Useful Information
How To Calculate Gratuity in UAE
Gratuity
Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for their long-term service. It is typically given when an employee leaves the organization after completing a minimum period of continuous service, often five years. The amount is calculated based on the last drawn salary and the number of years worked. Gratuity serves as a form of financial security for employees after retirement, resignation, or termination, and is governed by labor laws in many countries.
How To Calculate Gratuity
In the UAE, gratuity (also known as end-of-service benefits) is calculated based on the employee’s length of service and their last basic salary. For employees with less than 5 years of service, gratuity is calculated at 21 days’ basic salary for each year of service. For those with more than 5 years, it’s 21 days’ salary for the first 5 years, and 30 days’ salary for each additional year. The total gratuity amount cannot exceed two years’ worth of salary.
Here’s a breakdown:
1. Determine Basic Salary: Identify the employee’s last basic salary. This excludes allowances, bonuses, and other benefits.
2. Identify Years of Service: Calculate the total duration of the employee’s service, including partial years for pro-rata calculations.
3. Gratuity Calculation:
- Less than 1 year of service: No gratuity is payable.
- 1 to 5 years of service: Gratuity = (Basic Salary / 30) * 21 * Number of Years of Service
- More than 5 years of service: Gratuity = [(Basic Salary / 30) * 21 * + [(Basic Salary / 30) * 30 * (Number of Years of Service – 5)]
4. Maximum Limit: The total gratuity amount cannot exceed the equivalent of two years’ salary.
Example:
Let’s say an employee has a basic salary of AED 10,000 and has worked for 7 years.
- First 5 years: (10,000 / 30) * 21 * 5 = AED 35,000
- Next 2 years: (10,000 / 30) * 30 * 2 = AED 20,000
- Total Gratuity: AED 35,000 + AED 20,000 = AED 55,000
Important Considerations:
- Contract Type:
The calculation method can differ slightly based on whether the employment contract is limited or unlimited.
- Resignation vs. Termination:
The calculation can also vary depending on whether the employee resigned or was terminated.
- UAE Labour Law:
Always refer to the latest UAE Labour Law for the most accurate and up-to-date information.
- Online Calculators:Several online gratuity calculators are available, but it’s always recommended to consult with an HR professional or legal expert for specific caseClick the link to calculate your gratuity
https://dda.gov.ae/en/gratuity-calculator/gratuity-calculator