End-of-service gratuity is one of the most misunderstood entitlements in the UAE, by employers and employees alike. The formula itself is simple. The mistakes come from using the wrong salary figure.
The formula
Under Federal Decree-Law No. 33 of 2021, a private-sector employee who completes at least one year of continuous service is entitled to:
- 21 calendar days of basic salary for each of the first five years of service
- 30 calendar days of basic salary for each year beyond five
The total is capped at two years' pay. Partial years after the first are calculated proportionately.
The mistake almost everyone makes
Gratuity is calculated on basic salary only — the fixed basic wage in the contract. Housing, transport and utility allowances, overtime and bonuses are excluded. Since allowances often make up a large share of a UAE package, using total salary produces a figure far higher than the legal entitlement.
The daily rate is normally the monthly basic salary divided by 30.
Worked example
An employee with a basic salary of AED 10,000 and three years of service:
- Daily rate: 10,000 ÷ 30 = AED 333.33
- Gratuity: 21 days × 3 years × 333.33 = AED 21,000
An employee with AED 15,000 basic and seven years and four months:
- Daily rate: 15,000 ÷ 30 = AED 500
- First five years: 21 × 5 × 500 = AED 52,500
- Years six and seven: 30 × 2 × 500 = AED 30,000
- Remaining four months: 30 × (4 ÷ 12) × 500 = AED 5,000
- Total: AED 87,500
Resignation no longer reduces gratuity
Under the current law, an employee who resigns receives the same full gratuity as one whose contract is terminated. The old reduced-gratuity penalty for resignation was abolished. Employees must still complete one year of continuous service to qualify.
Exceptions worth knowing
DIFC and ADGM operate under their own employment regulations and have different end-of-service arrangements, so free zone employees in those jurisdictions should check their specific rules. A voluntary alternative end-of-service savings scheme also exists; where an employer enrols a worker, traditional gratuity accrual is fixed as at the enrolment date and the earlier accrued amount is preserved.
Getting it right every month, not just at exit
The practical problem for employers is that gratuity is a liability building quietly in the background. Discovering the true figure only when someone resigns is how cash-flow surprises happen.
Zoho Payroll handles this — uAE payroll with WPS SIF files, gratuity and payslips — automated. Try it free.
Zoho Payroll's UAE edition calculates gratuity per UAE labour law and tracks the accrual as it builds, alongside WPS SIF file generation for salary transfers.
Also useful: our salary calculator and full set of free UAE calculators. For payroll software, see our WPS payroll guide.
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This guide is general information, not tax or legal advice. Rules, deadlines and penalties are set by the FTA and MOHRE and change over time — always confirm current requirements on the official portals or with a registered tax agent before acting.