How to Calculate Gratuity in UAE as per UAE Labour Law

Articles (Gulf Inside) Gratuity in UAE 2020 to be share in today’s guide, consistent with reports only seventy percent of employees are becoming gratuity and it’s going to be due to less info about UAE Gratuity law.

So, let’s learn about the calculation of your end of service gratuity.

Important point before calculation is to understand your contract type, if it’s limited term contract or unlimited term contract, because end of service benefits depends up to your contract type & the reason for end of service weather it is Termination or Resignation?

Difference between Resignation and Termination?
Resignation means if employee (worker) quit or leave job before completing his/her contract while Termination means where company (employer) terminate (cancel) an Employee. Gratuity always calculating by the workers basic salary.

How to Calculate Gratuity for Limited Contracts:

No Gratuity without Completing Limited Contract:
It is clearly mentioned in UAE Labour Law Article 138 that if employee has not completed his/her limited contract period as signed in agreement, he/she will not be eligible for any gratuity.

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In simple words, if someone signed a limited term contract which mostly is for 2 years or maximum 3 years but resigned after 6 months, 12 months, 14 months or without completing the contract, company will do not pay any gratuity to that worker.

Gratuity for 1-5 Years of Service:
If you’ve got completed your limited contract and it’s within 1 to five years, you’re entitled for 21 day’s basic salary wage for each single year of labor .

Gratuity for 5 Years of Service:
If you have completed 5 years of continuous service with your company and have resigned, then for the first 5 years of work you are eligible for 21 days’ basic wage & for the service above 5 years, you’ll get paid 30 day’s basic wage for every year of service.

What if Company Terminates the worker under Limited Contract?
In case you have been terminated by your Company and you have not completed your 1 year yet, you will not eligible for any gratuity, but if you worked with the company for quite 1 year and fewer than 3 years, you’ll get 30 days of basic salary for No. of years your served before termination.

How to Calculate Gratuity for Unlimited Contracts:

No Gratuity for less than one year of service:
Please keep in mind that gratuity is only applicable when an employee completes 1 year of service with a company, so as per UAE Labour Law Article 132, Section 2, if worker resigns with less than a year of service, he/she will not get any gratuity.

Gratuity for more than 1 & Less than 3 Years of Service:
If worker resigns and he/she worked between 1-3 Years, he/she should take 1/3rd of 21 days of basic salary for each year of employment.

Gratuity for more than 3 & Less than 5 Years of Service:
If worker resigns and he/she worked for more than 3 years but less than 5 years, he/she should take 2/3rd of 21 days for each year of work.

Gratuity calculation for more than 5 Years of Service:
If worker wish to resigning after 5 years of continues service under unlimited contract, the worker should get 21 days basic salary for each year he or she worked and the 30 days basic salary for every extra years after completing 5 years.

What if Company Terminates the Employee?
In case the company terminates the worker who working on unlimited contract, The company will be liable to pay 21 days of wages from minimum 1 and maximum 5 years to Employee, if employee worked for quite 5 years, he/she are going to be eligible for 30 Days Basic salary for every year of his/her service.

Online Gratuity Calculator:

Many asked us about how to calculate gratuity online, to calculate your gratuity online, please follow below formula and links as per your contract types.

UAE Gratuity Calculator 2023 Formula:

Gratuity Calculator Formula 1:
Basic Salary ÷ 30 days x 21 basic salary days x 2 years of service
Example: 6000 ÷ 30 x 21 x 2 = 8400

How Gratuity Calculator Formula Works?
6000 ÷ 30 = 200 daily Wage is 200 AED
200 x 21 = 4200 so, your 21 days of basic wage is 4200.
Now Multiply your basic wage with the No. of years you have worked: 4200x 2 = 8400

Gratuity Calculator Formula 2:
Basic Salary x 21 days x No. of years of work / 30
Example: 6000 x 21 x 2 /30 = 8400 AED