UAE Gratuity Calculator

Legal basis: Federal Decree-Law 33/2021

Gratuity (end-of-service benefit, or 'EOSB') is governed by Federal Decree-Law No. 33 of 2021 and its Executive Regulations (Cabinet Resolution No. 1 of 2022), which replaced the older Federal Law No. 8 of 1980. The new law applies to onshore (mainland) employees registered under MOHRE, while most free zones — including DMCC, IFZA, Meydan and SHAMS — mirror the same entitlement formula in their own employment regulations, with DIFC and ADGM applying separate frameworks (covered below).

Gratuity is calculated on the employee's basic salary only — it excludes housing allowance, transport allowance, bonuses, commissions and any other allowances. Getting this distinction right is one of the most common payroll errors we see when reviewing bookkeeping and accounting records for SMEs.

Eligibility: who qualifies and when

An employee becomes eligible for gratuity only after completing one full year of continuous service with the same employer. Employees who leave before completing 12 months — voluntarily or otherwise — are not entitled to any gratuity payment under the 2021 law.

• Minimum qualifying period: 12 continuous months of service.
• Applies to both limited (fixed-term) and unlimited contracts under the unified contract model introduced in 2022.
• Part-time and flexible workers accrue gratuity on a pro-rated basis tied to actual hours worked.
• Domestic workers are covered under a separate law (Federal Decree-Law No. 9 of 2022) with different rates.

Periods of unpaid leave are excluded from the service period used to calculate gratuity — the employer must deduct those days when computing total years of service. Paid annual leave, sick leave and maternity leave do count toward continuous service.

The gratuity formula step by step

Under Article 51 of Federal Decree-Law 33/2021, the tiered formula is applied on the employee's basic salary at the date of termination:

1. 1For each of the first 5 years of service: 21 days of basic salary per year.
2. 2For every year of service beyond 5 years: 30 days of basic salary per year.
3. 3Total gratuity is capped at two years' total basic salary, regardless of how long the employee has worked.
4. 4Daily rate = (basic monthly salary ÷ 30 days).
5. 5Partial final years are pro-rated based on the number of completed months.

For example, an employee with a basic monthly salary of AED 10,000 has a daily rate of AED 333.33 (10,000 ÷ 30). For each of the first five years, 21 days' entitlement equals AED 7,000 per year (21 × 333.33).

Resignation vs termination: does it change the amount?

One of the biggest changes under the 2021 labour law reforms is that resignation no longer reduces the gratuity percentage — a rule that existed under the old 1980 law for unlimited contracts. Since 2 February 2022, employees who resign after completing one year of service receive the same full tiered gratuity calculation as employees who are terminated by the employer, subject only to the standard exclusions below.

• Full gratuity applies to resignation, employer termination, contract non-renewal, and redundancy.
• Gratuity may be forfeited entirely if the employee is dismissed for gross misconduct under Article 44 of the law (e.g. proven fraud, breach of confidentiality, assault at work).
• Employees on probation who resign or are terminated are generally not entitled to gratuity, as the qualifying one-year period has not been met.
• Absconding employees may lose their gratuity entitlement pending a MOHRE ruling.

Worked examples: real AED calculations

The table below shows full gratuity calculations for different basic salaries and tenures, useful for HR teams benchmarking payroll costs across Dubai, Abu Dhabi and Sharjah offices.

In the last example, an uncapped calculation would exceed two years of basic salary (AED 480,000), so the statutory cap applies and the employer pays no more than that ceiling amount.

Unpaid leave, deductions and contract type differences

Employers must reduce the qualifying service period by any days of unpaid leave taken during employment. If an employee took 60 days of unpaid leave over a 5-year tenure, the gratuity calculation should be based on 4 years and roughly 10 months of continuous paid service, not a flat 5 years.

Limited (fixed-term) contracts follow the same tiered formula as unlimited contracts under the 2021 law — the old distinction where fixed-term early termination triggered a reduced payout no longer applies, provided the employee has completed at least one year of service.

• Outstanding loans, unreturned company property, or notice-period shortfalls can be legally offset against the final gratuity payment.
• End-of-service gratuity is separate from unused annual leave pay, which must be settled in addition to gratuity.
• Employers should retain payslips and WPS records for at least 2 years to substantiate the basic salary figure used in any dispute.

Final settlement timeline: the 14-day rule

Article 53 of Federal Decree-Law 33/2021 requires employers to settle all dues — including gratuity, unpaid salary and leave balances — within 14 days from the date the employment relationship ends. Late settlement can trigger fines and MOHRE-imposed labour bans on the establishment.

MOHRE dispute resolution route

If an employee disputes their gratuity calculation, they can file a complaint through the MOHRE call centre (80060), the MOHRE app, or in person. MOHRE will attempt conciliation within 14 working days; if unresolved, the case is referred to the Labour Court, which — since the 2021 reforms — must issue a judgment within a defined litigation timeline designed to speed up worker claims.

• Employees have one year from the end of the employment relationship to file a gratuity claim.
• Courts typically rely on the WPS salary records and signed employment contract to determine the correct basic salary.
• Employers found to have miscalculated gratuity may be ordered to pay the shortfall plus legal costs.

Free-zone, DIFC and ADGM differences

Most commercial free zones — including IFZA, DMCC, Meydan and SHAMS — require employers to register staff contracts and follow the same MOHRE-aligned gratuity formula, since employees are typically issued standard UAE work permits and visas.

The DIFC and ADGM financial free zones, however, operate independent employment laws (DIFC Employment Law No. 4 of 2021 and the ADGM Employment Regulations). These use a Workplace Savings Scheme (DEWS in DIFC) instead of a lump-sum gratuity for many employees, with employer contributions paid monthly into an investment plan rather than accrued as an end-of-service lump sum.

Payroll and WPS implications for employers

Because gratuity is calculated on basic salary rather than gross salary, employers should structure salary packages carefully at the offer-letter stage. A package heavily weighted toward allowances rather than basic pay reduces the employer's gratuity liability but must still comply with MOHRE's minimum basic-salary guidance for visa and labour-card purposes.

Many SMEs underestimate their accrued gratuity liability because it is not reflected in monthly WPS transfers — it is a balance-sheet provision that should be booked monthly, not just calculated at exit. Reviewing this provision is a standard part of financial reporting and year-end bookkeeping and accounting.

• Book a monthly gratuity provision (e.g. 1/12 of the annual accrual rate) rather than a one-off year-end adjustment.
• Reconcile the provision against actual leavers each quarter.
• Factor gratuity liabilities into cash-flow planning before major restructuring or downsizing.
• Use our payroll calculator alongside the gratuity calculator to model full employment costs.