When working in the UAE, one of the key benefits that employees should be aware of is gratuity pay, which is a form of end-of-service benefit. If you’re nearing the end of your employment or simply want to understand your rights better, knowing how to calculate gratuity in the UAE is crucial. In this blog post, we will walk you through the entire process of gratuity calculation in the UAE, ensuring you understand all the necessary details to get the correct amount.
What is Gratuity in the UAE?
Gratuity is an end-of-service benefit provided to employees who have completed at least one year of continuous service with their employer. This is calculated based on the number of years worked and the final basic salary. It serves as a form of appreciation for the employee’s contribution to the organization and is mandated by UAE Labour Law.
Eligibility for Gratuity in the UAE
Not all employees in the UAE are entitled to gratuity pay. The eligibility depends on several factors:
- Minimum Service Period: An employee must have worked for at least 12 continuous months to qualify for gratuity.
- Termination of Employment: The reason for termination can affect the gratuity. If an employee resigns, gratuity is calculated differently compared to if the employer terminates the employment.
- Employment Type: The gratuity calculation differs for employees on limited contracts versus those on unlimited contracts.
Gratuity Calculation for Limited and Unlimited Contracts
The UAE has different rules for calculating gratuity depending on whether the employee is on a limited contract or an unlimited contract.
Gratuity Calculation for Employees on Unlimited Contracts
If you have an unlimited contract, the gratuity calculation is as follows:
- First 5 years of service:
- For the first 5 years, an employee is entitled to 21 days of basic salary for each year of service.
- After 5 years of service:
- After 5 years, employees are entitled to 30 days of basic salary for each additional year worked.
Gratuity Calculation for Employees on Limited Contracts
The calculation for limited contract employees follows the same rules as above. However, if an employee breaks the contract before its completion, they may forfeit their right to gratuity.
Key Factors to Consider for Gratuity Calculation
- Basic Salary: The gratuity is calculated only on the basic salary. Allowances and bonuses are not considered in the gratuity calculation.
- Unpaid Leave: If an employee has taken unpaid leave, the period of unpaid leave will not be counted towards the total number of years worked when calculating gratuity.
- Resignation Before Completion of 1 Year: Employees who resign before completing one full year of service are not entitled to any gratuity.
- Termination by Employer: If an employer terminates the employee’s contract without a valid reason, the employee is entitled to their full gratuity based on the length of their service.
- Resignation after 1 Year but Before 5 Years: If an employee resigns after completing one year of service but before completing five years, they are entitled to gratuity pay, though it will be less than if they had worked for more than five years.
Gratuity Formula
Now that we understand the rules, let’s break down the formula:
For the First 5 Years (Unlimited and Limited Contracts):
- Gratuity = 21 days of basic salary for each year of service
For the Years After 5 Years (Unlimited and Limited Contracts):
- Gratuity = 30 days of basic salary for each year of service
Formula Example:
Imagine you have worked for a company in the UAE for 6 years, and your basic salary is AED 5,000.
- For the first 5 years:
- 5 years x 21 days of basic salary = 105 days of basic salary
- 105 days ÷ 30 (days in a month) = 3.5 months of salary
- 3.5 months x AED 5,000 = AED 17,500
- For the additional year after 5 years:
- 1 year x 30 days of basic salary = 30 days of basic salary
- 30 days ÷ 30 (days in a month) = 1 month of salary
- 1 month x AED 5,000 = AED 5,000
Total Gratuity = AED 17,500 + AED 5,000 = AED 22,500
So, if you were to leave the company after 6 years, your gratuity would be AED 22,500.
Special Considerations
- End of Service Benefits for Employees on Probation: If an employee resigns during their probationary period (typically 3-6 months), they are not entitled to any gratuity payment.
- Death or Disability: If an employee dies or becomes permanently disabled while in service, their family or legal heirs are entitled to gratuity payment.
How to Use a Gratuity Calculator for the UAE
To make this process simpler, consider using an online UAE Gratuity Calculator. These tools allow you to quickly and easily calculate your gratuity by inputting your basic salary, the number of years worked, and the type of contract you have. This eliminates the need to manually apply the formula.
Conclusion
Understanding how to calculate gratuity in the UAE ensures that employees know their rights when they leave a company. Whether you are on a limited or unlimited contract, the process is relatively straightforward, and it’s vital to be aware of the factors that can impact your gratuity amount. If you’re unsure about any of the terms or conditions, using an online gratuity calculator is a quick and reliable way to estimate your end-of-service benefits.
By familiarizing yourself with these rules and calculations, you can ensure that you’re fully prepared when it’s time to part ways with your employer.