How to Calculate Gratuity in UAE

Author: Admin User | Guide: UAE |

Employees in UAE are entitled to get gratuity pay from the employer after the contract termination as per the labor act in UAE. It is calculated on the basis of the basic wage and the period of service. It is given to the employee for compensating the unemployment and nonavailability of pension scheme. 

In this article, I am going to elaborate the scenarios in getting the gratuity for an employee in UAE.

Steps to Calculate Gratuity UAE

In the past few years, courts have awarded gratuity on the basis of basis of basic pay with some other commissions also. So, If the employee has worked satisfactorily, they may get a bonus amount along with the normal gratuity payment.

Type of contract is Important

The calculation is based on the type of contract i.e. whether limited or unlimited. In the limited contract, the employee agrees to serve a fixed contract period. If the employee leaves his job before the contract date, it leads to labor ban and loss of labor rights. 

For the unlimited contract, there will be no finishing date but a notice period of three months is applicable. 

The calculation is done in reference to the last salary paid. If the contract is terminated, and you are not violating rules of the labor act, you are qualified for receiving a gratuity. 

The calculation depends on the type of contract and whether the termination is given by the employer or the employee. If there is an unlimited contract with the employer, then also the calculation methods will be different. 

Law: Article 133 of the law tells about the gratuity calculation. The year calculation must exclude the days of absence without pay. 

Payment is even applicable for a fraction of years if the employee completed one year of service. 

Under section 132 of the law, the maximum of gratuity cannot exceed two years of the gross salary of the employee. 

Exclusions: In the calculation, some of the benefits for the employee is excluded. They are the payment for worker’s housing, transport and travel allowance, allowance for the cashier, allowance for children’s education, recreational and social services allowance, and other allowances. 

Death: If the worker dies during the contract period, the gratuity will be given to the beneficiaries as mentioned by the worker

Company withholding the gratuity

  1. If the service is terminated in the probation period.
  2. Submission of fake certificates.
  3. Material loss due to the mistake of the worker.
  4. If the safety precautions are not followed by the worker.
  5. Workers fail to do the basic jobs.
  6. If worker reveals the confidential information to others.
  7. If the worker is sentenced by the court for a crime.
  8. If the worker is drunk while doing the job.
  9. If the worker causes injury to another worker.
  10. If worker goes on unnotified leave for more than 20 days.
  11. If the worker is working with another employer without the prior permission of the current employer.

Calculation for Limited Contract

            Contracts must be served to its expiry to qualify for the gratuity. Calculations are base on the latest wage the employee is getting.

  • Within one year, if the contract is terminated, you cannot receive the gratuity.
  • If you are terminating the contract within one to five years of time you are eligible to get a 21 days wage as gratuity for each year
  • If you have served more than 5 years in your company, you are eligible to get 30 days of wage to receive as a gratuity.

Formula: Daily wage = Monthly Salary ÷ 30 21 days of wage = daily wage x 21 Gratuity = 21 days of wage x number of years of service 

Example: If you have a basic salary of Dh 10000 and you have served for three years, your gratuity amount is calculated as follows. Daily wage = 10000 ÷ 30 = Dh 333.3 21 days of wage = 333.3 x 21 = Dh 6999 Gratuity amount = 6999 x 3 = Dh 20997

Calculation for unlimited contract

If you are serving unlimited contract, you will get the gratuity benefits as explained below

  • If you have served only a year on contract, you will not be able to get any gratuity
  • If between 1 to 3 years then one-third of the 21 days wage is given as gratuity.
  • Between 3 years and 5 years of service, two third of the 21 days wage
  • For more than five years full 21-day wage is applicable

Example: if the basic salary is Dh 10000, then in the following method, you can calculate the Wage per day = 10000 ÷ 30 = Dh 333.3 21 days salary = 333.3 x 21 = Dh 6999 Between one to three years = (6999 ÷ 3) = Dh 2333 Between two to three years = (2 x 6999 ÷ 3) = Dh 4666 After 5 years = Dh 6999 

In conclusion, the methods of the calculation of the gratuity have been described elaborately in this article. The calculations are simplified and given to you in this article.

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