End-of-service gratuity in the UAE explained

End-of-service gratuity is one of the most valuable — and most misunderstood — entitlements for employees in the UAE. It is a lump sum an employer pays when employment ends, calculated on the employee's basic salary and length of service. This guide explains how gratuity works under the UAE Labour Law, Federal Decree-Law No. 33 of 2021, which applies to private-sector employers outside the financial free zones.

Who is entitled to gratuity?

A full-time employee who completes at least one year of continuous service is entitled to end-of-service gratuity when the employment relationship ends. Employees with less than one year of service are not entitled.

A few points are worth knowing:

• Part-time employees are also entitled, calculated in proportion to the hours they actually work.
• Days of unpaid absence are not counted as part of the service period.
• UAE and GCC nationals are generally covered by the pension and social security system instead of gratuity.
• Resigning no longer reduces gratuity. Under the previous labour law, employees who resigned early from an unlimited contract received a reduced amount. The current law calculates gratuity the same way whether the employee resigns or the employer ends the contract.

How gratuity is calculated

Gratuity is based on the employee's last basic salary — not their total package. Housing, transport and other allowances, commission and bonuses are excluded unless they form part of the basic wage in the contract. The law sets out two rates:

• 21 days' basic salary for each year of the first five years of service.
• 30 days' basic salary for each additional year after the first five.

Partial years count too: an employee is entitled to gratuity for fractions of a year of service in proportion to the time worked, provided they have completed the first full year.

The two-year cap

The total gratuity cannot exceed two years' wages. The cap only affects very long-serving employees, but it is worth building into payroll forecasts for senior staff.

A worked example

Consider an employee with a basic salary of AED 10,000 a month who leaves after seven full years. Many employers work out the daily rate as the basic monthly salary divided by 30:

• Daily basic salary: AED 10,000 ÷ 30 = AED 333.33
• First five years: 5 × 21 days × AED 333.33 = AED 35,000
• Next two years: 2 × 30 days × AED 333.33 = AED 20,000
• Total gratuity: AED 55,000 — well within the two-year cap of AED 240,000

MOHRE offers an online end-of-service calculator, which is a useful cross-check for individual cases.

When gratuity must be paid

The employer must pay the employee's end-of-service entitlements, including gratuity, within 14 days of the end of employment. The employer may deduct amounts the employee legitimately owes the company, such as an outstanding loan, but should document any deduction clearly in the final settlement.

Late or incomplete settlements are a common cause of labour complaints. A clear final-settlement statement that shows service dates, the basic salary used, the calculation and any deductions avoids most disputes.

What else goes into the final settlement

Gratuity is only one part of what an employee receives when they leave. A complete final settlement typically also covers:

• Unpaid wages up to the last working day.
• Accrued annual leave that has not been taken, paid on the basic salary.
• Notice-period pay, where the notice period is not worked.
• Any other amounts promised in the contract or company policy, such as a pro-rated bonus.

Presenting all of these together, with the gratuity calculation shown line by line, makes it easy for the employee to check the numbers and sign off quickly.

Free zones and alternative schemes

Gratuity rules are not identical everywhere in the UAE:

• DIFC has its own employment law and replaced traditional gratuity with the DIFC Employee Workplace Savings (DEWS) scheme, under which employers make monthly contributions to a savings plan.
• ADGM also operates its own employment regulations, so employers there should check ADGM's rules.
• Since 2023, private-sector and free-zone employers have been able to join a voluntary alternative end-of-service savings scheme approved by the government, investing contributions on behalf of employees instead of paying a single lump sum at the end.

Practical tips for employers

• Keep basic salary clear in every contract. Ambiguity about what counts as "basic" is the root of most gratuity disputes.
• Accrue gratuity monthly. Treat it as a liability on your balance sheet rather than a surprise cost when someone leaves.
• Track unpaid leave accurately. It affects the service period used in the calculation.
• Plan exits carefully. In restructuring, combine accurate settlements with support for affected employees — our outplacement programmes help protect both people and your employer brand.

If you need help reviewing contracts, salary structures or HR policies against the current labour law, our HR consultancy team can help — get in touch.

This article is general guidance, not legal advice. Individual circumstances vary, so check specific cases with MOHRE or a qualified legal adviser.