UAE Gratuity Calculator: How End of Service Pay Works

End-of-service gratuity in the UAE is calculated on basic salary, not total salary, using a formula that changes once an employee passes five years of continuous service.

Key Takeaways

• Gratuity applies after at least one year of continuous service. An employee who leaves before completing one year is not entitled to it under standard Labour Law rules.
• The calculation is based on basic salary only, excluding housing, transport and other allowances that make up the rest of a total salary package.
• The rate increases after five years. The first five years accrue at 21 days’ basic salary per year; each year beyond that accrues at 30 days’ basic salary per year.
• Resignation and termination are now treated more similarly than under the older law, though the exact position can still depend on contract terms and timing.
• DIFC employees follow a different system entirely, the DEWS savings scheme, not the standard gratuity formula.

Gratuity is one of the most searched, and most miscalculated, figures in UAE employment. Getting the formula wrong in either direction, as an employer or an employee, causes real disputes.

This guide covers how the calculation actually works, what it’s based on, and where the common mistakes happen.

Who Is Entitled to Gratuity

This entitlement applies regardless of nationality or salary level, provided the employment relationship is formally registered and the minimum service period has been completed.

An employee who completes at least one year of continuous service with an employer is generally entitled to end-of-service gratuity under UAE Labour Law.

An employee who leaves before completing one full year is typically not entitled to gratuity at all, regardless of the reason for leaving.

Gratuity is a statutory entitlement tied to length of service, not a discretionary bonus an employer chooses to pay.

The Basic Gratuity Formula

• First five years of service: 21 days of basic salary for each year worked
• Each year beyond five years: 30 days of basic salary for each additional year
• Partial years are generally calculated on a pro-rata basis for the portion of the year actually worked

The calculation uses basic salary specifically, not the full monthly salary including housing or transport allowances. This is one of the most common sources of confusion, since many employees calculate their expected gratuity using their total monthly pay rather than the basic component alone.

Why the Formula Changes After Five Years

The step-up from 21 to 30 days after five years is a deliberate design in UAE Labour Law, rewarding longer-serving employees at a meaningfully higher accrual rate rather than a flat rate across an entire career.

This means an employee’s gratuity does not grow in a straight line year over year. The jump at the five-year mark is real, and it is worth an employee and employer both understanding clearly, particularly when planning around a resignation or contract renewal decision near that milestone.

Worked Example

An employee with a basic salary of AED 10,000 per month, who completes 7 years of service, would generally see their gratuity calculated in two parts.

• Years 1 to 5: 21 days’ basic salary per year, for 5 years
• Years 6 and 7: 30 days’ basic salary per year, for 2 years

Daily basic salary is generally calculated by dividing the monthly basic salary by 30. Each year’s entitlement is then calculated separately using the applicable rate for that year, and the two portions are added together for the total gratuity due.

Unlimited vs Limited Contracts: A Now-Mostly-Merged Distinction

Older UAE employment law drew a sharp distinction between limited and unlimited contracts, with different gratuity treatment for each, particularly around early resignation.

Reforms have largely standardised contract types going forward, reducing how much this old distinction affects gratuity calculation for current contracts. Employees on legacy contracts predating the reform may still want to confirm which rules apply to their specific agreement.

Resignation vs Termination

Older UAE Labour Law reduced gratuity for employees who resigned before completing a certain number of years of service. Recent reforms have moved the system closer to treating resignation and termination similarly for gratuity purposes.

That said, the exact position can still depend on the specific contract, its start date, and the circumstances of termination, including cases involving disciplinary dismissal. Confirm the current treatment for your specific situation with MOHRE or an employment law advisor rather than assuming a blanket rule applies.

Is There a Cap on Gratuity?

Even where a cap applies, it typically only becomes relevant for very long-serving employees, since most calculated entitlements fall comfortably within it for a standard multi-year employment period.

UAE Labour Law has historically capped total gratuity at a set number of years’ worth of salary, regardless of how long an employee has worked. The exact cap and its current application should be confirmed directly, since labour law provisions are periodically clarified and updated.

DIFC Employees: A Different System

Employees working within the DIFC do not follow the standard mainland gratuity formula. They fall under the DEWS end-of-service savings scheme instead, a funded, portable savings structure rather than a lump-sum calculation at exit.

Our sister site’s guide to the DEWS scheme covers how that structure differs fundamentally from standard gratuity, including what employers actually need to fund and when. Broader UAE company formation guidance sits on companyformationinuae.com if you’re comparing employment obligations across jurisdictions.

Free Zone vs Mainland Gratuity Rules

The core gratuity formula applies broadly across UAE free zones and mainland companies alike, since it derives from federal Labour Law rather than a specific free zone’s own regulations.

Where free zones differ is more often in visa and employment administration than in the gratuity calculation itself. See our mainland business setup guide for how mainland employment obligations compare more broadly to free zone hiring.

How Gratuity Interacts With End-of-Service Visa Cancellation

Final settlement, including gratuity, is closely tied to the visa cancellation process when an employee leaves a UAE company. In practice, both tend to happen around the same time, and delays in one can hold up the other.

Employers should treat gratuity calculation as part of the same offboarding checklist as visa cancellation and other exit formalities, rather than as a separate, later task once the employee has already left.

Gratuity Disputes and How They’re Resolved

Disagreements over gratuity calculation are among the more common employment disputes in the UAE, often stemming from confusion between basic and total salary rather than deliberate underpayment.

Where a dispute cannot be resolved directly between employer and employee, it generally proceeds through MOHRE’s dispute resolution process before escalating further. A clear, correctly documented calculation from the outset is the simplest way to avoid reaching that stage at all.

Gratuity and Employer Cost Planning

Gratuity is a real, accruing liability from an employer’s first day of hiring someone, not a cost that only exists when an employee eventually leaves.

Businesses that don’t account for it as an ongoing liability sometimes face a larger-than-expected payout when a long-serving employee exits. See our guide to UAE company setup and employment obligations for how this fits into wider hiring costs from the outset, and our accounting services guide for how gratuity accrual is typically tracked in company books.

Gratuity During Company Liquidation

Outstanding gratuity is one of the obligations a company must settle with employees before completing liquidation, not something that can be deferred or waived unilaterally.

See our company liquidation guide for where employee settlements, including gratuity, fit into the closure process.

Gratuity for Part-Time and Flexible Workers

Part-time and flexible work arrangements have become more common in the UAE, and gratuity entitlement still generally applies proportionally to time actually worked under a registered contract.

The same basic-salary and length-of-service principles apply, though the exact calculation can be more complex where hours or salary vary across the employment period. Confirm the specific treatment for a part-time or flexible arrangement rather than assuming it mirrors full-time calculation exactly.

What Happens to Unused Leave Alongside Gratuity

Gratuity is calculated and paid separately from any unused annual leave balance, which is settled based on the employee’s daily wage rather than the gratuity formula.

Both amounts typically form part of the same final settlement paid at the end of employment, but they are two distinct entitlements calculated under different rules, not one combined figure.

Currency and Payment Timing

Gratuity is paid in UAE dirhams as a lump sum, generally alongside the rest of an employee’s final settlement at the end of the notice period or last working day.

Delayed payment of gratuity and other final dues can carry consequences for the employer under Labour Law, so treating final settlement as a priority at offboarding, not an afterthought, protects both parties.

Common Gratuity Calculation Mistakes

Calculating gratuity on total salary instead of basic salary, which overstates the entitlement significantly.

Applying the 30-day rate to the full period of service instead of only the years beyond the first five.

Assuming resignation automatically reduces gratuity under the old rules, without checking current treatment.

Get Your Employment Obligations Structured Correctly

Gratuity is a predictable, calculable cost once the formula is applied correctly, and factoring it in from the start avoids unpleasant surprises later.

At EZONE, we help structure hiring and employment planning as part of company formation, including realistic gratuity and end-of-service cost projections.

Speak to an EZONE Business Setup Advisor if you need your employment cost obligations mapped out accurately.

EZONE | YOUR BUSINESS MATTERS.

Frequently Asked Questions