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End of Service Gratuity in UAE (Calculation Guide)
Introduction
End of Service Gratuity (EOSG) in the United Arab Emirates is one of the most important financial rights for employees working in the private sector. Understanding how gratuity is calculated can help employees plan their finances and ensure employers remain compliant with UAE labor regulations.
This comprehensive guide explains:
- What end of service gratuity is
- Who is eligible
- How to calculate it step-by-step
- Important rules and recent updates
- Practical examples
What Is End of Service Gratuity?
End of Service Gratuity is a lump-sum payment that employers must provide to eligible employees when their employment contract ends, provided certain conditions are met.
It is essentially:
- A statutory benefit
- Based on basic salary
- Calculated according to length of service
- Governed by UAE Labour Law
The purpose of gratuity is to reward employees for their years of service and provide financial support after leaving a job.
Legal Basis of Gratuity in UAE
End of Service Gratuity is regulated under the UAE Labour Law and supervised by the Ministry of Human Resources and Emiratisation (MOHRE).
The law applies mainly to:
- Private sector employees
- Full-time workers
- Limited and unlimited contracts (with some differences)
Government employees and domestic workers follow separate systems.
Who Is Eligible for Gratuity?
An employee qualifies for end of service gratuity if:
✅ They complete at least 1 year of continuous service
✅ They are not dismissed for gross misconduct
✅ They are under a contract covered by UAE Labour Law
Who Is NOT Eligible?
Employees may lose gratuity if:
- Service is less than 1 year
- Termination is due to serious misconduct
- Contractual violations occur
Key Factors That Affect Gratuity Calculation
Before calculating gratuity, you must know:
1. Basic Salary Only
⚠️ Gratuity is calculated only on basic salary, excluding:
- Housing allowance
- Transport allowance
- Bonuses
- Overtime
2. Length of Service
The number of years worked directly affects the amount.
3. Type of Contract
Under the current UAE Labour Law (post-2022 reforms), most private sector contracts are limited-term, but the gratuity formula remains largely consistent.
Standard Gratuity Formula in UAE
For Service Less Than 5 Years
- 21 days basic salary per year
For Service More Than 5 Years
- First 5 years: 21 days per year
- After 5 years: 30 days per year
Maximum Limit
Total gratuity must not exceed two years’ basic salary.
Step-by-Step Gratuity Calculation
Step 1: Determine Daily Basic Salary
Step 2: Multiply by Eligible Days
- 21 days per year (first 5 years)
- 30 days per year (after 5 years)
Step 3: Multiply by Years of Service
Practical Examples
Example 1: Employee Worked 3 Years
Basic Salary: AED 5,000
Service: 3 years
Step 1:
Daily salary = 5,000 ÷ 30 = AED 166.67
Step 2:
Gratuity days = 21 × 3 = 63 days
Step 3:
Gratuity = 166.67 × 63 = AED 10,500
Example 2: Employee Worked 7 Years
Basic Salary: AED 8,000
Service: 7 years
First 5 years:
21 × 5 = 105 days
Next 2 years:
30 × 2 = 60 days
Total days:
105 + 60 = 165 days
Daily salary:
8,000 ÷ 30 = 266.67
Gratuity:
266.67 × 165 = AED 44,000 (approx.)
Important Rules Employees Must Know
🔹 Resignation vs Termination
Under the updated UAE Labour Law, gratuity is generally calculated the same whether the employee resigns or is terminated (except in misconduct cases).
🔹 Unpaid Leave
Periods of unpaid leave are not counted in gratuity calculation.
🔹 Part-Year Calculation
If service includes months beyond full years, gratuity is calculated proportionally.
🔹 Deductions
Employers may deduct lawful amounts such as:
- Outstanding loans
- Proven damages
- Court-ordered deductions
Recent Changes in UAE Gratuity System
The UAE introduced major labor reforms in 2022 that:
- Standardized limited-term contracts
- Improved employee protections
- Clarified gratuity entitlements
There is also discussion about optional gratuity savings schemes in some sectors, but the traditional EOSG system still applies to most private workers.
Common Mistakes to Avoid
Many employees lose money due to these errors:
❌ Calculating using full salary instead of basic
❌ Ignoring unpaid leave periods
❌ Not counting partial years
❌ Assuming gratuity applies before 1 year
❌ Forgetting the 2-year salary cap
Tips to Maximize Your Gratuity
- Keep copies of your employment contract
- Track your basic salary changes
- Monitor unpaid leave periods
- Request final settlement breakdown
- Use official MOHRE calculators when available
Frequently Asked Questions (FAQ)
Is gratuity mandatory in UAE?
Yes. It is legally required for eligible private sector employees.
Can an employer refuse to pay gratuity?
No, unless the employee is legally disqualified (e.g., serious misconduct).
Is gratuity taxable in UAE?
Currently, gratuity is tax-free in the UAE.
What happens if the company closes?
Employees remain entitled to gratuity and may claim through legal channels if unpaid.
Conclusion
End of Service Gratuity in the UAE is a crucial financial benefit that rewards employees for their loyalty and years of work. By understanding the calculation method and legal rules, workers can protect their rights and plan their financial future more effectively.
Whether you are an employee preparing to leave a job or an employer ensuring compliance, using the correct gratuity formula is essential.
Sources
- UAE Labour Law (Federal Decree Law No. 33 of 2021)
- Official guidance from the Ministry of Human Resources and Emiratisation (MOHRE)
- UAE Government Portal (u.ae)