Legal Disclaimer: This guide provides general information about gratuity calculation errors as of November 2025. It is not legal advice. For disputes, consult MOHRE or a qualified employment lawyer.
Common Errors in UAE Gratuity Calculations (and How to Avoid Them)
UAE gratuity miscalculations cost employees thousands of dirhams annually. The most common error is using gross salary instead of basic salary, inflating calculations by 20-50%. Other frequent mistakes include forgetting to exclude probation periods, applying wrong resignation penalties, and miscounting partial years. This guide identifies the 10 most common calculation errors and shows you exactly how to verify your employer's settlement statement.
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The 10 Most Common Gratuity Calculation Errors
Error #1: Using Gross Salary Instead of Basic
The Mistake:
Employer (or employee) uses total monthly income instead of basic salary only.
Why It's Wrong:
Gratuity must be calculated on basic salary only per Article 51. Gross salary includes allowances, overtime, and bonuses which are excluded.
Real Example:
- Basic salary: AED 8,000
- Housing: AED 2,000
- Transport: AED 500
- Gross: AED 10,500
Wrong calculation: (10,500 ÷ 30) × 21 × 3 = AED 22,050
Correct calculation: (8,000 ÷ 30) × 21 × 3 = AED 16,800
Error impact: AED 5,250 overstated (31% inflation)
Error #2: Not Excluding Probation Period
The Mistake:
Counting service from contract start date instead of probation end date.
Why It's Wrong:
Probation (maximum 6 months) does NOT count toward gratuity service years.
Real Example:
- Contract start: 1 January 2020
- Probation: 6 months (ends 30 June 2020)
- Termination: 31 December 2024
Wrong calculation: 5 years service = (Salary ÷ 30) × 21 × 5
Correct calculation: 4.5 years service = (Salary ÷ 30) × 21 × 4.5
Error impact: 6 months (11%) overstatement
| Timeline | Counts for Gratuity? |
|---|---|
| Probation period (0-6 months) | ❌ NO - Excluded |
| Post-probation service | ✅ YES - Counts fully |
Error #3: Ignoring Partial Years
The Mistake:
Rounding down to complete years only (e.g., 4 years 7 months counted as 4 years).
Why It's Wrong:
Partial years must be prorated. Working 4.5 years means 4.5 years of gratuity, not 4.
Real Example:
- Service: 3 years 8 months = 3.67 years
- Basic salary: AED 9,000
Wrong: (9,000 ÷ 30) × 21 × 3 = AED 18,900
Correct: (9,000 ÷ 30) × 21 × 3.67 = AED 23,121
Error impact: AED 4,221 underpaid (22% loss)
How to calculate partial years:
- 8 months = 8 ÷ 12 = 0.67 years
- 3 years 8 months = 3.67 years total
Error #4: Wrong Tier Formula Applied
The Mistake:
Using 30 days per year for ALL service instead of tiered structure.
Why It's Wrong:
Years 1-5 use 21 days, years 5+ use 30 days. You can't apply one rate to all years.
Real Example:
- Service: 7 years
- Basic: AED 10,000
Wrong: (10,000 ÷ 30) × 30 × 7 = AED 70,000 (using 30 days for all)
Correct:
- Years 1-5: (10,000 ÷ 30) × 21 × 5 = AED 35,000
- Years 6-7: (10,000 ÷ 30) × 30 × 2 = AED 20,000
- Total: AED 55,000
Error impact: AED 15,000 overstated (27% inflation)
| Service Years | Correct Formula |
|---|---|
| 1 to 5 years | (Salary ÷ 30) × 21 days × years |
| 5+ years | (Salary ÷ 30) × 30 days × years beyond 5 |
Error #5: Incorrect Resignation Penalty
The Mistake:
Applying resignation penalty when employer terminates, or applying wrong percentage.
Why It's Wrong:
Resignation penalty only applies if YOU resign voluntarily. Different percentages for different service brackets.
Real Example:
- Service: 4 years
- Basic: AED 12,000
- Employer terminates (not resignation)
Wrong: (12,000 ÷ 30) × 21 × 4 × 66.67% = AED 22,400 (applying resignation penalty)
Correct: (12,000 ÷ 30) × 21 × 4 = AED 33,600 (100%, no penalty for employer termination)
Error impact: AED 11,200 underpaid (33% loss)
Resignation Penalty Chart:
| Service | If You Resign | If Employer Terminates |
|---|---|---|
| 1-3 years | 33.33% (one-third) | 100% (no penalty) |
| 3-5 years | 66.67% (two-thirds) | 100% (no penalty) |
| 5+ years | 100% (no penalty) | 100% (no penalty) |
Error #6: Including Overtime in Basic Salary
The Mistake:
Adding regular overtime to basic salary for gratuity calculation.
Why It's Wrong:
Overtime is explicitly excluded from basic salary per MOHRE Circular 2025/04.
Real Example:
- Basic: AED 6,000
- Regular overtime: AED 2,000/month
Wrong: (8,000 ÷ 30) × 21 × 5 = AED 28,000
Correct: (6,000 ÷ 30) × 21 × 5 = AED 21,000
Error impact: AED 7,000 overstated (33% inflation)
Never include in basic salary:
- Overtime pay
- Annual bonuses
- Performance bonuses
- Housing allowance (usually)
- Transportation allowance
- Meal allowance
Error #7: Wrong Daily Wage Divisor
The Mistake:
Dividing by actual days in month (28, 29, 30, or 31) instead of standard 30.
Why It's Wrong:
UAE law requires dividing by 30 days regardless of actual month length.
Real Example:
- Basic: AED 9,000
Wrong: 9,000 ÷ 28 (February) = AED 321.43/day
Correct: 9,000 ÷ 30 = AED 300/day
Error impact: Varies monthly, 3-10% potential difference
Always use 30: This is the legal standard in Article 51.
Error #8: Forgetting the 2-Year Cap
The Mistake:
Calculating gratuity beyond 2 years of basic salary maximum.
Why It's Wrong:
Article 51 caps total gratuity at 2 years (24 months) of basic salary.
Real Example:
- Basic: AED 15,000
- Service: 20 years
Uncapped calculation:
- Years 1-5: (15,000 ÷ 30) × 21 × 5 = AED 52,500
- Years 6-20: (15,000 ÷ 30) × 30 × 15 = AED 225,000
- Total: AED 277,500
With 2-year cap:
- Maximum: 24 months × 15,000 = AED 360,000
- In this case, AED 277,500 < AED 360,000, so cap doesn't apply
- Employee receives: AED 277,500
Cap only matters for very long service or high salaries.
Error #9: Not Aggregating Service Periods
The Mistake:
Treating contract renewals as separate employment (resetting service years).
Why It's Wrong:
If contracts are consecutive without gaps, service periods typically aggregate.
Real Example:
- Contract 1: 3 years (2020-2023)
- Contract 2: 2 years (2023-2025) - immediate renewal
- Employer calculates: 2 years only
Wrong: Gratuity based on 2 years
Correct: Gratuity based on 5 years total (contracts aggregate)
Error impact: 60% underpayment
Exception: If employer settled gratuity between contracts, new contract starts fresh.
Error #10: Unlawful Deductions
The Mistake:
Employer deducts visa costs, training fees, or "administrative charges" from gratuity.
Why It's Wrong:
These are employer obligations, not lawful deductions.
Real Example:
- Calculated gratuity: AED 30,000
- Employer deducts: AED 5,000 "visa costs"
- Employee receives: AED 25,000
Correct: Employee should receive AED 30,000 (full amount)
Error impact: AED 5,000 unlawful deduction (17% loss)
Only lawful deductions:
- Outstanding employer loans (documented in contract)
- Proven damages caused by employee
- Salary advances not repaid
- Authorized leave taken
How to Verify Your Gratuity Calculation
Step 1: Gather Information
✅ Employment contract (basic salary line)
✅ Contract start date and probation period
✅ Termination/resignation date
✅ Your final settlement statement from employer
Step 2: Calculate Manually
Formula:
Daily Wage = Basic Salary ÷ 30
Years 1-5: Daily Wage × 21 × years (up to 5)
Years 5+: Daily Wage × 30 × years beyond 5
Apply resignation penalty if applicable
Step 3: Use Online Calculator
Use our calculator for instant verification:
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Employment Details
Step 4: Compare Results
| Item | Your Calculation | Employer's Amount | Match? | |------|-----------------|-------------------|--------| | Basic salary used | AED _____ | AED _____ | Check ✓ | | Service years (excluding probation) | _____ years | _____ years | Check ✓ | | Daily wage | AED _____ | AED _____ | Check ✓ | | Resignation penalty applied? | _____% | _____% | Check ✓ | | Final amount | AED _____ | AED _____ | Check ✓ |
If discrepancy > 5%: Request written explanation from employer. File MOHRE complaint if unresolved.
What to Do If You Find an Error
Option 1: Contact HR First
Before filing complaint:
- Highlight specific error in writing
- Show your calculation vs. theirs
- Request correction within 7 days
- Keep all correspondence
Sample email:
Subject: Gratuity Calculation Discrepancy
Dear HR,
I've reviewed my final settlement and identified a calculation error:
Your calculation: AED 18,000
My calculation: AED 25,200
Discrepancy: Basic salary used (AED 8,000 vs AED 10,500)
Your statement shows AED 10,500, but my contract basic is AED 8,000.
The correct calculation should be...
[Show your formula]
Please review and issue corrected settlement.
Regards,
[Your name]
Option 2: File MOHRE Complaint
If HR doesn't correct:
- File online at mohre.gov.ae
- Attach: Contract + payslips + settlement statement + your calculation
- MOHRE will review and mediate
- 70% resolved within 30 days
Option 3: Accept Small Overpayments
If employer's calculation is HIGHER than correct amount:
- You can accept the higher payment
- Employer unlikely to dispute overpayment in your favor
- Get it in writing as "full and final settlement"
Red Flags to Watch For
⚠️ Settlement statement doesn't show calculation breakdown
⚠️ "Basic salary" used is higher than contract amount
⚠️ Service years don't match your records
⚠️ Resignation penalty applied but employer terminated you
⚠️ Unexplained deductions without itemization
⚠️ Total seems "too low" compared to colleagues with similar tenure
⚠️ Employer pressures you to sign quickly without review time
For an instant end-of-service estimate, use our online gratuity calculator UAE.
Verify Your Gratuity Calculation
Use our free calculator to spot errors in your employer's settlement statement. Get accurate estimate in 60 seconds.
Related Resources
- How to Calculate Gratuity in UAE: Complete 2025 Guide
- How to File a Gratuity Dispute in UAE
- Daily Rate and Formula Used in Gratuity Calculation
- Does Overtime Affect Gratuity Calculation?
- UAE Gratuity Table 2025: Breakdown by Service Years
Final Disclaimer: This guide reflects UAE labour law as of November 2025 and is for informational purposes. It is not legal advice. For disputes exceeding AED 20,000, consider consulting a qualified employment lawyer.
