UAE Gratuity (End of Service) Calculation: Complete Guide

Gratuity (end-of-service benefit) is one of the most important financial rights for UAE employees. Understanding how it's calculated helps you plan your finances and ensures you receive what you're owed.

Who qualifies

Any employee who has completed at least one year of continuous service with the same employer is entitled to gratuity under UAE Labour Law (Federal Decree-Law No. 33 of 2021). This applies to private sector employees on both limited and unlimited contracts. Free zone employees are generally covered by the same rules, though some free zones have specific regulations.

How gratuity is calculated

The calculation is based on your basic salary (not total salary — excludes housing, transport, and other allowances):

Years 1-5: 21 calendar days of basic salary for each year of service. Years 5+: 30 calendar days of basic salary for each additional year beyond five.

The total gratuity is capped at two years' total salary (24 months of gross salary, not basic).

Example: If your basic salary is AED 10,000 and you've worked for 7 years: First 5 years: 5 × (21/30 × AED 10,000) = AED 35,000 Next 2 years: 2 × (30/30 × AED 10,000) = AED 20,000 Total gratuity: AED 55,000

Resignation vs termination

Under the 2021 labour law reform, the calculation is the same whether you resign or are terminated — the old system that reduced gratuity for early resignation has been abolished. This is a significant change from the previous law.

If you are terminated during your probation period (maximum 6 months), you are not entitled to gratuity as you haven't completed one year of service.

What affects your gratuity

Basic salary definition: Only the basic salary component counts. If your contract bundles everything into one "total salary" without separating basic, housing, and transport, the full amount may be treated as basic salary — which increases your gratuity. Check your contract carefully.

Part years: Gratuity is calculated proportionally for partial years after the first complete year. If you worked 3 years and 8 months, you receive gratuity for 3 years plus 8/12 of a year.

Unpaid leave: Extended unpaid leave may not count toward your service period (depending on the arrangement), which could reduce your total gratuity.

DEWS — the new alternative

The Savings Workplace Alternative Scheme (formerly DEWS), managed by the Dubai International Financial Centre (DIFC), allows employers to invest gratuity contributions into a savings fund rather than paying a lump sum at the end. Some mainland employers are now offering similar savings-based alternatives.

Under these schemes, your employer contributes the equivalent gratuity amount monthly into a managed fund, which earns returns over time. The benefit is that your gratuity grows with investment returns rather than sitting as a liability on the employer's books. The risk is that fund performance varies.

Tax on gratuity

The UAE does not tax gratuity payments. However, if you're from a country that taxes worldwide income (like the US), you may need to declare gratuity as income in your home country.

When is gratuity paid

Your employer must pay gratuity within 14 days of your last working day. If they fail to do so, you can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) through their Tawafuq service.

Planning around gratuity

Treat gratuity as a guaranteed savings component of your UAE compensation. For long-term residents, the compounding effect is significant — 10 years of service at a AED 15,000 basic salary yields approximately AED 125,000 in gratuity. Consider this when evaluating job offers that quote different basic-to-total salary ratios.