Gratuity refers to an amount paid by an employer to their employees in return for their services provided in the company. Therefore, this article will help you understand how to solve gratuity calculation in UAE?
Moreover, employees in UAE who have completed full-term employment contracts must get the gratuity amount and all benefits specified by their employer, as required by the UAE Labor Law and compliances. Lets see how to calculate end of service UAE-
What are the Factors on which Gratuity Calculation in UAE Depends?
Therefore, there are several factors on which the Maximum gratuity limit in UAE of an employee in UAE depends upon:
1. Type of employment contract
2. Total number of service years in an organization
3. Reason for termination of job
4. Basic salary received by the employee
Let’s understand the different types of contracts in UAE and other GCC countries (Dubai, Abu Dhabi, Sharjah etc).
Types of Employment Contracts
Furthermore, employment contracts for gratuity calculation in UAE diverge into two types based on the duration of services – limited contract and unlimited contract.
- Limited Contract
- Unlimited Contract
1. Limited Contract
Therefore, this is contract defines the period or number of years an employee will agree to stay with the company. This period can also relate to the duration of the visa of UAE residents.
This method is ideal for organizations that hire employees for a specific purpose or project. Resigning before the specified time and date can result in a labour ban, loss of pay as well as loss of labour rights.
2. Unlimited Contract
In these types of contracts, employers do not specify a date and time for the employee to stay with the organization. However, employees have to serve a notice period of one to three months. These contracts are more flexible as compared to limited-time contracts.
Moreover, organizations use these contracts when they know the intended timeline of a project in advance. Under this contract, employers must specify key details such as the conclusion date, nature of work, workplace, and compensation amount.
How to do Gratuity Calcuation in UAE for a Limited Contract?
Additionally, the amount of gratuity paid to an employee depends on the number of years served by an employee in an organization under a limited contract. Let’s see how the gratuity in UAE amount is on the number of years served. You can also calculate you amount Maximum gratuity limit in UAE in seconds with the gratuity calculator in UAE.
Duration of service:
1. Less than one year service
If an employee leaves the organization before completing one year, the employer does not owe them any UAE gratuity law or full and final settlement (FnF) amount. After one year, the employer must give the employee with the gratuity calculation in UAE .
2. One to five years service
The gratuity calculation in UAE paid to an employee will be based on 21 days of salary amount.
3. Five or more years service
Therefore, employers must give employees with a gratuity calculation in UAE amount equivalent to 30 days of salary for every working year.
Let’s see how to calculate end of service UAE amount under a limited contract with a simple example.
Suppose an employee is receiving a basic salary of 30000 AED
Daily wage of the employee= 30000/30= 1000 AED
Multiply the employee’s daily wage by 21 or 30, depending on the number of years of service. For example, if the daily wage is 1000, then 1000 * 21 = 21,000 will be received for each year of service. For employees who have worked for more than 5 years, they will get a gratuity calculation in UAE, provided it does not exceed the equivalent of two years’ total salary.
How to do computation for Gratuity in UAE for Unlimited Contracts?
In an unlimited contract also the amount calculate end of service UAE paid to an employee depends on the number of service years. So, let’s check how the UAE gratuity law amount is based on the number of years served under an unlimited contract.
Duration of Service
1. Less than one year of service
Employees who have served less than 1 year in an organization are not eligible for any gratuity amount.
2. One to three years of service
Employees receive ⅓ of the 21-day Dubai gratuity amount.
3. Three to five years of service
Employees gets gratuity in UAE amount equal to ⅔ of 21 days of Dubai gratuity pay.
4. Five or more years of service
Employees get the full 21 days of gratuity pay.
Let’s understand the gratuity calculation in UAE paid to an employee who is working under an unlimited contract using a simple example.
Suppose an employee’s basic salary is 30,000 AED.
Calculate the daily wage which is 30000/30=1000 AED
Multiply it by 21 which is 1000×21=21000 AED
Calculate ⅓ (for 1-3 years) or ⅔ (for 3-5 years) of the basic salary figure to determine the total gratuity amount paid to the employee.
For those workers who have completed more than 5 years of service, they gets a full amount of 21000 AED for each year if they have completed 5 or more years. Use Gratuity Calculator UAE for gratuity calculation in UAE amount in seconds with Maximum gratuity limit in UAE.
Gratuity Calculation in UAE
The Gratuity Calculator calculates the gratuity in UAE amount paid to an employee by using simple details for example basic salary, date of joining, and date of exit from the organization.
The gratuity calculator will to computation for gratuity in UAE within few seconds.
You can use Gratuity Calculator in UAE to calculate end of service UAE in a few seconds for free to stay compliant with the laws.
Gratuity in UAE- When will an Employee not Get it?
Therefore, several circumstances can lead to an employee not go ahead with Dubai gratuity calculation in UAE:
- Less than one year service
- Termination of Employee
- If an employee chooses to Resign
1. Less than one year service
So, if an employee has not completed one year of service, the organization will not provide any computation for gratuity in UAE.
2. Employee is terminated
Furthermore, if the organization terminates an employee, it will calculate the amount as per UAE Gratuity law follows:
If you worked more than 1 year but less than 5 years, you receive 21 days of basic salary for each year of service.
So, if an employee worked for five years, they gets to 30 days of basic salary for each year.
- Unpaid leaves will not involved.
3. If an employee chooses to resign
If an employee resigns from the organization, the organization will offer Gratuity calculation in UAE amount as follows:
If an employee resigns before completing one year, the organization will not pay any gratuity amount.
So, if an employee worked for 1-3 years, they are entitled to 21 days of basic salary for each year of service.
Employees who have worked between three and five years are entitled to receive 2/3 of 21 days of basic salary as computation for gratuity in UAE pay for each year they worked in the organization.
- To stay compliant with recent laws and regulations of Dubai Gratuity in UAE an employer or organization can use. Therefore, Zimyo Payroll Software to process right amount.
Circumstances Where Gratuity isn’t Payable
According to Article 139 of the UAE Labour Law, gratuity is forfeited if:
The worker is rejected for reasons specified under Article 120 (e.g., misconduct, fraud, etc.).
The employee leaves voluntarily before completing five years of service with Maximum gratuity limit in UAE
Note: Dubai Gratuity law Calculation in UAE is based on the essential wage and does not incorporate stipends such as housing, transportation, or utilities.
Role of HRMS in Gratuity rule in UAE
An advanced HRMS or Payroll System like Zimyo helps organizations:
Auto-calculate gratuity rule in Dubai based on tenure and salary
Comply with UAE labour law and tax rules
Seamlessly integrate with attendance, payroll, and leave records
Generate full and final (FnF) settlements error-free
Offer gratuity rule in UAE transparency to employees through self-service portals
To Wrap up
To begin with, Zimyo is an end-to-end HR service provider that manages the entire employee lifecycle from hiring to retiring. It has what that helps to calculate end of service UAE thousands of customers all over the world and an excellent Payroll Software compliant with UAE laws. Moreover, organizations like Kayfi, Vivandi, Morni, etc., are already using it to manage their entire HR processes including Payroll.
Book a free demo and experience Zimyo in action and how it will transform your HR processes as well.
Frequently Asked Questions (FAQs)
In UAE, gratuity is calculated on the basis of 21 day wage for five years of service and 30 days wage for every additional year.
The formula of gratuity calculation in UAE is (15 * Your last drawn salary * the working tenure) / 30
Most commonly the basic salary is 60% of the basic salary and rest of the amount is in the form of allowances and perks.
The computation of Gratuity in UAE paid to an employee does not exceed the employee’s two-year salary.
The salary is calculated regardless of any contract is for 30 days.
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