How Is End-of-Service Gratuity Calculated in the UAE? An Employer's Guide

End-of-service gratuity in the UAE is calculated on basic salary only, at 21 days' pay per year of service for the first five years and 30 days per year thereafter, capped at two years' total wage. Employees qualify after one year of continuous service, and since the 2022 labour law reform, resigning employees receive their full accrued gratuity. Employers must settle all final dues within 14 days of the last working day. Gratuity is one of the most frequently miscalculated entitlements in UAE payroll, and the errors almost always trace back to two mistakes: using gross salary instead of basic, and forgetting the cap.

What is the gratuity formula?

Under Article 51 of Federal Decree-Law No. 33 of 2021, an employee who completes at least one year of continuous service is entitled to 21 calendar days of basic salary for each of the first five years of service, and 30 calendar days of basic salary for each year beyond five. Fractions of a year accrue pro rata. The total payout is capped at two years' wage.

A worked example

Take an employee with a basic salary of AED 8,000 per month who leaves after 7 years of service.

Daily basic wage: AED 8,000 ÷ 30 = AED 266.67
Years 1 to 5: 5 × 21 days × AED 266.67 = AED 28,000
Years 6 to 7: 2 × 30 days × AED 266.67 = AED 16,000
Total gratuity: AED 44,000

Cap check: two years' basic salary is AED 192,000, so this payout is well within the limit.

Why do so many calculations go wrong?

Three errors dominate. First, calculating on gross salary: gratuity excludes housing, transport, and other allowances, so using the full package overstates the liability and creates settlement disputes. Second, missing the rate change at year five, or applying the 30-day rate only to later years incorrectly. Third, structuring salaries with an artificially low basic to suppress gratuity liability: MoHRE can challenge arrangements that do not reflect the market reality of the role, and employees can now dispute salary structures through the ministry's online portal.

What does gratuity mean for your balance sheet?

For employers, gratuity is an accruing liability from each employee's first day, and one of the largest unfunded obligations most UAE businesses carry. A team of 100 employees on an average basic of AED 10,000 accrues roughly AED 700,000 in gratuity liability every year in the early service years. Two developments matter here: the voluntary end-of-service savings scheme, now live with licensed providers, lets employers ringfence this liability in a funded scheme rather than carrying it on the balance sheet, and it is increasingly a differentiator when competing for senior talent. And under an outsourced employment model, gratuity accrual and settlement sit with the employing provider, converting the liability into a predictable monthly cost.

Frequently asked questions

Does an employee who resigns still get gratuity? Yes. Since the 2022 reform, any employee completing one year of continuous service receives full accrued gratuity regardless of who ends the employment.

Is gratuity paid during probation or before one year? No. Less than one year of continuous service means no gratuity entitlement.

How quickly must gratuity be paid after the last working day? Within 14 days, alongside all other final dues. Delays are a compliance violation, not a courtesy issue.

Do DIFC and ADGM follow the same rules? No. Both operate their own employment frameworks; DIFC runs a funded workplace savings scheme in place of the traditional formula. Other free zones generally follow federal law, but always confirm with your zone authority.

Can unpaid gratuity affect the employer beyond the individual claim? Yes. Settlement failures feed MoHRE complaints, and non-compliance with labour market systems can block work permit services, freezing your hiring.

Managing gratuity liability with ManpowerGroup Middle East

ManpowerGroup Middle East helps UAE employers take gratuity off the worry list in two ways: through licensed outsourced employment, where we carry the full employment relationship including gratuity accrual, WPS payroll, and final settlement, and through workforce cost consulting that models your true total cost of employment before you hire. If gratuity liability is a line item you have never actually quantified, that is usually the sign it is time to. Speak to our team for a workforce cost review.