Menu
In the dynamic work landscape of the United Arab Emirates (UAE), where employees contribute significantly to the growth of businesses, the concept of gratuity plays a crucial role. Also known as end-of-service benefit (EOSB), gratuity is a mandatory payment to employees when their employment contract concludes. This financial compensation is a token of appreciation for the dedication and loyalty exhibited during the tenure of employment.
In this comprehensive guide, we’ll unravel the intricacies of how to calculate gratuity in UAE, breaking down the process into simple steps to ensure both employers and employees navigate this vital aspect of employment with ease.
Before delving into the intricacies of how to calculate gratuity in UAE, it’s essential to understand who is eligible for gratuity, as outlined in Article 51 of the UAE Labour Law. The key points are:
Gratuity must be paid to the employee within 14 days of the termination of their employment contract. The employer may deduct any outstanding debts the employee owes from the gratuity payment.
There are a few exceptions to the gratuity entitlement rule. These exceptions include:
Calculating gratuity involves a straightforward process, but it’s essential to understand the specifics. Gratuity is calculated based on the following formula:
For the first five years of service: 21 days of basic salary for each year of service
For each additional year of service: 30 days of basic salary for each year of service
The basic salary includes the employee’s fixed monthly salary, excluding allowances and other benefits. Let’s break down the method using examples.
Annual Pay:
Basic Pay: AED 36,000
House Allowance: AED 12,000
Travel Allowance: AED 6,000
Total Pay: AED 54,000
Calculation:
Number of Years Served: 3
Basic Pay: (36,000/365)×21×3 = AED 6,213.70
Deduct any amount payable to the employer (e.g., loans): AED 2,000
End of Service Amount Calculated: 6213.70 – 2000 = AED 4,214
2-year Wages (36000 * 2): AED 72,000
Result:
The lower of the two amounts (AED 4,214) is paid to the employee.
Number of Years Served: 8
Formulas
Basic Pay \ 365 *21*5
Basic Pay \ 365 *30*3(8-5)
Calculation:
Basic Pay: (36,000/365)×21×5 = AED 10,356
Basic Pay: (36,000/365)×30×3=AED 2,959
Total: AED 13,315
Deduct any amount payable to the employer: AED 3,500
End of Service Amount Calculated: AED 13,315- 3,500 = 9,815
2-year Wages (36000 * 2): AED 72,000
Result:
The lower of the two amounts (AED 9,815) is paid to the employee.
For part-time contracts, Article 52 of the UAE Labour Law provides a formula to determine the percentage on which the gratuity in UAE should be calculated. The method involves dividing the number of working hours in a part-time contract by the number of working hours in a full-time contract, then multiplying by 100.
Calculation:
Number of Working Hours for Part-Time Contract: 1500
Number of Working Hours for Full-Time Contract: 2400
Percentage: (1500/2400)×100=62.5%
End of Benefit Service Amount on Full-Time Contract: AED 9,815
Amount to be Paid= 9,815×62.5%= AED 6134.5
The UAE Ministry of Human Resources and Emiratisation (MOHRE) has developed a gratuity calculator UAE to assist employees and employers in calculating gratuity payments. The gratuity calculator UAE can be accessed online through the MOHRE website.
Financial Security: Gratuity serves as a financial safety net for employees in the UAE, offering a sense of security as they transition out of their current employment. This lump sum payment provides a cushion, facilitating a smoother financial transition.
Recognition of Contributions: Beyond its monetary value, gratuity is a tangible recognition of an employee’s contributions to the success and growth of the employer’s business. It symbolizes acknowledgment for the time, effort, and dedication invested in the job.
Employee Well-Being: Gratuity goes beyond being a legal obligation; it contributes to the overall well-being of employees. The assurance of receiving gratuity reflects a company’s commitment to the welfare of its workforce, fostering positive employer-employee relationships and supporting the holistic needs of departing employees.
Understanding how to calculate gratuity in the UAE is a vital part of navigating the employment journey. This guide has simplified the process of calculating gratuity in UAE and emphasized the importance of timely payments and exceptions to eligibility. As the UAE’s work landscape continues to evolve, the assurance of a well-calculated gratuity adds a layer of financial security, contributing to the overall well-being of employees.
