How to Calculate Gratuity in UAE: Formula, Rules & Examples
Knowing how to calculate gratuity in UAE starts with three details: your last basic salary, your eligible period of continuous service and whether you are covered by the standard private-sector gratuity system.
For most expatriate full-time employees, gratuity is calculated at 21 days of basic salary for each year during the first five years, followed by 30 days of basic salary for every additional year. Employees must normally complete at least one continuous year of service before becoming eligible.
UAE Gratuity Calculation at a Glance
| Eligible service period | Gratuity entitlement |
|---|---|
| Less than one year | No statutory gratuity |
| One to five years | 21 days of basic salary for each year |
| More than five years | 21 days per year for the first five years, then 30 days per additional year |
| Partial final year | Calculated proportionately after completing the first year |
| Maximum gratuity | Cannot exceed two years’ wage |
The calculation uses the employee’s last basic wage. Unpaid absence days are removed from the eligible service period, while fractions of a year are counted proportionately once the employee has completed one full year.
You can also use our tool for UAE Gratuity Calculation and get the accurate results.
What Is Gratuity in the UAE?
Gratuity, also called an end-of-service benefit, is a statutory payment that eligible employees may receive when their employment ends. It is separate from unpaid salary, unused annual leave, notice-period compensation, commission and other final settlement amounts.
The standard formula covered in this guide applies mainly to expatriate employees working in the UAE private sector. Government employees, domestic workers, UAE nationals and certain workers under specialised employment systems may follow different rules.
Who Can Use the Standard UAE Gratuity Formula?
| Worker category | Does the standard formula apply? |
|---|---|
| Expatriate full-time private-sector employee | Generally yes |
| Employee with less than one year of service | No gratuity under the standard formula |
| Part-time or job-sharing employee | Adjusted according to contracted working hours |
| UAE national employee | Pension and social-security legislation generally applies |
| Domestic worker | Covered by separate domestic-worker legislation |
| Federal or local government employee | Covered by the relevant government employment system |
| Armed forces, police or security employee | Covered by separate rules |
| Employee enrolled in an alternative savings scheme | Different calculation applies after enrolment |
| Employee in a financial free zone | Check the employment rules of that jurisdiction |
The federal private-sector labour law excludes domestic workers, government employees, armed forces, police and security personnel from its standard scope. UAE nationals receive end-of-service entitlements under applicable pension and social-security legislation rather than the normal expatriate gratuity formula.
UAE Gratuity Formula for Full-Time Employees
The first step is to calculate the employee’s daily basic salary.
Daily basic salary formula
Daily basic salary = Last monthly basic salary ÷ 30
The UAE Labour Law treats a month as 30 days for calculating statutory periods. A Gregorian year is treated as 365 days.
Formula for one to five years of service
Gratuity = Daily basic salary × 21 × eligible years of service
A simpler version is:
Gratuity = Monthly basic salary × 0.70 × eligible years
This shortcut works because 21 days represent 70% of a 30-day monthly basic salary.
Formula for more than five years of service
Calculate the first five years and the additional years separately:
First five years = Daily basic salary × 21 × 5
Service after five years = Daily basic salary × 30 × additional years
Then combine both amounts:
Total gratuity = First five-year gratuity + gratuity for additional service
A useful monthly shortcut is:
Total gratuity = Monthly basic salary × 3.5 + monthly basic salary × service years above five
The first five years equal 3.5 months of basic salary. Each complete year after that equals one additional month of basic salary.
How to Calculate Gratuity in UAE Step by Step
Step 1: Confirm that you completed one year
An expatriate full-time employee must complete at least one year of continuous service to qualify under the standard gratuity system. Employees leaving before completing one year are generally not entitled to statutory gratuity.
Step 2: Find your last basic salary
Check your employment contract, salary certificate or official payroll records. Use the last contractual basic salary to which you were entitled, not your total monthly package.
The law defines basic wage as the contractual amount paid for the employee’s work without allowances or benefits in kind.
Step 3: Calculate your continuous service
Count the period from your employment commencement date to your final contract date. Continuous service includes employment with the same employer or its legal successor.
Do not calculate gratuity using only completed calendar years. After completing the first year, eligible months and days in the final year are also counted proportionately.
Step 4: Remove unpaid absence days
Subtract periods of unpaid absence from the service duration used for gratuity. This may include approved unpaid leave and other days for which no wage was payable.
Paid annual leave normally remains part of the employment period. The specific exclusion in the gratuity rule applies to unpaid days of absence.
Step 5: Divide the basic salary by 30
This gives the daily basic salary:
AED 6,000 ÷ 30 = AED 200 per day
Step 6: Apply the correct service rate
Use 21 days per year for service within the first five years. Use 30 days per year for every year after completing five years.
Step 7: Add the proportional final period
For an exact calculation, convert the remaining eligible service days into a year fraction:
Partial service fraction = Eligible service days ÷ 365
Multiply that fraction by the applicable annual gratuity rate.
Step 8: Check deductions and the statutory cap
An employer may deduct amounts from gratuity only when they are payable under the law or a judgment and the required procedures have been followed. The total end-of-service gratuity is also subject to a ceiling of two years’ wage.
UAE Gratuity Calculation Examples
Example 1: Basic salary of AED 5,000 with three years of service
Daily basic salary
AED 5,000 ÷ 30 = AED 166.67
Gratuity for one year
AED 166.67 × 21 = AED 3,500
Gratuity for three years
AED 3,500 × 3 = AED 10,500
Example 2: Basic salary of AED 8,000 with seven years of service
Daily basic salary
AED 8,000 ÷ 30 = AED 266.67
First five years
AED 266.67 × 21 × 5 = AED 28,000
Next two years
AED 266.67 × 30 × 2 = AED 16,000
Total gratuity
AED 28,000 + AED 16,000 = AED 44,000
Example 3: Basic salary of AED 6,000 with three years and six months of service
Because the employee has already completed one full year, the additional six months are calculated proportionately.
Daily basic salary
AED 6,000 ÷ 30 = AED 200
Eligible service
3.5 years
Gratuity
AED 200 × 21 × 3.5 = AED 14,700
Example 4: Basic salary of AED 9,000 with ten years and four months of service
Daily basic salary
AED 9,000 ÷ 30 = AED 300
First five years
AED 300 × 21 × 5 = AED 31,500
Next five years
AED 300 × 30 × 5 = AED 45,000
Additional four months
AED 9,000 × 4 ÷ 12 = AED 3,000
Total gratuity
AED 31,500 + AED 45,000 + AED 3,000 = AED 79,500
UAE Gratuity Examples by Salary and Service Period
| Monthly basic salary | Service period | Estimated gratuity |
|---|---|---|
| AED 3,000 | 2 years | AED 4,200 |
| AED 4,000 | 5 years | AED 14,000 |
| AED 5,000 | 6 years | AED 22,500 |
| AED 7,000 | 8 years | AED 45,500 |
| AED 10,000 | 10 years | AED 85,000 |
These examples assume full-time employment, no unpaid absence, no lawful deductions and no participation in an alternative end-of-service savings system.
Is Gratuity Based on Basic Salary or Total Salary?
UAE gratuity is calculated using the employee’s last basic salary, not the full salary package. The basic salary is the amount identified as basic pay in the employment contract.
The following payments are normally not added to the gratuity calculation base:
- Housing allowance
- Transport allowance
- Food allowance
- Education allowance
- Overtime payments
- Discretionary bonuses
- Benefits in kind
- Other separately identified allowances
The law distinguishes “basic wage” from “wage.” Basic wage excludes allowances and benefits in kind, while wage can include the basic amount plus contractual allowances and other benefits.
Example of basic salary versus total salary
Suppose an employee receives:
| Salary component | Monthly amount |
|---|---|
| Basic salary | AED 6,000 |
| Housing allowance | AED 3,000 |
| Transport allowance | AED 1,000 |
| Total salary | AED 10,000 |
The daily amount used for gratuity is:
AED 6,000 ÷ 30 = AED 200
It is not calculated as AED 10,000 ÷ 30.
How Partial Years Are Calculated
An employee who has completed at least one year receives proportional gratuity for an incomplete final year. This prevents an employee who worked three years and eleven months from being paid for only three years.
For service within the first five years:
Partial gratuity = Daily basic salary × 21 × partial-year fraction
For service after five years:
Partial gratuity = Daily basic salary × 30 × partial-year fraction
Example for eight additional months
An employee has a basic salary of AED 6,000 and leaves after four years and eight months.
Daily basic salary: AED 200
Service fraction: 4 years + 8 ÷ 12 = 4.6667 years
Estimated gratuity: AED 200 × 21 × 4.6667 = AED 19,600
Payroll departments may calculate partial periods using exact eligible days rather than rounded months. This can produce a small difference from a simple month-based estimate.
How Unpaid Leave Affects Gratuity
Unpaid absence does not count toward the eligible service period. Employees should therefore subtract unpaid leave before applying the gratuity formula.
For example, an employee may have remained under contract for four calendar years but taken 90 days of unpaid leave. The eligible service period used for gratuity would be approximately:
Four years minus 90 unpaid days
This rule can affect employees who have taken extended unpaid personal leave, unpaid maternity-related absence or another approved unpaid break.
Does Resignation Reduce Gratuity in the UAE?
For ordinary employment governed entirely by the current UAE private-sector law, the standard gratuity provision does not apply the old one-third or two-thirds reductions based simply on resignation. An eligible employee generally uses the same 21-day and 30-day formula after completing one year.
Those reduced resignation rates came from the previous labour law, which was replaced when Federal Decree-Law No. 33 of 2021 took effect on 2 February 2022. Transitional employment arrangements connected to older unlimited contracts may require individual review.
Resignation may still affect the final settlement
Resignation can affect other amounts even when the basic gratuity formula remains unchanged. Possible issues include:
- Failure to complete the contractual notice period
- Outstanding employee loans
- Legally recoverable amounts
- Unreturned company property
- Unauthorised absence
- Contractual benefits exceeding the statutory minimum
Any deduction from gratuity must have a lawful basis or be supported by a judgment and handled under the applicable procedures.
Gratuity After Termination by the Employer
An eligible employee does not automatically lose gratuity because the employer ended the contract. The standard calculation remains based on the last basic salary and eligible service period.
Where termination is found to be unlawful, compensation may be awarded separately from notice pay and end-of-service benefits. The gratuity amount should therefore not be confused with compensation for unlawful termination.
Limited and Unlimited Contract Gratuity
Current UAE private-sector employment arrangements no longer use the old limited-versus-unlimited distinction in the same way for calculating ordinary gratuity. The standard formula focuses on basic salary and eligible service duration.
Employees who began working under an older unlimited contract should still review any transitional calculation, preserved contractual benefit or pre-2022 entitlement. A company policy or contract can provide a more beneficial benefit than the statutory minimum, but not a less beneficial one.
How Part-Time Gratuity Is Calculated
Part-time and job-sharing employees use an adjusted calculation based on their contracted annual hours compared with a full-time employee’s annual hours.
The general formula is:
Part-time percentage = Contracted part-time annual hours ÷ full-time annual hours × 100
The resulting percentage is then multiplied by the gratuity that would apply to an equivalent full-time contract.
Part-time gratuity example
Suppose the full-time gratuity amount would be AED 20,000, but the employee’s contracted working hours equal 50% of full-time hours.
AED 20,000 × 50% = AED 10,000
The employment contract and recorded working hours should be checked before finalising the calculation.
Gratuity for Daily, Weekly and Piece-Rate Workers
Employees paid monthly, weekly or daily generally use the last basic wage applicable to them. Piece-rate workers use an average daily wage based on the amount received for actual working days during the six months before the wage-related claim or calculation.
Employees whose pay structure includes commissions, production payments or variable earnings should not estimate gratuity from total deposits received in their bank account. The contractual basic wage and legally applicable average must be identified first.
Gratuity Under the Alternative End-of-Service Savings Scheme
Some UAE employers participate in the optional alternative end-of-service benefits system. Under this arrangement, the employer pays monthly contributions into an approved investment fund instead of allowing traditional gratuity to continue accumulating for the selected employment period.
The basic employer contribution is generally:
| Employee’s continuous service | Monthly employer contribution |
|---|---|
| Up to five years | 5.83% of monthly basic salary |
| More than five years | 8.33% of monthly basic salary |
The service period used to determine the percentage begins from the employee’s original employment date, not the date of enrolment in the scheme. The employer cannot deduct the mandatory basic contribution from the employee’s salary.
What happens to gratuity earned before enrolment?
The employer must preserve the gratuity accumulated before the employee entered the alternative system. That earlier amount is calculated under the traditional law and becomes payable when employment ends, based on the basic salary applicable at the time of participation.
After enrolment, the employee’s entitlement generally consists of the employer’s fund contributions and any investment returns, subject to the scheme’s rules.
What Is Included in a UAE Final Settlement?
Gratuity is only one part of an employee’s final settlement. Depending on the circumstances, the total may include:
- Outstanding basic salary
- Unpaid allowances
- End-of-service gratuity
- Cash payment for unused annual leave
- Notice-period salary
- Approved commission or incentive payments
- Reimbursements owed to the employee
- Other contractual benefits
- Lawful deductions
Unused annual leave compensation is calculated separately from gratuity. The labour law provides for payment of accrued leave entitlement when employment ends, calculated according to the applicable basic wage.
When Must Gratuity Be Paid?
The employer must pay the employee’s wages and other end-of-service entitlements within 14 days from the employment contract’s end date. This includes gratuity when the employee is eligible.
Employees should review the final settlement sheet before signing it. Check that the employer used the correct basic salary, employment dates, unpaid leave record and gratuity rate.
Documents Needed to Verify Your Gratuity
Keep the following records when checking an end-of-service calculation:
- Signed employment contract
- Contract amendments
- Salary certificates
- Recent payslips
- Wage Protection System records
- Employment start and end dates
- Resignation or termination letter
- Notice-period records
- Approved unpaid leave records
- Annual leave balance
- Final settlement breakdown
- Evidence of outstanding contractual payments
Salary deposits alone may not show how much of your package was basic salary. The employment contract is normally the most useful starting point.
Common UAE Gratuity Calculation Mistakes
Using total salary instead of basic salary
This is the most frequent error. Housing, transport and other allowances should not automatically be included in the calculation base.
Applying 30 days to every year
Only service after the first five years receives 30 days per year. The first five years remain calculated at 21 days each.
Ignoring a partial final year
Once the employee has completed one continuous year, the eligible fraction of the final year should be included proportionately.
Including unpaid leave as eligible service
Unpaid absence must be removed from the service duration before calculating gratuity.
Using an old resignation formula
The previous one-third and two-thirds resignation reductions are often repeated in outdated articles and calculators. They should not automatically be applied to ordinary employment governed by the current law.
Rounding service too early
Rounding three years and ten months down to three years can materially reduce the result. Calculate the exact eligible period before rounding the final monetary amount.
Confusing gratuity with final settlement
A correct gratuity figure does not confirm that the entire final settlement is correct. Unused leave, notice pay, unpaid wages and other contractual amounts must be reviewed separately.
Ignoring an alternative savings scheme
An employee enrolled in the alternative end-of-service system cannot calculate the entire employment period using only the traditional formula. The pre-enrolment and post-enrolment periods must be handled separately.
What to Do If Your Gratuity Is Incorrect
First, request a written breakdown from the employer showing:
- The basic salary used
- The employment start and end dates
- The eligible service duration
- Unpaid days deducted
- The 21-day and 30-day calculations
- Any deductions applied
- Other final settlement components
Compare the figures with your contract and payroll records. Raise any discrepancy with HR in writing and retain copies of all correspondence.
If the issue remains unresolved, an employee covered by the federal private-sector system can raise an individual labour dispute through the Ministry of Human Resources and Emiratisation. Claims relating to rights under the labour law are generally not heard after one year from the date the right became due, so unresolved gratuity disputes should not be delayed.
Frequently Asked Questions
How is gratuity calculated in the UAE?
To understand how to calculate gratuity in UAE, divide the last monthly basic salary by 30. Multiply the daily amount by 21 for each of the first five years. For every year after five, multiply it by 30. Eligible partial years are calculated proportionately after one year.
Is UAE gratuity calculated on basic salary or total salary?
When learning how to calculate gratuity in UAE, use the employee’s last contractual basic salary. Do not automatically include housing, transport, overtime, bonuses or other allowances. For example, if total pay is AED 10,000 but basic pay is AED 6,000, the calculation starts from AED 6,000.
Do I receive gratuity if I resign from my UAE job?
Yes, an expatriate private-sector employee who resigns after completing at least one continuous year is generally eligible. Under current rules for how to calculate gratuity in UAE, resignation does not automatically reduce the benefit to one-third or two-thirds, although notice-pay obligations and lawful deductions may affect the final settlement.
Can I receive gratuity if I worked for less than one year?
No statutory gratuity is generally payable to an expatriate full-time employee who leaves before completing one continuous year. The standard rules for how to calculate gratuity in UAE begin after the first anniversary of employment. Unpaid salary, unused leave or other contractual dues may still remain payable separately.
How do I calculate gratuity after six years of service?
For how to calculate gratuity in UAE after six years, apply 21 days of basic salary to each of the first five years and 30 days to the sixth year. With an AED 5,000 basic salary, the first period equals AED 17,500 and the sixth year adds AED 5,000.
Are unpaid leave days deducted from UAE gratuity?
Yes. A correct method for how to calculate gratuity in UAE excludes unpaid days of absence from eligible service. After removing those days, calculate the remaining continuous service. Paid annual leave generally remains part of service, but extended unpaid personal or maternity-related absence can reduce the final gratuity amount.
How soon must an employer pay gratuity in the UAE?
Employers must generally pay wages and other end-of-service entitlements within 14 days from the contract’s end date. After using the correct method for how to calculate gratuity in UAE, review the final settlement for unpaid salary, annual leave, notice pay, deductions and alternative savings-scheme contributions.
