How to Calculate the Final Settlement in the UAE?

 Calculating the final settlement for an employee in the UAE involves several steps and requires a thorough understanding of the UAE Labor Law (Federal Decree-Law No. 33 of 2021). The final settlement includes unpaid salary, accrued leave, end-of-service gratuity, and other entitlements. Below is a step-by-step guide to help HR professionals calculate the final settlement:

Recommended Book for the new managers:

1- Navigating Managerial Challenges: Practical Solutions for Everyday Success

2- Update yourself with HR Knowledge :The Evolved HR

3- Enhance Your career as HRBP: Becoming HRBP ( harvard Listed Book, organically). 

Step 1: Understand the Employee’s Employment Type

• Determine whether the employee is on an unlimited or limited (fixed-term) contract.
• Confirm the reason for termination (resignation, end of contract, or termination by employer).

Step 2: Calculate Unpaid Salary

• Calculate the employee’s unpaid salary up to their last working day.
• Formula:
  Unpaid Salary = (Total Salary ÷ 30) × Number of Unpaid Days

 

Step 3: Calculate Accrued Leave Balance

• Determine the employee’s unused annual leave days.
• Formula:
  Accrued Leave = (Basic Salary ÷ 30) × Unused Leave Days

 

Step 4: Calculate End-of-Service Gratuity

The end-of-service gratuity is calculated based on the employee’s length of service and type of contract.

For Unlimited Contracts:

1. Less than 1 year of service: No gratuity is payable.
2. 1–5 years of service: 21 days of basic salary for each year of service.
3. More than 5 years of service: 30 days of basic salary for each year of service after the first 5 years.

For Limited (Fixed-Term) Contracts:

1. Less than 1 year of service: No gratuity is payable.
2. 1–5 years of service: 21 days of basic salary for each year of service.
3. More than 5 years of service: 30 days of basic salary for each year of service after the first 5 years.

CalculateOnline GRATUITY: CLICK HERE

Formula:

• For the first 5 years:
  Gratuity = (Basic Salary ÷ 30) × 21 × Number of Years
• For each year after 5 years:
  Gratuity = (Basic Salary ÷ 30) × 30 × Number of Additional Years

Note:

• If the employee resigns before completing 1 year, they are not entitled to gratuity.
• If the employee resigns between 1–3 years, they are entitled to a reduced gratuity (1/3 for the first 3 years, 2/3 for 3–5 years, and full gratuity after 5 years).

 

Step 5: Deduct Any Outstanding Amounts

• Deduct any unpaid loans, advances, or other amounts owed by the employee to the company.
• Ensure proper documentation and employee consent for deductions.

 

Step 6: Include Other Entitlements

• Include any other entitlements such as:
• Unpaid overtime.
• Bonuses or commissions (if applicable).
• Repatriation ticket costs (if applicable).

 

Step 7: Calculate the Final Settlement Amount

• Add up all the components:
  Final Settlement = Unpaid Salary + Accrued Leave + End-of-Service Gratuity + Other Entitlements - Deductions

 

Step 8: Issue the Final Settlement

• Prepare a final settlement statement for the employee.
• Ensure the employee signs the statement to acknowledge receipt.
• Process the payment within 14 days of the employee’s last working day, as per UAE Labor Law.

 

Step 9: Cancel Visa and Process Clearance

• Cancel the employee’s visa and labor card.
• Obtain a clearance certificate from the employee confirming no further dues.

 

Important Notes:

1. Probation Period: Employees who resign during the probation period are not entitled to gratuity.
2. Termination by Employer: If the employer terminates the employee without a valid reason, the employee may be entitled to additional compensation.
3. Public Holidays and Leave: Ensure public holidays and leave days are accounted for in the final settlement.

 

Example Calculation:

• Basic Salary: AED 10,000
• Last Working Day: 30th June
• Unpaid Days: 10 days
• Unused Leave Days: 15 days
• Service Duration: 4 years
• Outstanding Loan: AED 2,000

1. Unpaid Salary: (10,000 ÷ 30) × 10 = AED 3,333.33
2. Accrued Leave: (10,000 ÷ 30) × 15 = AED 5,000
3. Gratuity: (10,000 ÷ 30) × 21 × 4 = AED 28,000
4. Final Settlement: 3,333.33 + 5,000 + 28,000 - 2,000 = AED 34,333.33

 

By following these steps, HR professionals can ensure compliance with UAE Labor Law and provide a fair and accurate final settlement to employees. Always consult with legal experts or the Ministry of Human Resources and E

 miratisation (MOHRE) for specific cases.