How to Calculate Gratuity in UAE: Step-by-Step with Real Examples

Every employee in the UAE private sector who completes at least one year of service is entitled to gratuity — known as End of Service Benefit (EOSB). It is a legal obligation, not a bonus. Getting it wrong when an employee leaves exposes your business to MOHRE complaints and labour disputes.

This guide explains exactly how to calculate UAE gratuity correctly under Federal Decree-Law No. 33 of 2021, with real worked examples you can use today.

 

Use the free EOSB Calculator at https://www.evolvedhr.org/p/gratuity-calculator-in-uae.html for instant calculations.

 

The Basic Formula: UAE Gratuity Calculation

•       First 5 years of service: 21 days of basic salary per year

•       Beyond 5 years: 30 days of basic salary per year for each additional year

•       Maximum cap: Total gratuity cannot exceed 2 years of basic salary

The formula is based on basic salary only — not gross salary, not total package. Housing allowance, transport, and other allowances are excluded.

 

Step 1: Find the Daily Basic Salary Rate

Daily Rate = Monthly Basic Salary divided by 30 (fixed by UAE Labour Law, regardless of month length)

Example: Employee with basic salary of AED 10,000 per month

•       Daily rate = AED 10,000 / 30 = AED 333.33 per day

 

Step 2: Calculate Gratuity for the First 5 Years

Formula: 21 days x Daily Rate x Number of Years (up to 5, including partial year pro-rata)

Example: Employee with AED 10,000 basic salary, 3 years and 4 months service:

•       Completed years: 3 years

•       21 x AED 333.33 x 3 = AED 21,000

•       Partial year (4 months): (21 x AED 333.33 x 4) / 12 = AED 2,333

•       Total: AED 23,333

 

Step 3: Calculate Gratuity Beyond 5 Years

For service beyond 5 years, the rate increases to 30 days per year.

Example: Employee with AED 12,000 basic salary, 7 years and 6 months service:

•       First 5 years: 21 x (12,000/30) x 5 = AED 42,000

•       Years 6 and 7 (2 full years): 30 x AED 400 x 2 = AED 24,000

•       6 months partial: 30 x AED 400 x (6/12) = AED 6,000

•       Total EOSB = AED 72,000

 

Step 4: Check the Maximum Cap

Total gratuity cannot exceed 2 years of basic salary. For the AED 12,000 example, the cap is AED 288,000. The calculated AED 72,000 is well below the cap, so the full amount is payable. The cap typically only affects employees with 15 or more years of service.

 

Resignation vs Termination: Does It Change the Calculation?

Under the 2021 Labour Law (fixed-term contracts), the gratuity calculation is the same whether the employee resigns or is terminated. The full formula applies in both cases, subject to the service period completed.

Exception: Under Article 44, an employee dismissed for gross misconduct forfeits their gratuity entitlement. This is a specific legal provision and should never be applied without proper legal documentation and process.

 

Old Law note: Under the previous unlimited contract system, resignation before 5 years resulted in reduced gratuity. This no longer applies to fixed-term contracts under the 2021 Law.

 

What Counts as Basic Salary? (Common Expensive Errors)

Basic salary for EOSB purposes is specifically the contractual basic salary as stated in the employment contract. It does NOT include:

•       Housing allowance

•       Transport allowance

•       Food or meal allowance

•       Commission or bonuses

•       Phone or car allowances

Only the figure labelled 'basic salary' in the contract is used. This is exactly why UAE employment contracts must separately itemise every component.

 

Full Worked Example

Employee Profile:

•       Basic salary: AED 15,000 per month

•       Total package: AED 25,000 (includes housing, transport, health)

•       Service period: 6 years and 3 months

•       Reason for leaving: Resignation

 

Calculation:

•       Daily basic rate: AED 15,000 / 30 = AED 500 per day

•       First 5 years: 21 x AED 500 x 5 = AED 52,500

•       Year 6 (full year): 30 x AED 500 x 1 = AED 15,000

•       3 months partial: 30 x AED 500 x (3/12) = AED 3,750

•       Total EOSB = AED 71,250

•       Cap check: 24 months x AED 15,000 = AED 360,000. AED 71,250 is under the cap.

•       EOSB payable: AED 71,250

 

When Must Gratuity Be Paid?

Gratuity must be paid on or before the employee's last working day, or at the latest within 14 days of the termination date. Delays can result in a MOHRE complaint being filed, and MOHRE will order payment with potential additional penalties.

 

EOSB Provisioning: What Smart UAE Companies Do

Rather than facing a large unexpected payout, smart UAE businesses provision for EOSB monthly. Monthly accrual: (Daily Rate x 21) / 12 for the first 5 years, then (Daily Rate x 30) / 12 thereafter.

 

Need to calculate EOSB for a departing employee? Use the free EOSB Calculator or book a consultation with The Evolved HR for complex cases involving deductions, misconduct, or long-service employees. Use the Free EOSB Calculator →

 

This article is for guidance only. For complex EOSB cases or disputes, consult The Evolved HR at evolvedhr.org.