Gratuity refers to an amount paid by an employer to their employees in return for their services provided in the company.Â
This article will help you understand how to calculate gratuity in UAE?
As per the UAE Labor Law and compliances, all the employees who have completed full-term employment contracts are obliged to receive the gratuity amount or all the benefits mentioned by their employer. Â
What are the Factors on Which Gratuity in UAE Depends?
There are several factors on which the gratuity 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
Employment contracts can be classified into two types based on the duration of services – limited contract and unlimited contract.Â
1. Limited Contract
This 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.Â
This method is ideal in organizations where employees are hired for a specific purpose or a specific 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, no specified date and time is mentioned for the employee to stay with the company. However, employees have to serve a notice period of one to three months. These contracts are more flexible as compared to limited-time contracts.Â
These kinds of contracts are used where the intended timeline of a project is known in advance. Under this contract, it is necessary to mention various key pointers such as date of conclusion, nature of work and workplace, and the amount of compensation that will be paid.
How to Calculate Gratuity in UAE for a Limited Contract?
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 amount is based on the number of years served. You can also calculate you gratuity amount in seconds with the Gratuity Calculator for UAE.
Duration of service:
1. Less than one year service
If an employee leaves the organization before 1 year he is not entitled to any gratuity or full and final settlement amount. After one year he is entitled to receive gratuity amount.
2. One to five years service
The amount of gratuity paid to an employee will be based on 21 days of salary amount.
3. Five or more years service
Employees are entitled to receive the gratuity amount on 30 days of salary for every working year.
Let’s understand how a gratuity amount is calculated 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 daily wage of the employee by 21 or 30 (based on the number of years an employee works)= 1000*21=21000 will be received for every year of service. For those who are working for more than 5 years, a gratuity amount will be received as long as the total amount does not exceed two years’ total salary figure.
How to Calculate Gratuity in UAE for Unlimited Contracts?
In an unlimited contract also the amount of gratuity paid to an employee depends on the number of service years. Let’s check how the gratuity amount is based on the number of years served under an unlimited contract.Â
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 are entitled to â…“ of the 21-day gratuity amount.
3. Three to five years of service
Employees are entitled to a gratuity amount equal to â…” of 21-day gratuity pay.
4. Five or more years of service
Employees are entitled to full 21 days gratuity pay.
Let’s understand the gratuity amount paid to an employee who is working under an unlimited contract using a simple example.
Suppose the basic salary of an employee is 30,000 AED
Calculate the daily wage which is 30000/30=1000 AED
Multiply it by 21 which is 1000×21=21000 AED
Get the â…“ (1-3 years) or â…” (3-5 years) of the figure to get the total amount of gratuity paid to an employee.
For those workers who have completed more than 5 years of service, they are provided a full amount of 21000 AED for each year if they have completed 5 or more years. Use Gratuity Calculator UAE to calculate gratuity amount in seconds.
Gratuity Calculator
The Gratuity Calculator helps to calculate the amount of gratuity which is paid to an employee by just providing a few simple details such as basic salary, date of joining the organization, and date of exit from the organization.Â
The gratuity calculator will calculate the amount of gratuity in a few seconds.
It is easy to use and can be used several times for free.
You can use Gratuity Calculator in UAE to calculate the amount of gratuity in a few seconds for free to stay compliant with the laws.
UAE Gratuity - When will an Employee not Get it?
There are various circumstances under which gratuity in UAE is not paid to an employee:
1. Less than one year service
If an employee has not completed one service year they are not entitled to any gratuity amount in UAE.
2. If an employee is terminated
In the event where an employee is terminated, the calculation will be made something like this:
- If you have served more than 1 year but less than 5 years you are entitled to 21 days basic salary for each of the first 5 years.
- If an employee served over five years they are entitled to 30 days basic salary for each year but compensation does not exceed two years pay.
- Unpaid leaves will not be involved.
3. If an employee chooses to resign
In case an employee resigns from the organization the amount of gratuity will be calculated as follows:
- If an employee resigns before one year he is not entitled to any amount of gratuity.
- If an employee has served 1-3 years he is entitled to 21 days basic salary for each of the first 5 years.
- Employees who have served between three and five years are entitled to 2/3 of 21 days of basic salary as gratuity pay for each year they worked in the organization.
- If an employee has served more than 5 years they are entitled to 21 days basic salary as gratuity pay for the number of years they worked.
- Here also unpaid leaves will not be included.
To stay compliant with recent laws and regulations of Gratuity an employer or organization can use
Zimyo Payroll Software to process right amount.
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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 calculating gratuity 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 amount of gratuity paid to an employee does not exceed the employee’s two-year salary.
