract where the company terminates the worker, 21 days of wages from minimum 1 and maximum 5 years should be paid to Employee, if employee worked for more than 5 years, he/she will be eligible for 30 Days of Basic wage for each year of his/her service.

Online Gratuity Calculator:

Many asked us about how to calculate gratuity online, to calculate your gratuity online, please follow below formula and links as per your contract types.

UAE Gratuity Formula:

Gratuity Formula 1:

Basic Salary ÷ 30 (days in Month) x 21 (basic salary days) x 2 (years of service)

Example:  3000 ÷ 30 x 21 x 2 = 4200

How it Works?

3000 ÷ 30 = 100 your daily Wage is 100 AED

100 x 21 = 2100 so, your 21 days of basic wage is 2100.

Now Multiply your basic wage with the No. of years you work : 2100 x 2 = 4200

Gratuity Formula 2:

Basic Salary x 21 days x No. of years of service / 30

Example: 3000 x 21 x 2 /30 = 4200 AED 

Link: Gratuity Calculator for LLC Companies

Link: Gratuity Calculation for Free Zone Companies

Link: Gratuity for Domestic Workers

If there is any dispute between worker and company for gratuity payment or amount payable to the company, such case should be put to the Labour office (MOHRE/free zone) for investigation.

Frequently Asked Questions about Gratuity Calculator :

Q: Can company deduct any payment from the gratuity payable to the worker?

Yes, the company (employer) may deduct any amount due and payable to the employee (worker) to the employer (company) from his/her gratuity payment and pay for the balance to the employee.

Q: Shall an employee be entitled to gratuity if he/she died?

Yes, in the event of a worker’s death, the employer (company) must pay the end-of-service gratuity to employee beneficiaries (heirs).

Q: What is the maximum Gratuity that we can get?

As per UAE LABOUR LAW, Article 132, maximum gratuity amount for employee cannot exceed 2 years’ gross salary.

Q: What is the worker entitled to at the termination of his/her contract?

The worker (employee) at the termination of his/her employment contract will be entitled for to the following:

1: A notice period, or any amount due in lieu of the notice period, only in case of unlimited contract.

2: Compensation (payment/reward) for the unreasonable dismissal if the contract was terminated by the company (employer) for unreasonable cause, only in-case of unlimited contract.

3: If employee is working under limited contract, compensation equivalent to the period until the end of the contract, or three month's salary whichever is greater.

4: Payments equivalent to the balance of un-utilized leave or any part thereof.

5: Payments for overtime or any other pending balance or salary.

6: End of service benefits, gratuity.

Q: Can I get 3-month salary in case of termination?

Yes, if you are terminated for reason other than mentioned in UAE LABOR LAW Article 120, you are eligible for 3 month’s compensations.

Q: Will absence be calculated in Gratuity?

The day of absence from work without pay shall not be included in calculating the time period of service. However, if the employee (worker) completed 1 year in service he/she will be entitled to a gratuity for the fraction of the year proportional for the part of the year he spent in company if he has completed 1 year in continuous service.

The guide about gratuity calculator uae  as per labour law ends here, feel free to ask your questions in below comment box.