UAE gratuity = 21 calendar days’ basic salary per year for the first 5 years, then 30 calendar days’ per year from year 6 onward. Maximum: 2 years’ total basic salary. Based on last drawn basic salary (not total package). Employees who resign after 1 year qualify for the full entitlement. Minimum service: 1 year.
The gratuity calculation formula
UAE Labour Law (Federal Decree-Law No. 33 of 2021, effective 2 February 2022) standardised gratuity as follows:
- Years 1–5: 21 calendar days’ basic salary per completed year of service
- Year 6+: 30 calendar days’ basic salary per year for each year beyond 5
- Base: Last drawn basic salary — excluding housing allowance, transport, commissions, bonuses, and any other variable pay
- Cap: Total gratuity cannot exceed 2 years’ total basic salary
- Partial years: Pro-rated based on the number of days served in an incomplete year
| Service years | Daily rate (basic ÷ 30) | Calculation |
|---|---|---|
| 3 years, basic AED 10,000/mo | AED 333.33/day | 21 days × 3 years × AED 333.33 = AED 21,000 |
| 7 years, basic AED 15,000/mo | AED 500/day | (21 × 5 × AED 500) + (30 × 2 × AED 500) = AED 82,500 |
| 12 years, basic AED 20,000/mo | AED 666.67/day | (21 × 5 × 666.67) + (30 × 7 × 666.67) = AED 210K → but cap = 2 × 12 × 20K = AED 480K → AED 210K (below cap) |
Resignation — no reduction since 2022
Under the old UAE Labour Law (pre-2022), employees who resigned before completing 5 years received a reduced gratuity (50% for 1–3 years, 66% for 3–5 years). This graduated reduction was abolished under the 2021 Labour Law.
Since 2 February 2022, an employee who resigns after completing 1 year of service receives the full gratuity entitlement — 21 days per year, same as a terminated employee. Resignation after less than 1 year: no gratuity.
An employee dismissed under Article 44 of the UAE Labour Law (serious misconduct — fraud, violence, intoxication, criminal conviction, unauthorised absence for 7+ days) forfeits the gratuity entitlement. The employer must document the dismissal grounds formally and MOHRE should be notified. Disputes go to MOHRE conciliation before labour court.
Gratuity provisioning — monthly vs lump-sum
UAE Labour Law does not require gratuity to be funded in a segregated account (unlike some countries). However, from a cash flow management perspective, employers should provision gratuity monthly:
Monthly provision = (21 or 30 ÷ 365) × basic salary × number of months in year. For a 3-year employee on AED 10,000 basic: monthly provision = (21 × 10,000 ÷ 365) × 1 = AED 575/month. This avoids the shock of a six-figure gratuity bill when a long-serving employee exits.
DIFC Employee Workplace Savings (DEWS) is mandatory for DIFC employers — it replaces gratuity with a defined contribution savings scheme. For mainland employers, Hayakum (a voluntary gratuity savings platform) allows structured monthly contributions that are ringfenced for gratuity payments. Both protect employers from cash-flow shock on termination.
How to calculate UAE gratuity (with a worked example)
UAE end-of-service gratuity is calculated on your basic salary only — not your total package with allowances. The daily wage is your basic monthly salary divided by 30. Two accrual rates apply, and the total is capped at two years’ wage.
Worked example — an employee on a basic salary of AED 10,000 who completes 7 full years and is on a limited (fixed-term) contract:
| Step | Calculation | Amount |
|---|---|---|
| Daily wage | AED 10,000 ÷ 30 | AED 333.33 |
| First 5 years | 21 days × 5 × AED 333.33 | AED 35,000 |
| Years 6–7 | 30 days × 2 × AED 333.33 | AED 20,000 |
| Total gratuity | AED 55,000 |
Gratuity is computed on basic wage only. If your basic is artificially low and most of your pay is ‘allowances’, your gratuity will be lower than you expect — check your contract. Run the numbers instantly with our UAE gratuity calculator.
Gratuity entitlement by length of service
How much you receive — and whether resignation reduces it — depends on completed years of continuous service. Since 2 February 2023 all private-sector contracts are limited (fixed-term), so the old unlimited-contract resignation penalties no longer apply.
| Completed service | Gratuity entitlement |
|---|---|
| Less than 1 year | No gratuity |
| 1 to 5 years | 21 days’ basic wage per year |
| More than 5 years | 21 days/year for the first 5 + 30 days/year thereafter |
| Any length | Total capped at 2 years’ total wage |
What UAE employees actually ask about gratuity
These are the gratuity questions raised most often by UAE employees and HR teams. Here are clear answers.
“Is gratuity calculated on my basic salary or my total salary?”
Basic salary only. Allowances (housing, transport, etc.) are excluded. Your daily rate for gratuity is basic monthly salary ÷ 30.
“Does resigning reduce my gratuity?”
For limited (fixed-term) contracts — which is every private-sector contract since 2 February 2023 — resignation does not cut your gratuity, provided you have completed at least one year of continuous service. The old reductions applied only to the now-abolished unlimited contracts.
“Do years I worked abroad count toward my UAE gratuity?”
No. Only continuous service with your UAE employer counts. Time worked for a different company, or abroad, does not accrue gratuity in the UAE.
“Is there really a 24-month / 2-year cap on gratuity?”
Yes. No matter how long you serve, total end-of-service gratuity is capped at the equivalent of two years’ wage.
“What if I leave before completing one year?”
No gratuity is payable for service under one year. From one year onward you accrue at 21 days’ basic wage per year.
Gratuity is a real, growing liability. Best practice is to accrue (provision) for it each month so a cluster of departures never hits your cash fl all at once — see our UAE payroll compliance checklist.
Need gratuity provisioned and tracked every month?
We calculate and track gratuity for every employee as part of our UAE payroll service — no end-of-year surprises.
Frequently asked questions
How is UAE end-of-service gratuity calculated?
21 calendar days’ basic salary per year for the first 5 years, plus 30 days per year from year 6 onward. Based on last drawn basic salary only. Maximum: 2 years’ total basic salary. Minimum service: 1 year.
Does an employee who resigns get gratuity in UAE?
Yes — since the 2021 Labour Law (effective February 2022), employees who resign after 1 year of service receive the full gratuity entitlement (21 days/year). The old graduated reduction for resignation was abolished.
What is included in UAE gratuity base salary?
Only the basic salary. Housing allowance, transport allowance, commissions, bonuses, and any other variable or non-fixed pay components are excluded from the gratuity calculation base.
What is the maximum gratuity in UAE?
Total gratuity is capped at 2 years’ total basic salary. For an employee on AED 15,000 basic for 20 years, the calculation may produce a higher figure but the payment is capped at 24 months × AED 15,000 = AED 360,000.
What happens to gratuity if an employee is dismissed for misconduct?
Employees dismissed for serious misconduct under Article 44 of the UAE Labour Law forfeit their gratuity entitlement. Misconduct includes fraud, assault, intoxication at work, and unauthorised absence for 7+ consecutive days.
Is UAE gratuity tax-free?
Yes. Gratuity payments to employees are excluded from UAE Corporate Tax (they are a deductible business expense for the employer). There is no income tax or withholding tax on gratuity in the UAE. Employees receive gratuity free of any UAE deduction.
How is end-of-service gratuity calculated in the UAE?
Gratuity is based on your basic salary only. You receive 21 days’ basic wage for each of the first five years of service and 30 days’ basic wage for each year thereafter, with the total capped at two years’ wage. The daily wage is basic monthly salary divided by 30.
Is UAE gratuity based on basic salary or total salary?
Basic salary only. Allowances such as housing and transport are excluded from the gratuity calculation.
Does resignation reduce gratuity in the UAE?
No, for limited (fixed-term) contracts — which all private-sector contracts have been since 2 February 2023 — provided you have completed at least one year of continuous service. The old reductions applied only to unlimited contracts, which no longer exist.
Is there a maximum gratuity amount in the UAE?
Yes. Total end-of-service gratuity is capped at the equivalent of two years’ total wage regardless of length of service.
Do I get gratuity if I leave before one year?
No. End-of-service gratuity is payable only after completing at least one continuous year of service.