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End-of-service gratuity in the UAE how an employer calculates and budgets it

Gratuity is the payment a private-sector employer in the UAE owes an employee at the end of employment. It is not a bonus and not optional: it grows every month the person works for you. This guide shows owners of salons, clinics and small companies who is entitled, how the amount is calculated from basic salary, worked examples in AED and how to set money aside every month so the payment does not hit cash flow.

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Who is entitled

The rules below are from the UAE Labour Law (Federal Decree-Law No. 33 of 2021), which covers mainland companies and most free zones. Check your own setup with your PRO or lawyer, because a few regimes work differently.

The formula

Gratuity is calculated from the last basic salary, not from the total package. The common practice is to divide the monthly basic salary by 30 to get one day's wage, then multiply by the number of days earned.

Years of serviceDays of basic salary per yearNote
Less than 1 year0No gratuity
Years 1 to 521Partial years count pro rata
Year 6 onwards30For each year after the fifth
Upper limit-The total cannot exceed two years' wage

Worked examples

Arithmetic examples with a 30-day month. Your contract, unpaid leave and any amounts the employee owes the company can change the final figure, so check each case with the MOHRE calculator or your accountant before paying.

CaseCalculationGratuity, AED
Basic 5,000 AED, 3 years5,000 / 30 x 21 days x 3 years10,500
Basic 12,000 AED, 2.5 years12,000 / 30 x 21 days x 2.5 years21,000
Basic 8,000 AED, 7 years266.67 x 21 x 5 + 266.67 x 30 x 244,000
Basic 6,000 AED, 10 monthsunder one year0

How to budget it every month

The simplest way to avoid a large unplanned payment is to set aside a fixed share of basic salary each month and keep it as a provision in your accounts.

Common mistakes

Most disputes about gratuity start with the contract, not with the calculation.

How we help

TLNT is a hiring consultancy. When we help an employer find and assess candidates, we start with the full cost of the role: salary range as a market estimate, the split between basic and allowances, visa, health insurance, leave and the gratuity provision, so the offer is clear and the budget is real. You make the hiring decision and agree the terms with the candidate yourself; the person is employed directly by your company, the employer sponsors the visa and we give you a step-by-step checklist. We are not lawyers: for a disputed case we recommend a labour lawyer or MOHRE.

Our fee is fixed for each role and agreed before the search starts. A 10% prepayment of the fee starts the search, the rest is due once the person has started work. If it does not work out, we find a replacement free of charge; the period is set in the contract. Consulting and CRM projects are priced after a free review.

FAQ

How is end-of-service gratuity calculated in the UAE?

From the last basic salary: 21 days of basic salary for each of the first five years of service and 30 days for each year after that, with partial years counted pro rata. One day's wage is commonly the monthly basic divided by 30. The total cannot exceed two years' wage, and there is no gratuity under one year of service.

Does an employee get gratuity after resigning in the UAE?

Yes, if they completed at least one year of continuous service. Under the 2021 Labour Law the reason for leaving does not reduce the amount the way the old law did. DIFC, ADGM and UAE nationals follow different rules, so check those cases separately.

Is gratuity paid on basic salary or total salary?

On basic salary. Housing, transport and other allowances are not included. Whether commission counts depends on how the contract describes it, so the split between basic, allowances and commission should be clear in the offer.

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