Gratuity Calculation UAE: Gratuity is a form of end-of-service benefit that employers in the UAE are legally required to pay employees after termination or resignation provided the employee has completed at least one full year of continuous service.
In 2025, under the UAE Labour Law (Federal Decree-Law No. 33 of 2021) and its latest amendments, gratuity payments vary based on:
Type of contract (limited vs unlimited)
Reason for termination (resignation or dismissal)
Length of service
Basic salary
This guide helps HR departments ensure proper gratuity calculation in UAE for both contract types.
Gratuity Calculation UAE 2025 HR Guide for Employers
Contract Types: Limited vs Unlimited
Limited Contract:
Has a fixed end date (e.g., 2 years)
Termination before end date can lead to penalties unless agreed
Unlimited Contract:
Open-ended
Requires 30+ days’ notice for resignation or termination
In 2025, the limited contract is now more widely used under the new UAE Labour Law standardization but older unlimited contracts may still apply for some cases.
Gratuity Calculation UAE General Formula
Gratuity Calculation UAE: Gratuity is based on basic salary only, not allowances or commissions.
1. General Gratuity Formula:
Gratuity = (21 days of basic salary) × (Years of service for first 5 years)
+ (30 days of basic salary) × (Years beyond 5 years)
Example 1 – Employee on Limited Contract (3 Years)
Basic salary: AED 4,000
Duration: 3 years
Gratuity rate: 21 days/year
21 ÷ 30 = 0.7 month
0.7 × AED 4,000 = AED 2,800
2,800 × 3 years = AED 8,400
Total Gratuity: AED 8,400
Example 2 – Employee on Unlimited Contract (7 Years)
Basic salary: AED 6,000
Years 1–5: 21 days/year
Years 6–7: 30 days/year
Years 1–5:
21 ÷ 30 × AED 6,000 = AED 4,200
4,200 × 5 = AED 21,000
Years 6–7:
30 ÷ 30 × AED 6,000 = AED 6,000
6,000 × 2 = AED 12,000
Total Gratuity: AED 33,000
2. Eligibility Criteria for Gratuity in UAE
Employee must complete 1 full year of service
Gratuity is payable in both resignation and termination scenarios
For termination due to misconduct (Article 44), no gratuity is payable
In case of resignation before 5 years under unlimited contract, a reduced gratuity is applied
3. Reduced Gratuity for Early Resignation (Unlimited Contract)
| Years of Service | Gratuity Entitlement |
|---|---|
| 1 – 3 years | 1/3 of full gratuity |
| 3 – 5 years | 2/3 of full gratuity |
| 5+ years | Full gratuity |
4. What Counts in Basic Salary?
Gratuity Calculation UAE: Gratuity is calculated using only the basic salary, excluding:
Housing allowance
Transport
Commission
Bonuses
Overtime
Make sure the employee contract clearly separates basic and gross salary to avoid disputes.
5. When Should Gratuity Be Paid?
Gratuity Calculation UAE: As per UAE Labour Law, gratuity must be paid:
Within 14 days of the employee’s last working day
Along with the final settlement, including:
Pending salary
Unused leave encashment
Any deductions or dues
Failure to pay on time can lead to labour complaints and fines for the employer.
6. Gratuity for Domestic Workers
Gratuity Calculation UAE: Domestic workers (maids, drivers, caregivers) follow a separate law. Their gratuity is calculated as:
14 days’ salary for each year of service after 1 year
Full gratuity payable at end of contract or resignation
This is as per Federal Law No. 10 of 2017.
7. Gratuity Calculation UAE – Checklist for HR
- Confirm contract type (limited or unlimited)
- Check total years/months of service
- Use basic salary only
- Apply pro-rata if not full year
- Include partial months as decimals
- Ensure employee signs final settlement
8. Can Employers Deduct From Gratuity?
Gratuity Calculation UAE: Yes, but only in specific cases, such as:
Deductions mentioned in UAE Labour Law
Loans or unpaid advances
Company property not returned
Legal judgments
Always provide written explanation for deductions.
Mahad HRC – Your HR Compliance Partner in UAE
Gratuity Calculation UAE: At Mahad HRC, we assist companies with:
End-of-service settlements
Automated gratuity calculators for UAE laws
Employee final clearance and documentation
Labour contract audits for compliance
HR outsourcing and PRO support
If you’re unsure how to manage gratuity calculation in UAE, let our specialists handle the legal and financial accuracy for you.
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Final Thoughts
Gratuity Calculation UAE: Gratuity is more than just a financial benefit it’s a legal and ethical obligation for employers in the UAE. By understanding gratuity calculation in UAE, HR teams can maintain transparency, protect the company from legal risk, and build trust with employees.