End-of-Service Gratuity in UAE: What Employers Must Calculate

End-of-service gratuity is a mandatory benefit under UAE labour law owed to employees upon the end of their employment, calculated based on the employee's length of service and final basic salary, and getting this calculation wrong is a common and costly mistake for employers who don't handle payroll and HR obligations with dedicated expertise.

The standard calculation generally provides 21 days of basic salary for each of the first five years of continuous service, and 30 days of basic salary for each year of service beyond that threshold, calculated against the employee's final basic salary rather than their total compensation package including allowances or bonuses. An employee who resigns before completing one year of service is generally not entitled to gratuity at all, while an employee resigning after one year but before five years typically receives a reduced proportion of the full entitlement, rather than either the full amount or nothing.

Beyond the calculation itself, gratuity represents a genuine future financial liability that should be accrued on a company's books over time as the obligation builds, rather than only recognized as an expense at the moment an employee actually departs, since treating it as a surprise cost rather than a tracked, growing liability can create real cash flow problems when several long-tenured employees happen to leave around the same time. In recent years, the UAE has also introduced an alternative, voluntary end-of-service savings scheme, giving employers and employees the option of a structured savings-based approach rather than relying solely on the traditional lump-sum gratuity calculation, which some businesses find offers more predictable financial planning than accruing an uncertain future liability calculated only at the point of departure.