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.
Need gratuity provisioned and tracked every month?
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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.