Obviously, no job is life-long and it’s inevitable to continue service even after your retirement age. If you are an employee in UAE near retirement or leaving your work, you must be looking for a gratuity calculator UAE.
That is why you must know how to calculate gratuity irrespective you are currently employed or your services are near to end. Besides, keep in mind that employers must provide employees with end-of-service benefits. And gratuity payments as it is mandatory according to the UAE labor law.
However, calculating the gratuity is slippery and destabilized and that is why we are here to help you out. This article will simplify the gratuity calculation in the UAE process. So that you have no bother while your employment contract is about to end, or you are reaching your retirement.
Besides that, we will explain basic definitions, gratuity eligibility criteria, calculate gratuity UAE and key factors involved in the calculation of gratuity amount.
So are you ready to become your own gratuity calculator UAE? Let’s get started!
UAE gratuity: What you need to know
The UAE labor law Article 51 states that all expat workers or foreigner in the private sector in the United Arab Emirates should be paid gratuity compensation. Their gratuity calculator UAE benefits are based on their service period and the types of employment contract, among other factors. Now talk about it in detail:
Understanding End-of-Service Benefits in the UAE
Gratuity is one of the associated end-of-service benefits that are currently offered to employees in the United Arab Emirates. To put it easily, basically it is a sum of monetary rewards an employer awards to an employee for the services towards the company as a token of admiration.
In present days, there are two types of employment contracts in the UAE that Employees have with employers, i.e., limited contracts and unlimited contracts.
Both limited-contract employees and employees with unlimited contracts are qualified for gratuity or end-of-service benefits if they meet all other preconditions.
Understanding Gratuity Calculation in the UAE
There are several factors that determine the exact gratuity amount calculation of an employee. The LAE labor law has presented the complete formula as an end of service calculator. These factors are:
- Employee’s basic salary
- If the job ends with resignation or termination
- The type of employee contract
For employees with limited contracts or unlimited contracts, the rules of the gratuity calculator UAE are the same more or less. The gratuity calculation varies based on the working number of years and how you have been terminated. However, there are different payment tiers for both.
That is why it is important to understand how the gratuity calculation in the UAE works when it comes to limited and unlimited employee contracts:
Gratuity Pay Calculation for Limited Contracts
- Contract completion with a duration of service of less than 5 years
- Contract completion with a duration of service of more than 5 years
In case, an employee is fired, then the application of the following tiers:
- 1 to 5 years of employee service
- Employee service for 5 years or more
In case of “Resignation” by the employee:
- If your contract is completed with years of service less than 5, gratuity calculation in UAE will based on your 21 days basic salary for every service year.
- If you have an employment contract with more than 5 service years and you completed it, the gratuity will be calculated with 21 days of your basic salary for your first 5 years. After that, the gratuity will be counted by the 30 days’ basic salary for every year after a 5-year contract.
In case of “Termination” of the employee
- The employers will calculate gratuity based on the 21 days basic salary of the employee who worked for 1-5 years.
- For employees who have provided services for more than 5 years, their gratuity will be based on 21 days basic salary for 5 years and then the 30 days basic salary will be calculated for every year after their 5th year of service.
Know Your Rights: Gratuity Entitlement in the UAE
The gratuity entitlement in the UAE is for all employees who have provided continual service in any organization for at least one month, whatever they are employees with limited contracts or unlimited contracts.
That is why knowing your rights as an employee in the UAE is really essential so that you can navigate your gratuity smoothly while compelling your employer to stay compliant with the UAE labor laws.
Exploring UAE Labor Law on End-of-Service Benefits
UAE Cabinet Decision No. 96 of 2023 introduced, as of 10 October 2023, significant changes to the EOSG scheme and established a voluntary alternative scheme for non-GCC national employees based in the UAE and within certain UAE free zones:
- The last salary of the employee is the end-of-service gratuity calculation base.
- Keep in mind that the gratuity only consists of the basic salary of either 21 days (in case of employment contract ends within 5 years of service) or it consists of the basic salary of either 30 days (in case the employment is continued after 5 years of service)
- Also, employee allowances like transport, communication, and accommodation are not included in the gratuity calculator UAE.
- The employer is liable to deduct any amount from the gratuity pay that an employee owes the company legitimately.
- End-of-service entitlements must be paid within 14 days by all employers after the end date of the employment contract.
- The new end-of-service gratuity scheme also suggests that employers must offer employees to opt for the end-of-service benefits schemes voluntarily with active employee-employer monthly contributions to invest in funds.
- Employers must adhere to the following payment structure for the monthly contribution to the end-of-service gratuity system:
1- If an employee has served for 1-5 years: 5.83% of the basic salary of an employee with a full-time contract.
2- If any employee has served for more than 5 years: 8.33% of the basic salary of an employee with a full-time contract.
Gratuity Criteria in the UAE
The gratuity in UAE is not given to every employee and they have to meet various conditions to meet the requirement. That is why it is essential to go through the requirement of eligibility for gratuity before we get into the gratuity calculations. Some of the conditions for employees are:
- The employee should have a limited or unlimited contract with the company in the first place.
- An employee must serve the company for at least 1 year continuously to receive gratuity.
- If an employee termination occurs under Article 120 of the labor law of the UAE.
- An employee will not receive any gratuity in case of termination without any notice due to various reasons like non-compliance with any conditions under Article 12.
- Employees who have unlimited contracts with the company cannot get the end-of-service benefit/gratuity even if they have served the company for more than 1 year in instances such as:
1- Resigning without the notice period
2- Unable to provide legal proof against the employer for not fulfilling employees’ legal obligations towards the employment contract
3- If the accusations of assault against the employer by an employee are there and there is a lack of evidence.
Understanding Gratuity Payment Procedures
If you gather all the requirements that make you eligible for the gratuity. Let us know you that you can follow some easy procedures to UAE gratuity calculation. There are several resources available online to help you assess the precise gratuity amount that the company owes you.
Besides, MOHRE (The UAE Ministry of Human Resources and Emiratisation) has provided a gratuity calculator UAE for employees and employers to get support in calculating gratuity payouts.
Steps To Calculate Gratuity For Unlimited Contracts
Employee’s Service Duration:
- If an employee has served the organization for less than 1 year, He’s not entitled to end-of-service or gratuity.
- If an employee has served the company for 1-3 years. He’s entitled to gratuity pay equal to 1/3 of the 21 days of working wage.
- If an Employee has served the company for 3 -5 years. He’s entitled to 2/3 of the 21 days gratuity pay.
- If an employee has served the company for 5 or more than 5 years. He’s entitled to full 21 days gratuity pay.
UAE gratuity calculator is easy and do not require you to be math or accounting expert. Here are some simple steps that you can take for gratuity calculation for employees with unlimited contracts:
For Employees Who Have Resigned
- For service of 1-3 years:
Gratuity = (7 days X Basic Salary X Service Years) divided by 30
- For service 1-5 years:
Gratuity = (14 days X Basic Salary X Service Years) divided by 30
- For service of more than 5 years:
Gratuity = (21 days X Basic Salary X Service Years) divided by 30
Upon Termination
- For service 1-5 years:
Gratuity = (14 days X Basic Salary X Service Years) divided by 30
- For service of more than 5 years:
Gratuity = (21 days X Basic Salary X Service Years) divided by 30
Example:
- Example of Basic Salary: AED 10,000
- Calculation of your daily wage = 10,000 ÷ 30 = AED 333.30
- Now multiply it by 21 = AED 333.30 x 21 = AED 6,999.30.
- If an employee who has served for 1-3 years gets 1/3 of this figure = AED 6,999.30 ÷ 3= AED 2,333.1 x number of years.
- If an employee has served for 1-5 years, he will get 2/3 of this figure = AED 6,999.30 x 2 ÷ 3 = AED 4,666.2 x number of years.
- If an employee has served the company for more than 5 years, he’ll get= AED 6,999.30 x 5 years or more years after that.
Important Note:
According to the UAE labor law, gratuity calculation in the UAE must not surpass a basic salary of two years.
Conclusion
Let’s cover this guide on gratuity calculator UAE. We have discussed in elaborate all the pivotal points necessary for the understanding of employees and employers for gratuity calculation in UAE.
We expected you are now well sensible of how to compute gratuity and will not face any challenges regarding it in the future.
Frequently Asked Questions
How do you estimate gratuity?
Gratuity can be estimated using a certain formula, i.e., “Daily wage rate x 21 working days x 1/3 or 2/3 or 1” based on how long you have worked for the company: 1-3 years, 1-5 years, and 5 or more years. The monthly wage divided by a month or thirty days exhibits the daily rate.
Is there a 14-day gratuity in UAE?
Gratuities must be paid by employers to all workers within 14 days of the end of their employment contract. And they cannot exceed two years of the employee’s salary.
How to calculate UAE gratuity pay?
You can calculate UAE gratuity pay for each year through the following formula:
- Daily wage rate x 21 working days x 1/3 (in case employment ranges from 1-3 years)
- Daily wage rate x 21 working days x 2/3 (in case employment ranges from 1-5 years)
- Daily wage rate x 21 working days x 1 (in case employment ranges from 5 or more than 5 years)
The daily wage rate is equal to the monthly salary divided by a month or 30 days.
