End-of-service gratuity under the new framework

What employers and employees need to know about how end-of-service gratuity is calculated under the current UAE Labour Law.

End-of-service gratuity remains one of the most frequently misunderstood entitlements in the UAE workplace — by employees who underestimate it and by employers who miscalculate it. The framework introduced by Federal Decree-Law No. 33 of 2021 settled several long-running questions, but the arithmetic still trips people up.

The statutory entitlement.

An employee who completes one year or more of continuous service is entitled to a gratuity on termination. The entitlement accrues on the basic salary — not the gross package — which is why the split between basic pay and allowances in the employment contract matters so much in practice.

How the calculation works.

The headline rule is straightforward: twenty-one days’ basic pay for each of the first five years of service, and thirty days’ basic pay for each year beyond five. The total is capped at two years’ remuneration. Periods of unpaid leave are excluded from the count of service.

“The single most common error we see is gratuity calculated on the gross salary. The statute is clear: the basic wage is the base, and a generous allowance structure can quietly reduce the entitlement.”

Common errors.

Beyond the basic-versus-gross confusion, disputes tend to cluster around a few points: whether service was genuinely continuous, the treatment of the final partial year (which is paid pro rata), and unauthorised deductions from the final settlement. Under the unified contract regime, the old distinction between limited and unlimited contracts no longer drives the calculation as it once did.

Practical guidance.

For employers, the lesson is to model the gratuity liability against the contractual basic wage from the outset and to keep clean records of service and leave. For employees, it is to read the contract’s salary breakdown before signing — and to check the final settlement against the statute rather than accepting it on trust.