Legal Disclaimer: This guide provides general information about UAE gratuity calculation as of November 2025. It is not legal advice. For specific cases, consult MOHRE or a qualified employment lawyer.

How to Calculate Gratuity in UAE: Complete 2025 Guide

Every private-sector employee in the UAE who completes at least 1 year of continuous service is entitled to end-of-service gratuity calculated at 21 days of basic salary per year for the first 5 years, then 30 days per year for each additional year. The calculation follows a simple daily wage formula, but many employees miscalculate by including overtime or using gross salary instead of basic salary.

This comprehensive guide explains the official MOHRE calculation method step-by-step, with real examples and common error warnings.

What is End-of-Service Gratuity?

End-of-service gratuity is a mandatory payment that UAE employers must provide to eligible employees when employment ends. The benefit recognizes employee loyalty and service duration under Article 51 of Federal Decree-Law No. 33 of 2021.

Key characteristics:

• Legal basis: Article 51, Federal Decree-Law No. 33 of 2021
• Minimum eligibility: 1 year of continuous service (post-probation)
• Calculation base: Basic monthly salary only (excludes allowances and overtime)
• Payment deadline: 14 calendar days from contract termination
• Maximum cap: 2 years of total basic salary
• Employer obligation: Cannot be waived or reduced below legal minimums

The Official Gratuity Calculation Formula

UAE gratuity follows a two-tier structure based on years of service:

Formula:

Daily Wage = Basic Salary ÷ 30 days
Gratuity = (Daily Wage × 21 days × Years 1-5) + (Daily Wage × 30 days × Years 5+)

Service tiers:

Step-by-Step Calculation Process

Step 1: Determine Your Basic Salary

Locate the "Basic Salary" or "Basic Monthly Remuneration" line in your employment contract. Cross-reference with your payslip.

What counts as basic salary:

• Fixed monthly wage (the main salary figure)
• Fixed housing allowance only if explicitly stated as part of basic in contract
• Guaranteed commission only if structured as minimum basic

What does NOT count:

• Overtime payments (regardless of frequency)
• Annual performance bonuses
• Quarterly incentives
• Housing allowance (if separate from basic)
• Transportation allowance
• Mobile phone allowance
• Meal allowances
• End-of-year bonuses

Example contract clause:

Employee basic salary: AED 10,000 per month
Housing allowance: AED 3,000 per month (separate)
Gratuity calculation base: AED 10,000 (housing excluded)

Step 2: Calculate Your Daily Wage

Divide your basic monthly salary by 30 days (the standard month length for gratuity purposes).

Formula:

Daily Wage = Basic Salary ÷ 30

Examples:

| Basic Salary | Daily Wage Calculation | Daily Wage | |--------------|----------------------|------------| | AED 5,000 | 5,000 ÷ 30 | AED 166.67 | | AED 10,000 | 10,000 ÷ 30 | AED 333.33 | | AED 15,000 | 15,000 ÷ 30 | AED 500.00 |

Step 3: Count Your Service Years

Calculate complete years from your employment start date (after probation) to termination date. Partial years are prorated.

Probation period note:

• Maximum probation: 6 months
• Probation does not count toward gratuity service years
• Service calculation begins after probation ends

Example timeline:

• Contract start: 1 January 2020
• Probation end: 30 June 2020 (6 months)
• Termination: 30 September 2025
• Service for gratuity: 5 years 3 months (from 1 July 2020 to 30 September 2025)

Partial year calculation:

• Complete years: 5 years
• Partial months: 3 months = 3/12 = 0.25 years
• Total service: 5.25 years

Step 4: Apply the Tiered Formula

Calculate gratuity separately for each service tier, then add them together.

For service of 1-5 years:

Gratuity = Daily Wage × 21 days × Years

For service beyond 5 years:

Gratuity = Daily Wage × 30 days × Years beyond 5

Combined formula for multi-tier service:

Total Gratuity = (Daily Wage × 21 × First 5 Years) + (Daily Wage × 30 × Years 5+)

Calculation Examples

Example 1: Employee with 3 Years Service

Scenario:

• Basic salary: AED 6,000/month
• Service duration: 3 years 0 months
• Contract type: Fixed-term
• Termination: Employer-initiated

Calculation:

1. Daily wage: 6,000 ÷ 30 = AED 200/day
2. Service tier: 3 years falls in 1-5 year range
3. Gratuity: 200 × 21 days × 3 years = AED 12,600

Total Gratuity: AED 12,600

Example 2: Employee with 7 Years Service

Scenario:

• Basic salary: AED 12,000/month
• Service duration: 7 years 0 months
• Contract type: Fixed-term
• Termination: Employer-initiated

Calculation:

1. Daily wage: 12,000 ÷ 30 = AED 400/day
2. Years 1-5: 400 × 21 × 5 = AED 42,000
3. Years 6-7: 400 × 30 × 2 = AED 24,000
4. Total Gratuity: AED 66,000

Special Cases and Adjustments

When You Resign vs. When Employer Terminates

If employer terminates you:

• You receive full calculated gratuity (no reduction)
• Applies whether termination is with or without cause (unless Article 44 misconduct proven)
• 14-day payment deadline applies

If you resign:

Your gratuity is reduced based on how long you've worked:

Resignation example:

• You resign after 2.5 years
• Full calculated gratuity: AED 15,000
• You receive: 15,000 × 33.33% = AED 5,000

Contract Types: Limited vs. Unlimited

As of 2024, all new employment contracts in the UAE must be fixed-term (limited) contracts with a maximum duration of 3 years.

Fixed-term contracts:

• Specific end date stated in contract
• Maximum 3-year duration
• Gratuity calculation: Same formula (21/30 days)
• Resignation penalties apply (one-third/two-thirds reduction)

Unlimited contracts (legacy):

• No fixed end date
• Can only exist if signed before 2024 reforms
• Gratuity calculation: Same formula (21/30 days)
• Resignation penalties apply identically

Important: Both contract types use the exact same gratuity formula. The 21-day and 30-day structure applies universally.

Partial Years (Months and Days)

If you leave mid-year, your partial service is prorated:

Formula for partial years:

Partial Year Gratuity = (Daily Wage × Applicable Days) × (Months ÷ 12)

Example:

• Service: 3 years 8 months
• Basic salary: AED 9,000
• Daily wage: 9,000 ÷ 30 = AED 300

Calculation:

• Complete 3 years: 300 × 21 × 3 = AED 18,900
• Partial 8 months: 300 × 21 × (8 ÷ 12) = AED 4,200
• Total: AED 23,100

Maximum Gratuity Cap

Article 51 states that total gratuity cannot exceed 2 years of basic salary (24 months).

When the cap applies:

If you work for 20+ years at a high salary, the calculation might exceed the cap.

Example:

• Basic salary: AED 20,000/month
• Service: 20 years
• Uncapped calculation:
  • Years 1-5: (20,000 ÷ 30) × 21 × 5 = AED 70,000
  • Years 6-20: (20,000 ÷ 30) × 30 × 15 = AED 300,000
  • Uncapped total: AED 370,000
• Capped total: AED 480,000 (24 months × 20,000)
• In this case, cap doesn't apply (uncapped is lower)

The cap rarely applies except in cases of very long service (20+ years) or extremely high salaries.

Common Calculation Errors to Avoid

Error 1: Including Overtime in Basic Salary

Mistake: Employee receives AED 8,000 basic + AED 2,000 average monthly overtime = uses AED 10,000 for gratuity calculation.

Correct: Only AED 8,000 (basic) should be used. Overtime is excluded.

Impact: Overcalculation by 25% in this example.

Error 2: Not Deducting Probation Period

Mistake: Employee counts service from contract start date (1 January 2020) instead of probation end date (30 June 2020).

Correct: Service years begin after probation ends.

Impact: Could add 6 months of unearned gratuity.

Error 3: Using Wrong Tier Formula

Mistake: Applying 30 days per year to all service years instead of only years 5+.

Correct:

• Years 1-5: 21 days per year
• Years 5+: 30 days per year

Example of incorrect calculation:

• 7 years × 30 days (wrong) = More than entitled
• Correct: (5 years × 21) + (2 years × 30)

Error 4: Forgetting Resignation Penalties

Mistake: Employee resigns after 2 years and expects full gratuity.

Correct: Resignation before 3 years = only 33.33% of calculated amount.

Impact: Expecting AED 12,000 but receiving only AED 4,000.

Error 5: Not Prorating Partial Years

Mistake: Employee works 4 years 9 months but employer only pays for 4 complete years.

Correct: Partial 9 months should be calculated as 9/12 = 0.75 years and included.

Impact: Loss of several hundred to thousands of dirhams depending on salary.

Legitimate Deductions from Gratuity

Employers may deduct from gratuity only in specific circumstances:

Allowed deductions:

1. Outstanding employer loans (if documented in contract and agreed upon)
2. Proven financial damages caused by employee negligence or misconduct
3. Salary advances not yet repaid
4. Overpaid salary from previous months
5. Unauthorized leave taken without approval

NOT allowed:

• Visa costs (employer responsibility)
• Training costs (unless explicitly stated in contract and approved by MOHRE)
• Notice period shortfall (separate from gratuity)
• Recruitment fees
• Health insurance premiums
• General "administrative fees"

When Must Gratuity Be Paid?

Under Article 51 and MOHRE Circular 2025/02, employers must pay gratuity within 14 calendar days from:

• Your last working day (if contract expires)
• Your notice period end date (if resignation)
• Termination effective date (if employer-initiated)

If payment is delayed:

1. Contact HR immediately in writing
2. File a complaint via MOHRE online portal (mohre.gov.ae)
3. Interest accrues at 9% per annum on late amounts
4. Employers face fines of AED 5,000 to AED 50,000

MOHRE complaint process:

• Online filing: 5-10 minutes
• Initial review: 5-15 working days
• Mediation session: Scheduled within 30 days
• Resolution: 70% of cases settle at mediation

Practical Calculation Checklist

Before calculating your gratuity, gather these documents:

• [ ] Employment contract (signed copy)
• [ ] Contract start date and probation end date
• [ ] Termination or resignation letter with effective date
• [ ] Latest 3 months of payslips showing basic salary
• [ ] Written confirmation of any loans or deductions
• [ ] HR final settlement statement (request if not provided)

Verification steps:

1. Confirm your basic salary (exclude allowances)
2. Calculate daily wage (basic ÷ 30)
3. Count complete service years (post-probation to termination)
4. Apply tier formula (21 days for years 1-5, 30 days for 5+)
5. Apply resignation penalty if applicable (one-third/two-thirds)
6. Subtract legitimate deductions only
7. Compare your result to employer's settlement statement

If there's a discrepancy:

• Highlight the specific line item
• Provide your calculation with formula
• Request written explanation from HR
• File MOHRE complaint if unresolved

Quick Reference: Gratuity Formula by Scenario

Frequently Asked Questions

1. Do I get gratuity if I worked less than 1 year?

No. The minimum eligibility threshold is 1 year of continuous service after probation. If you leave before completing 1 year, you receive no gratuity.

2. Is housing allowance included in gratuity calculation?

Only if your contract explicitly states that housing allowance is part of basic salary. In most UAE contracts, housing allowance is listed separately and is not included in gratuity calculations.

3. What if my employer doesn't pay gratuity?

File a complaint with MOHRE online at mohre.gov.ae within 2 years of termination. MOHRE will mediate and can enforce payment including interest and penalties against the employer.

4. Can my employer deduct for visa costs from my gratuity?

No. Visa and work permit costs are the employer's legal obligation and cannot be deducted from gratuity unless explicitly agreed in writing and approved by MOHRE.

5. How is gratuity calculated if I worked part-time?

The same formula applies, but your basic salary is proportional to your part-time hours. For example, if you work 50% time at AED 5,000/month equivalent, your gratuity is based on AED 2,500 basic.

6. Does gratuity carry forward if I renew my contract?

No. Each contract renewal is treated as a new employment relationship. Your employer must settle and pay your gratuity when the old contract ends before signing a new one.

7. What if I switch from unlimited to limited contract with same employer?

Service years typically aggregate (carry forward) if there's no break between contracts. However, verify this in writing with HR and check your new contract terms.

8. Is gratuity paid if I'm fired for misconduct?

Only if the employer proves gross misconduct under Article 44 (e.g., theft, violence, absconding). Minor performance issues do not forfeit gratuity. You have the right to appeal any Article 44 termination.

Official Legal References

This guide is based on:

• Federal Decree-Law No. 33 of 2021 (Article 51: End-of-Service Gratuity)
• Cabinet Resolution No. 1 of 2022 (Implementing Regulations)
• MOHRE Circular 2025/02 (Payment Timeline and Enforcement)
• MOHRE Official Portal (mohre.gov.ae)
• U.AE Federal Government Portal (u.ae/en/information-and-services/jobs)

For disputes or complex scenarios, contact:

• MOHRE Hotline: 600590000 (UAE)
• MOHRE Online Portal: mohre.gov.ae

Related Resources

• UAE Labour Law 2025: Gratuity Entitlement Breakdown
• Gratuity Eligibility in UAE: Who Qualifies for End-of-Service Pay
• How to Use the Gratuity Calculator UAE Step by Step
• Service Years Calculation in UAE: How It Affects Gratuity
• Resignation vs Termination: How Gratuity Differs

For an instant end-of-service estimate, use our online gratuity calculator UAE.

Final Disclaimer: This guide reflects UAE labour law as of November 2025 and is for informational purposes only. It is not legal advice. Gratuity entitlements depend on individual employment contracts and service records. For specific cases or disputes, consult MOHRE or a qualified employment lawyer licensed in the UAE.