1. Blogs
2. Gratuity Law in UAE: How to Calculate It

Gratuity Law in UAE: How to Calculate It

Gratuity is a crucial aspect of UAE employment law, ensuring that employees receive a specific amount of money upon completing their contracts. The UAE government mandates companies to make a single payment in compliance with gratuity laws, which apply to employees working for a specific period. These laws provide financial security for employees when their employment term ends. It is important for companies and HR managers to have a thorough understanding of gratuity law in UAE, including the differences between limited and unlimited contracts. This blog will comprehensively cover the rights protected under the UAE gratuity law, as well as the obligations associated with it.

What is Gratuity Pay?

Gratuity pay is a bonus given by an employer after an employee has worked for a set amount of time. It is a voluntary payment from the employer. The gratuity law allows the employees of the UAE to be given this as recognition of their work. It is usually a good amount of money for the employees, especially during a job change or retirement.

Key Points of the UAE Gratuity Law

Eligibility

An employer must pay gratuity to all its employees. The employee must have worked for the employer for at least one year to be eligible for gratuity.

Calculation Basis

Gratuity is calculated based on the employee’s last basic wage. It is important to note that it does not include perks and incentives.

Payment Timeline

Employers must pay all end-of-service benefits, including gratuity. This process should be done within two weeks of termination.

Deduction Rights

Employers are also allowed to deduct anything an employee is owed by the employer from the gratuity pay.

Types of Contracts and Gratuity Calculation

In the UAE, there are two types of contracts: limited and unlimited. The formula for computing gratuity depends on which contract the employee holds. Understanding these differences is essential to arriving at the right gratuity.

Limited Contract

A limited contract defines the period you will serve in the company at the time of employment. Once expired, it ends when the contract’s specified period is reached. The computation for gratuity under a limited contract is simple, though it must be done correctly to avoid lawsuits.

• The UAE law does not provide for gratuity for employees with less than one year of service.
• For employees with 1 to 5 years of service, the entitlement is twenty-one days’ salary for each completed year of service, based on the employee’s gross salary.
• For employees with over 5 years of service, they are entitled to up to 30 days of their basic salary for each year of service.

This formula ensures that employees get a fair amount based on their years of service. It follows the gratuity rules in the UAE.

Unlimited Contract

Unlike a limited contract, an unlimited contract has no set expiration date. It can end based on mutually agreed terms and requires notice. Gratuity rules for unlimited contracts in the UAE differ from those for limited contracts. These differences mainly involve how gratuity accrues over the service period.

• For employees with less than 1 year of service, there is no provision for gratuities.
• Employees with 1 to 3 years of service are entitled to 21 days of paid leave but receive only one-third of their salary.
• For employees with 3 to 5 years of service they receive 40% of the 21 working days’ pay and two-thirds of the salary for those days.
• Employees with more than 5 years of service are entitled to 21 days’ salary for each year of service.

Understanding the Rules of Gratuity in UAE

Certain conditions apply under which the employee loses the right to gratuity. These conditions are outlined in Article 139 of the UAE Labor Law. Both employers and employees should be familiar with them.

Dismissal for Cause

Any dismissal based on reasons provided under Article 120, such as misconduct or breach of the ontract, erodes the employees’ right to gratuity.

Resignation Without Notice

Although the gratuity has been earned, employees who fail to give their employers the notice period stated in the contract may not receive it.

Resignation Before Completing 5 Years in a Limited Contract

Where an employee resigns from employment before the five years of continuous employment under a limited renewable term contract, he or she may not be eligible for gratuity.

These gratuity rules in the UAE are designed to protect employers and employees. They ensure that gratuities are paid fairly and prevent employers from facing unfair demands. In contrast, the employee won’t go without deserved gratuities.

How to Use a Gratuity Calculator

Many of them are freely accessible via the Internet, and with their help, gratuity estimation is easier.

Steps to Use a Gratuity Calculator

• Please enter the employee’s last basic salary and click the ‘Calculate’ button.
• Specify whether the contract type is limited or unlimited.
• Enter the years and months the employee has worked for the company to calculate the service period.
• According to UAE gratuity law regulations, this calculator will automatically compute the gratuity amount.

These tools are more relevant to confirming the expectations of both parties regarding gratuity payment and conforming to the gratuity law in the UAE.

How to Check Gratuity in the UAE

Employees should always check whether ideas they have submitted for gratuity consideration are being implemented to the letter so they can be paid the right amount.

They can use a gratuity calculator or contact their Human resource department. Above, we discussed how to check gratuity in the UAE so that employees get all their well-deserved gratuity benefits.

This proactive approach helps prevent disputes and ensures compliance with the gratuity law in UAE.

Conclusion

Learning the law on gratuities in the UAE is essential to receive end-of-service benefits. Employees and employers can benefit from learning about gratuity law in UAE. Using a gratuity calculator can also be very helpful in this process.

Under UAE gratuity law, bribes are not accepted. The rules ensure that gratuities are fair and accurate for all parties involved.

Frequently Asked Questions

Q1: What is the Gratuity Law in UAE?

UAE gratuity law states that an employee in the private sector is eligible for gratuity payment after serving their employer for not less than one year without a break. The gratuity is one-half the basic salary and is also calculated by years of service and type of contract.

Q2: How Can I Calculate My Gratuity in UAE?

You can calculate your gratuity using the following formula: Daily rate X 21 or 30, depending on the years of service. This implies that to establish the daily rates, one must divide the basic monthly salary by thirty. You can also utilize a gratuity calculator to ease the process of following the above steps to arrive at the total price.

Q3: How can I check my gratuity in the UAE?

To determine how much gratuity you can pay your employee, use an online calculator or ask your HR department. You should also check your gratuity entitlement often to decide whether or not you are paid in compliance with the gratuity law in UAE.

Q4: What is the Difference in Gratuity Between the Limited and Unlimited Contracts?

For limited contracts, gratuities are calculated using the number of working days in a year, one month’s salary in each year of service, or one month for each completed seven years. For unlimited contracts, the gratuity is calculated as a fraction of 21 days of the wage for the first five years of service and the actual 21 days of wage for periods of service more than five years.

• Previous Post Full-time vs. Part-time Employment – Understand Employees’ Job Status
• Next Post Grievance Management for HR Leaders