Legal Disclaimer: This article provides general information about overtime and gratuity as of November 2025. It is not legal advice. For specific cases, consult MOHRE or a qualified employment lawyer.
Does Overtime Affect Gratuity Calculation in UAE? 2025 Answer
No. Overtime pay does NOT count toward UAE gratuity calculation, even if you receive it regularly every month. Under MOHRE Circular 2025/04 and Article 51 of Federal Decree-Law No. 33 of 2021, gratuity is calculated using basic salary only—the fixed monthly wage stated in your employment contract. Overtime, bonuses, allowances, and other variable payments are explicitly excluded.
This means if your basic salary is AED 8,000 and you earn AED 2,000 in overtime monthly, your gratuity calculation uses only the AED 8,000 base.
The Short Answer
| Payment Type | Included in Gratuity? | Reason |
|---|---|---|
| Overtime pay | ❌ No | Variable payment, not fixed basic |
| Basic salary | ✅ Yes | Fixed monthly wage in contract |
| Housing allowance | ❌ Usually no | Unless stated as "part of basic" in contract |
| Annual bonus | ❌ No | Discretionary, not fixed |
| Transportation allowance | ❌ No | Separate allowance |
Why Overtime Doesn't Count
Legal Reasoning
Article 51 of Federal Decree-Law No. 33/2021 states:
"End-of-service gratuity shall be calculated based on the employee's basic wage..."
MOHRE defines "basic wage" as:
- The fixed monthly salary stated in the employment contract
- Does NOT include variable or supplementary payments
- Must be clearly identified in contract as "Basic Salary" or "Basic Monthly Remuneration"
Overtime is classified as:
- Supplementary compensation for extra hours worked
- Variable (changes month to month)
- Not guaranteed (depends on actual hours worked)
- Therefore: NOT part of basic wage
Practical Example
Employee salary structure:
- Basic salary: AED 10,000/month
- Average monthly overtime: AED 3,000
- Housing allowance: AED 2,000
- Total monthly income: AED 15,000
Gratuity calculation uses: AED 10,000 (basic only)
If worked 5 years:
- Correct calculation: (10,000 ÷ 30) × 21 × 5 = AED 35,000
- ❌ Wrong calculation using total: (15,000 ÷ 30) × 21 × 5 = AED 52,500
Difference: AED 17,500 overstated if overtime/allowances included
What If Overtime Is Regular?
Common question: "I work overtime every month for 3 years. Doesn't it become part of my salary?"
Answer: No.
Even if overtime is:
- Paid consistently every month
- Same amount each time
- Expected by both parties
- Documented in payslips
It still does NOT count toward gratuity because:
- It's compensation for additional hours, not base salary
- Contract states it as "overtime" not "basic"
- MOHRE regulations explicitly exclude it
- It could theoretically stop (employee works standard hours)
Real Case Example
Employee Profile:
- Security guard working night shifts
- Basic: AED 4,000/month
- Regular overtime: AED 2,500/month (has received for 4 years straight)
- Believes gratuity should use AED 6,500
MOHRE Ruling:
- Gratuity calculated on AED 4,000 only
- Overtime regularity is irrelevant
- Employee receives: (4,000 ÷ 30) × 21 × 4 = AED 11,200
- NOT: (6,500 ÷ 30) × 21 × 4 = AED 18,200
How to Identify Your Basic Salary
Step 1: Check Employment Contract
Look for section titled "Remuneration" or "Salary" in your contract.
Correct format example:
Basic Monthly Salary: AED 12,000
Housing Allowance: AED 3,000
Transportation: AED 500
Total Package: AED 15,500
Your gratuity base: AED 12,000
Step 2: Review Monthly Payslip
Payslips typically show breakdown:
| Payslip Line | Example Amount | Gratuity Calculation |
|---|---|---|
| Basic Salary | AED 8,000 | ✅ Use this |
| Housing Allowance | AED 2,000 | ❌ Exclude |
| Overtime (40 hours) | AED 1,500 | ❌ Exclude |
| Transportation | AED 500 | ❌ Exclude |
| Total Salary | AED 12,000 | ❌ Do not use total |
Gratuity calculation base: AED 8,000 (basic line only)
Step 3: If Contract Is Unclear
Scenario: Contract states one total figure (e.g., "Total Monthly Salary: AED 10,000") without breakdown
MOHRE standard interpretation:
- At least 50% is considered basic salary for gratuity purposes
- Remaining 50% presumed to be allowances
- However, this varies case-by-case
Recommendation: Request written clarification from HR showing basic vs. allowances breakdown. If employer refuses, file MOHRE inquiry.
Special Cases
Case 1: Guaranteed Overtime in Contract
Scenario: Contract states "Basic Salary AED 8,000 + Guaranteed Overtime AED 2,000"
Does guaranteed overtime count?
- Still NO - It's labeled "overtime" not "basic"
- Even if guaranteed, it's supplementary compensation
- MOHRE: Gratuity uses AED 8,000 only
Exception: If contract states "Basic Salary AED 10,000 (includes guaranteed overtime component)" - then AED 10,000 is basic. But this is rare and must be explicitly worded.
Case 2: On-Call Allowance
Scenario: Employee receives AED 1,000/month for being on-call
Gratuity treatment:
- ❌ On-call allowance does NOT count
- Classified as supplementary, not basic wage
- Even if paid every month
Case 3: Night Shift Differential
Scenario: Night shift workers receive 25% premium on basic
Gratuity calculation:
- Uses base salary without premium
- Night differential is variable compensation
- Excluded from gratuity
Example:
- Basic: AED 5,000
- Night shift premium (25%): AED 1,250
- Gratuity uses: AED 5,000
Case 4: Commission-Based Salary
Scenario: Sales role with "Basic AED 5,000 + Commission (average AED 4,000/month)"
Gratuity treatment:
- Uses AED 5,000 (fixed basic) only
- Commission excluded (variable by definition)
- Even if commission is consistent
Exception: If contract states "Guaranteed Minimum Basic Salary including Commission: AED 9,000" - then AED 9,000 is basic. Contract wording is critical.
Common Mistakes Employees Make
| Mistake | Why It's Wrong | Correct Approach |
|---|---|---|
| Using total monthly income for calculation | Includes excluded items | Use "Basic Salary" line only |
| Averaging last 12 months including overtime | Overtime doesn't count | Use contract basic salary (fixed amount) |
| Arguing "I always work overtime" | Frequency doesn't convert it to basic | Accept that overtime is excluded by law |
| Including year-end bonus in calculation | Bonuses are discretionary | Exclude all bonuses |
What Employer Should Do
Employer obligations:
✅ Clearly state basic salary in contract separate from allowances
✅ Label overtime as "overtime" in payslips
✅ Calculate gratuity on basic as per MOHRE rules
✅ Provide itemized settlement showing basic used
If employer incorrectly includes overtime:
- This is actually favorable to employee (higher payment)
- Employee can accept the higher amount
- However, employer may later correct calculation and dispute overpayment
Calculate Your Gratuity
Employment Details
How to Verify Your Calculation
Step-by-step verification:
-
Find basic salary:
- Check contract "Basic Salary" line
- Verify with payslip
- Exclude all allowances and overtime
-
Calculate daily wage:
- Basic Salary ÷ 30 days
-
Apply formula:
- Years 1-5: Daily Wage × 21 days × Years
- Years 5+: Daily Wage × 30 days × Years
-
Verify employer's calculation:
- Request itemized statement
- Check they used basic (not gross)
- Confirm no overtime included
-
If discrepancy:
- Highlight the difference
- Reference MOHRE Circular 2025/04
- File complaint if needed
Frequently Asked Questions
1. What if my basic salary is very low and most of my income is overtime?
Your gratuity will be calculated on the low basic salary only. This is legal under UAE law. Some employees negotiate higher basic (lower allowances) specifically to increase gratuity entitlement.
2. Can I negotiate with employer to include overtime in gratuity?
Yes, you can negotiate enhanced gratuity terms in your contract that exceed MOHRE minimums. Get it in writing: "End-of-service gratuity shall be calculated on total monthly earnings including overtime." However, most employers won't agree to this.
3. My contract says "Total Package AED 15,000" with no breakdown. What's my basic?
This is ambiguous. MOHRE typically interprets at least 50% as basic (AED 7,500 in this example). However, request written clarification from employer. If disputed, MOHRE will review contract language.
4. I worked massive overtime hours for 5 years. Is there any compensation beyond regular salary?
Overtime is compensated through hourly overtime pay (typically 1.25x-1.5x regular rate). Gratuity is separate and doesn't factor in extra hours worked. The systems are independent.
5. Can employer reduce my basic and increase allowances to lower gratuity?
Risky for employer. If MOHRE determines this was done specifically to reduce gratuity obligations, they may rule it as labor law violation and enforce calculation on previous higher basic salary.
Official Legal References
Primary sources:
- Federal Decree-Law No. 33 of 2021 - Article 51 (Basic Wage Definition)
- MOHRE Circular 2025/04 - Overtime Exclusion from Gratuity
- Cabinet Resolution No. 1 of 2022 - Implementation Regulations
For questions:
- MOHRE Hotline: 600590000
- MOHRE Website: mohre.gov.ae
Calculate Your Gratuity (Basic Salary Only)
Our calculator uses only basic salary as per MOHRE rules. Get your accurate estimate now.
Related Resources
- How to Calculate Gratuity in UAE: Complete 2025 Guide
- MOHRE Updates 2025: New Gratuity Rules Explained
- UAE Labour Law 2025: Gratuity Entitlement Breakdown
- Common Errors in Gratuity Calculations
- Daily Rate and Formula Used in Gratuity Calculation
For an instant end-of-service estimate, use our online gratuity calculator UAE.
Final Disclaimer: This article reflects UAE labour law as of November 2025 and is for informational purposes. It is not legal advice. Gratuity calculations depend on individual contracts. For disputes, consult MOHRE or a qualified employment lawyer.
