Topic Summary
What Is End-of-Service Gratuity and How to Calculate It Under UAE Law
End-of-service gratuity is a statutory payment owed to a departing employee with at least one year of continuous service. Under Federal Decree-Law No. 33 of 2021, it runs on basic salary: 21 days' pay per year for the first five years, then 30 days for each year after.
Who Qualifies for Gratuity and What Counts as Service
Who Qualifies for Gratuity and What Counts as Service
Step-by-Step Guide to Calculating End-of-Service Gratuity
To calculate gratuity: confirm service, find last basic salary, divide by 30, apply 21 days for years one to five and 30 days after, add pro-rated partial years, then deduct lawful amounts. The total cannot exceed two years' wages.
Gratuity Calculation for Free Zone Employees in Dubai South
Free zone employers in Dubai South use the same federal formula, on basic salary and years of service, unless the contract is more generous. Align contracts, payroll and visa status so the settlement matches what MOHRE and the employee expect.
Paying Gratuity Through WPS and Final Settlement Records
Gratuity is paid in the final settlement, normally within 14 days of contract end, with outstanding salary and unused leave. Pay through approved channels and keep signed statements so WPS and MOHRE records match.
Budgeting for End-of-Service Gratuity as a Dubai South Employer
Budget by accruing monthly, modelling exits at one, three and five years, and revisiting liabilities when pay changes. Planned costs keep cash flow steady through resignations and closures.
Next Steps for Your Team
Knowing end-of-service gratuity and how to calculate it comes down to the one-year threshold, the 21-day and 30-day tiers, the basic-salary base and the two-year cap. Accrue monthly, document every calculation and settle on time. Review your contracts and payroll now, then speak with the Dubai South Business Hub team about licensing and residency visa packages that fit your hiring plan.
More than 5 million private-sector employees in the UAE are covered by Federal Decree-Law No. 33 of 2021 [1]. Over 750,000 of them work in free zones [2]. This guide covers end-of-service gratuity and how to calculate it, so Dubai South founders can budget with confidence. Gratuity is 21 days' basic pay per year for five years, then 30 days [1]. It is capped at two years' wages [1], and settlement is due within 14 days [1]. For one employee on AED 7,000 basic, five years costs AED 24,500 [3].
What Is End-of-Service Gratuity and How to Calculate It Under UAE Law
End-of-service gratuity is a statutory payment owed to a departing employee with at least one year of continuous service. Under Federal Decree-Law No. 33 of 2021, it runs on basic salary: 21 days' pay per year for the first five years, then 30 days for each year after.
Definition and Legal Basis
Gratuity is a lump-sum entitlement, not a bonus. MOHRE enforces it under the Decree-Law and its Executive Regulations. It accrues from day one, though payment only triggers after one full year. Picture a Dubai South start-up hiring an operations manager on a two-year contract: the liability builds monthly from the first payslip.
Why Gratuity Matters to Free Zone Employers
Free zone licenses with residency visa packages still carry gratuity duties.
Unbudgeted exits drain working capital.
Five years on AED 7,000 basic adds AED 24,500.
Our end of service benefits for UAE employers guide goes deeper.
Who Qualifies for Gratuity and What Counts as Service
Employees qualify for gratuity after one year of continuous service, on limited or unlimited contracts. Unpaid leave beyond permitted limits is excluded from service length. The calculation uses last basic salary, not allowances, commissions or overtime, unless the contract says otherwise.
Eligibility Rules for Limited and Unlimited Contracts
The 12-month minimum applies to both contract types.
Part-years are pro-rated.
Confirmed probation service counts.
An employee leaving at 14 months gets one full year plus two pro-rated months.
Gratuity Entitlement by Years of Service
Feature | Service Length | Gratuity Entitlement |
|---|---|---|
Less than 1 year: no gratuity | Under 12 months | AED 0 |
1 to 5 years: 21 days' basic pay per year | 12 to 60 months | About AED 4,900 per year on AED 7,000 basic |
Beyond 5 years: 30 days' basic pay per additional year | Month 61 onward | AED 7,000 per extra year on AED 7,000 basic |
Partial years: pro-rated | Any incomplete year | Six months earns half the annual amount |
Total cap: two years' wages | Any length | AED 168,000 maximum on AED 7,000 basic |
What Counts as Basic Salary
Basic salary excludes housing, transport and other allowances. Take an AED 10,000 package split into AED 6,000 basic and AED 4,000 allowances: gratuity runs on AED 6,000 only. Daily wage is basic divided by 30. Misdescribed pay components are the most common dispute trigger, so check the MOHRE-registered offer letter.
Situations That Reduce or Affect Entitlement
Dismissal for gross misconduct in the Labour Law's listed cases can forfeit gratuity. Three months of unpaid leave shortens service length by three months. Lawful employee debts may be offset. See terminating an employee in the UAE for the process.
Step-by-Step Guide to Calculating End-of-Service Gratuity
To calculate gratuity: confirm service, find last basic salary, divide by 30, apply 21 days for years one to five and 30 days after, add pro-rated partial years, then deduct lawful amounts. The total cannot exceed two years' wages.
Step 1: Confirm Service Length and Basic Salary
Check joining date, last working day and unpaid leave.
Pull basic salary from the contract and payroll.
Count years plus pro-rated months.
Joined 1 March, left 28 February six years later: six full years.
Step 2: Work Out the Daily Wage and Apply the Formula
Daily wage: AED 7,000 / 30 = AED 233.33.
Five years x 21 days = 105 days = AED 24,500.
Add 30 days for year six = AED 7,000.
Total: AED 31,500.
Step 3: Apply Deductions and Check the Cap
Deduct documented amounts only. An AED 2,000 advance leaves AED 29,500 payable. Confirm the figure sits under the two-year cap and record the working in the settlement sheet. Try the MOHRE gratuity calculator as a cross-check.
Gratuity Calculation for Free Zone Employees in Dubai South
Free zone employers in Dubai South use the same federal formula, on basic salary and years of service, unless the contract is more generous. Align contracts, payroll and visa status so the settlement matches what MOHRE and the employee expect.
Aligning Free Zone Contracts With Federal Rules
Contracts can't offer less than the statutory minimum. In practice, a Dubai South consultancy should split basic pay from allowances in its offer letter before onboarding two hires on residency visa packages. Our guide to gratuity calculation for free zone employees covers common errors.
Accruing Gratuity Monthly in Your Books
Book a monthly provision: about AED 292 on AED 7,000 basic.
Review at every salary change.
Keep one schedule per employee.
Paying Gratuity Through WPS and Final Settlement Records
Gratuity is paid in the final settlement, normally within 14 days of contract end, with outstanding salary and unused leave. Pay through approved channels and keep signed statements so WPS and MOHRE records match.
Payment Timing and What the Settlement Includes
An employee resigning on 30 June should receive an itemised settlement by mid-July. Late payment invites MOHRE complaints. Check final employee settlements before closure for the full list.
Records to Keep and Common Mistakes
Keep contract, payroll, leave and calculation sheets.
Don't use total salary instead of basic.
Don't skip pro-rata or leave encashment.
An employer who used AED 10,000 instead of AED 6,000 basic overpays and rarely recovers it.
Budgeting for End-of-Service Gratuity as a Dubai South Employer
Budget by accruing monthly, modelling exits at one, three and five years, and revisiting liabilities when pay changes. Planned costs keep cash flow steady through resignations and closures.
Modelling Costs at One, Three and Five Years
Take three employees on AED 5,000, 7,000 and 9,000 basic. At year three, total liability is 63 days each: AED 10,500, AED 14,700 and AED 18,900, so a reserve of AED 44,100.
Planning for Resignation, Termination and Closure
Notice runs 30 to 90 days; see notice periods under UAE labour law.
Closure triggers settlement for every employee.
Time exits with cancelling an employee visa in Dubai South.
Next Steps for Your Team
Knowing end-of-service gratuity and how to calculate it comes down to the one-year threshold, the 21-day and 30-day tiers, the basic-salary base and the two-year cap. Accrue monthly, document every calculation and settle on time. Review your contracts and payroll now, then speak with the Dubai South Business Hub team about licensing and residency visa packages that fit your hiring plan.
References
MOHRE, Federal Decree-Law No. 33 of 2021 and Executive Regulations.
Dubai Chamber, free zone workforce data.
Ministry of Finance, UAE employer cost guidance.
Central Bank of the UAE, WPS payment framework.
Frequently Asked Questions
