UAE gratuity formula: (Last basic salary ÷ 30) × gratuity days × years served. Rates: 21 days/year for first 5 years; 30 days/year for years beyond 5. Since the 2023 Labour Law: all contracts are limited-term, and full gratuity applies on any termination including resignation. Maximum = 2 years’ total salary.
UAE gratuity step-by-step calculation
| Scenario | Formula | Result |
|---|---|---|
| 2 years, AED 10,000 basic | (10,000÷30) × 21 × 2 | AED 14,000 |
| 5 years, AED 15,000 basic | (15,000÷30) × 21 × 5 | AED 52,500 |
| 7 years, AED 15,000 basic | (15,000÷30)×(21×5 + 30×2) | AED 82,500 |
| 10 years, AED 20,000 basic | (20,000÷30)×(21×5 + 30×5) | AED 170,000 |
| Less than 1 year | No gratuity — must complete 1 full year | AED 0 |
2023 Labour Law reforms — what changed
- All contracts now limited-term: Since 2 February 2023, all new employment contracts in UAE must be limited-term (fixed duration, typically 1–3 years). Employers who had unlimited-term contracts were required to convert them to limited-term by 1 February 2023.
- Full gratuity on resignation: Under the old unlimited-contract rules, resignation triggered a reduced gratuity (1/3 after 1–3 years, 2/3 after 3–5 years, full after 5+ years). Under limited-term contracts: employees who resign before the contract end are entitled to full gratuity — no reduction.
- Notice period and early exit: If a limited-term employee resigns before the contract end without serving notice (or without the employer’s agreement), the employer may claim compensation of up to 3 months’ salary. But gratuity entitlement is unchanged.
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Partial year gratuity
- Less than 1 year: No gratuity entitlement — employees must complete one full year of service to qualify.
- More than 1 year — partial year: For a completed year and a partial year, the partial year gratuity is prorated. Example: 3 years and 6 months (3.5 years): gratuity = (basic ÷ 30) × 21 × 3.5.
- Fractions of a day: Partial days in the final year are typically rounded to the nearest day. Some employers round down; UAE Labour Court practice generally rounds to the nearest full day.
UAE gratuity compliance for your team
We calculate, accrue, and advise on UAE end-of-service gratuity for all your employees. Fixed fee.
Frequently asked questions
When is UAE gratuity paid?
UAE end-of-service gratuity must be paid within 14 days of the employee’s last working day (end of contract or termination date). Delay beyond 14 days triggers a penalty interest claim by the employee in the Labour Court. Employers should prepare the gratuity calculation in advance and have it ready for payment on the final day or immediately thereafter.
Is UAE gratuity taxable?
No — UAE gratuity payments are not subject to income tax, because UAE has no personal income tax. The full gratuity amount received by the employee is retained in full. For employers, gratuity paid is a deductible expense for UAE corporate tax purposes (it is a staff cost incurred for business purposes).
Does UAE gratuity apply to part-time employees?
Yes — part-time employees under UAE Labour Law are entitled to gratuity on a pro-rated basis relative to a full working week. The gratuity is calculated based on the actual days worked versus the standard working week. Employers must maintain records of part-time employees’ actual working hours to calculate the pro-rata entitlement correctly.
What happens to UAE gratuity if the employer goes bankrupt?
UAE gratuity is a priority claim in insolvency proceedings — employees’ end-of-service gratuity claims rank ahead of unsecured creditors. The UAE Labour Ministry requires employers to register with the Workers Protection Programme (WPP) or contribute to an approved gratuity fund. The UAE also introduced a voluntary savings scheme (DEWS — Daman End of Service for DIFC companies) that places gratuity accruals in an external fund, protecting employees if the employer becomes insolvent.
Official UAE Government Sources
