General Criteria for Calculating the End of Service Gratuity
With reference to Article 132 of UAE Labour Law, an employee having spent on year or more in continuous service shall be entitled to an end of service gratuity upon termination of his service consisting of 21 days’ salary for each of the first five (5) years of service and additional 30 days’ salary for each additional year in excess of five years provided the aggregate amount shall not exceed 2 years’ remuneration. The period of service shall be calculated excluding days of absence without pay.
End of service gratuity is calculated based on latest wage excluding housing, transportation, travel, overtime, representation and any other bonuses or allowances as defined in Article 134.
The calculation of the periods and dates referred in the law shall be made according to Gregorian calendar as stated in Article 8. A calendar year shall be deemed as 365 days and the months as 30 days unless stipulated in the employment contract.
Related Article: Annual Leave Entitlement as Provided by UAE Labour Law
Additional Criteria in Case of Employee Resignation
In case of resignation, employees bound by an unlimited contract shall be entitled to one third (1/3) of the end of service gratuity set forth in Article 132 for a continuous service of at least one year and three years at most, two thirds (2/3) for three years at last and five years at most, and to the full gratuity for service exceeding five years as provided in Article 137.
Reading further in Article 138, employees under a limited contract shall not be entitled to an end of service gratuity unless service rendered exceeds five years in case of resignation prior to expiry of the contract.
Brief Summary
Illustrative Examples
Assumptions: Employee currently earning a gross salary of 10,000/-(Basic Salary -5000, HRA 2000 and Transportation allowance 2,000).
Scenario no. 1: The employee under an unlimited contract resigned after 3 years of service.
The computation would be: (5,000 x 21/30 x 3 x 1/3) = 3,500
Scenario no. 2: The employee under an unlimited contract resigned after 4 years of service.
The computation would be: (5,000 x 21/30 x 4 x 2/3) = 9,333
Scenario no. 3: The employee under an unlimited contract was terminated after 4 years of service.
The computation would be: (5,000 x 21/30 x 4) = 14,000
Scenario no. 4: The employee under an unlimited contract resigned after 6 years of service.
The computation would be: (5,000 x 21/30 x 5) +(5,000 x 1) = 22,500
Scenario no. 5: The employee under an unlimited contract was terminated after 7 years of service.
The computation would be: (5,000 x 21/30 x 5) +(5,000 x 2) = 27,500
Scenario no. 7: The employee under limited contract was terminated after 3 years of service prior to expiry of the contract.
The computation would be: (5,000 x 21/30 x 3) = 10,500
Scenario no. 8: The employee under limited contract resigned after 3 years of service prior to expiry of the contract.
The computation would be: not entitled to gratuity
Scenario no. 9: The employee under limited contract resigned after 6 years of service prior to expiry of the contract.
The computation would be: (5,000 x 21/30 x 5) +(5,000 x 1) = 22,500
Scenario no. 10: The employee under an unlimited contract resigned after 27 years of service.
The computation would be: (5,000 x 21/30 x 5) +(5,000 x 22) = 127,500, but the employee is only entitle to a maximum of 2 years' remuneration that is equivalent to 120,000(5,000 x 24).
Applicability of this Law
UAE Labour law applies to all employees working in the UAE, whether UAE nationals or expatriates, except below categories enumerated in Article 3:
- Employees and workers of the Federal Government and the governmental departments in the Emirates , members of the State , the employees and workers in public entities and institutions , whether Federal or local , and employees and workers appointed for governmental , Federal and local projects .
- Members of armed forces , police and security .
- Domestic servants in private households and similar occupations .
- Workers in farms or pastures with the exception of persons working in agricultural institutions processing the products thereof or the persons permanently operating or repairing mechanical machines required for agriculture.
Furthermore, those working in free zones are not generally covered by this law since they are bound to their respective free zone authority's rules and regulations. However, free zone employment contract must adhere to the provisions laid out in the UAE Labour Law.
Disclaimer: The calculations above are for illustrative purposes and reference only. These are not to be treated with finality. For any disputes or further clarification, contact the UAE Ministry of Human Resources and Emiratisation.
References
UAE Ministry of Human Resource and Emiratisation.,"Laws and Regulations",
The United Arab Emirates' Government Portal., "Working in Free Zone",
Emirates 24/7(July 12, 2016)., "Know The Law: Are you exempt from provisions of UAE Labour Law?"
Ahmed Law Firm., "Labor & Employment Law",
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