UAE Gratuity Calculation Explained: How End-of-Service Pay Actually Works

The short answer

Gratuity is calculated on the employee's basic salary only (not housing, transport, or other allowances), using a daily wage rate:

That daily rate is then paid out per year of service:

• 21 days' wage for each of the first 5 years of service.
• 30 days' wage for each year beyond 5 years.
• The total is capped at 2 years' total basic wage, however long the employee has actually worked.

An employee needs at least 1 full year of service to be entitled to anything at all — there's no pro-rated gratuity for less than a year.

Worked example

An employee on AED 10,000/month basic salary, terminated by the employer after 7 years of service:

(Well under the 2-year cap here, which would be AED 240,000 — the cap only bites at much longer tenures or higher salaries.)

Resigning doesn't reduce it

Under the current law, gratuity doesn't depend on who ended the contract. An employee who resigns is entitled to the same calculation as one whose contract the employer ends, as long as they've completed at least one year of continuous service.

This is a change from the old 1980 law, under which employees on unlimited contracts who resigned before five years received only a fraction of their gratuity (one-third or two-thirds, depending on length of service). The 2021 law removed those reductions, with a transition period for existing unlimited contracts that ended in February 2023. If you're working from an older HR template or spreadsheet that still applies a resignation reduction, it's out of date.

Who isn't eligible

UAE nationals and other GCC nationals (Saudi Arabia, Kuwait, Qatar, Bahrain, Oman) are generally not eligible for end-of-service gratuity at all. They're enrolled in GPSSA (the General Pension and Social Security Authority) or their home country's equivalent pension scheme instead — gratuity and that pension scheme aren't paid together. The one exception is if the relevant national pension authority has given written approval for that specific employee to opt out of the pension scheme, in which case standard gratuity rules apply to them.

When it's paid

By law, gratuity is due within 14 days of the employment relationship ending.

This is a general explanation of UAE Federal Decree-Law No. 33 of 2021 (Labour Law), Articles 51 and 53, for HR teams doing their own planning — not legal advice for a specific case. Labour law can be amended and specific employment contracts can include their own terms; confirm anything unusual (part-time contracts, secondments, disputed terminations) with a UAE labour lawyer before acting on it.