Legal Disclaimer: This article provides general information about CTC and gratuity under UAE Labour Law as of November 2025. It is not legal advice. For contract-specific questions, consult MOHRE or a qualified employment lawyer.
Is Gratuity Part of CTC? Know the Truth Behind
TL;DR: Gratuity is not part of your CTC in UAE—it's an employer obligation payable only upon termination after 1 year of service. Your monthly CTC includes basic salary and allowances, but gratuity accrues separately as a future liability employers must pay from their own funds under MOHRE law.
No, gratuity is NOT part of your Cost to Company (CTC) or total compensation package in the UAE. CTC refers to your annual employment cost to the employer—basic salary, allowances, bonuses, and benefits. Gratuity is a statutory obligation paid upon termination, calculated separately based on basic salary only. Under Federal Decree-Law No. 33 of 2021, gratuity is an end-of-service entitlement, not a component of ongoing salary. This guide clarifies the relationship between CTC and gratuity, explains common misconceptions, and shows you exactly what's included in each category.
What Is CTC (Cost to Company)?
CTC definition: The total annual cost an employer bears for employing you, including:
- Basic salary
- Housing allowance
- Transportation allowance
- Annual bonuses
- Health insurance premiums
- Flight tickets (if applicable)
- Education allowance (for dependents, if provided)
- Other contractual benefits
CTC does NOT typically include:
- Gratuity (end-of-service benefit, not ongoing cost)
- Visa processing fees (one-time cost)
- Recruitment costs
Example CTC breakdown (annual):
| Component | Monthly (AED) | Annual (AED) | Part of CTC? |
|---|---|---|---|
| Basic Salary | 10,000 | 120,000 | Yes |
| Housing Allowance | 3,000 | 36,000 | Yes |
| Transportation | 500 | 6,000 | Yes |
| Annual Bonus (avg) | - | 10,000 | Yes |
| Health Insurance | - | 4,000 | Yes |
| Flight Tickets | - | 6,000 | Yes |
| Total CTC | - | 182,000 | - |
| Gratuity (5 yrs) | - | 35,000 | NOT in CTC |
Key distinction: CTC = Annual recurring costs. Gratuity = One-time end-of-service obligation.
What Is Gratuity?
Legal definition: Gratuity (End of Service Benefit/EOSB) is a statutory payment owed by employer to employee upon termination, calculated as:
- 21 days basic salary per year for first 5 years
- 30 days basic salary per year for years beyond 5
- Minimum 1 year service required
Gratuity is NOT:
- Part of monthly salary
- Part of CTC or annual package
- Negotiable (it's a legal minimum)
- Paid during active employment
Gratuity IS:
- A legal obligation under Article 51
- Calculated on basic salary only (excludes allowances)
- Paid within 14 days of termination
- Subject to resignation penalties if employee resigns before 5 years
Gratuity Calculator
Why Gratuity Is NOT Part of CTC
Five key reasons:
1. Conditional Payment
CTC components are paid regularly (monthly/annually) during employment.
Gratuity is only paid if and when employment ends. If you work 30 years, gratuity is paid once at year 30, not annually.
2. Not Guaranteed Until Termination
CTC represents guaranteed annual compensation.
Gratuity depends on:
- Minimum 1-year service
- Not being terminated for gross misconduct
- Not abandoning employment
If you're terminated for misconduct (Article 44 violations) or leave before 1 year, gratuity may be zero.
3. Calculated on Basic Salary Only
CTC includes all components (basic + allowances + benefits).
Gratuity uses basic salary only, excluding housing, transport, bonuses, etc.
Example:
- Basic: AED 10,000
- Allowances: AED 5,000
- CTC: AED 15,000/month × 12 = AED 180,000/year
- Gratuity calculation base: AED 10,000 (not AED 15,000)
4. Statutory vs. Contractual
CTC is negotiated between you and employer (contractual).
Gratuity is mandated by law (statutory). Employer cannot reduce or waive it (can only enhance it).
5. Timing and Accrual
CTC is an annual figure representing ongoing costs.
Gratuity accrues over time but is paid as a lump sum at termination.
Common Misconceptions
Misconception 1: "My CTC includes gratuity, so I'm already getting it"
Reality: No. Gratuity is a separate legal obligation. If employer claims "CTC includes gratuity," they're either:
- Misinformed
- Trying to avoid future gratuity payment (illegal)
Correct statement: "Your CTC is AED X, plus you're entitled to gratuity upon termination as per UAE law."
Misconception 2: "I can request gratuity payout annually instead of lump sum"
Reality: No. Gratuity is only paid upon termination, resignation, or contract expiry. You cannot claim it during active employment.
Exception: Some employers offer "advance gratuity" loans, but this is separate from the legal obligation.
Misconception 3: "Higher CTC means higher gratuity"
Reality: Partially true. Gratuity depends on basic salary, not total CTC.
Example:
- Job A: CTC AED 200,000 (Basic: AED 10,000 + Allowances: AED 6,667/month)
- Job B: CTC AED 200,000 (Basic: AED 15,000 + Allowances: AED 1,667/month)
Gratuity after 5 years:
- Job A: (10,000 ÷ 30) × 21 × 5 = AED 35,000
- Job B: (15,000 ÷ 30) × 21 × 5 = AED 52,500
Same CTC, 50% difference in gratuity due to basic salary split.
Misconception 4: "Employer sets aside gratuity money each month"
Reality: UAE law doesn't require employers to maintain a separate gratuity fund. Employer must pay from operational funds upon termination.
Some employers voluntarily provision for gratuity in accounts, but this isn't legally required.
Misconception 5: "I can waive gratuity for higher CTC"
Reality: No. Gratuity is a statutory right. You cannot legally waive it (even if you sign a contract clause attempting this).
MOHRE position: Any contract clause waiving or reducing gratuity below legal minimums is void.
How to Calculate Gratuity (Not Part of CTC)
Gratuity formula:
Gratuity = (Basic Salary ÷ 30) × Days per Year × Service Years
Where:
- Basic Salary = Monthly fixed wage (exclude allowances)
- Days per Year:
- 21 days (years 1-5)
- 30 days (years 5+)
- Service Years = Post-probation continuous service
Example: 7 Years Service
Profile:
- Basic salary: AED 12,000/month
- Allowances: AED 4,000/month
- Monthly take-home: AED 16,000
- Annual CTC: AED 192,000
Gratuity calculation:
- Daily wage: 12,000 ÷ 30 = AED 400
- Years 1-5: 400 × 21 × 5 = AED 42,000
- Years 6-7: 400 × 30 × 2 = AED 24,000
- Total gratuity: AED 66,000
Note: Gratuity uses only AED 12,000 basic, NOT AED 16,000 take-home or AED 192,000 CTC.
CTC vs. In-Hand Salary vs. Gratuity
Three distinct concepts:
| Term | Definition | Includes | Timing |
|---|---|---|---|
| CTC | Total employer cost | Salary + allowances + bonuses + insurance | Annual figure |
| In-Hand Salary | Monthly take-home | Basic + allowances you receive monthly | Monthly payment |
| Gratuity | End-of-service benefit | Based on basic salary only × years | One-time at termination |
Example numbers:
- CTC: AED 200,000/year
- In-hand salary: AED 15,000/month (AED 180,000/year)
- Gratuity (5 years): AED 35,000 (one-time, separate)
What Should Your Contract Say?
Clear contract wording:
Good example:
Basic Salary: AED 10,000 per month
Housing Allowance: AED 3,000 per month
Transportation: AED 500 per month
Total Monthly Salary: AED 13,500
End-of-service gratuity shall be calculated and paid in accordance
with Article 51 of Federal Decree-Law No. 33 of 2021.
Problematic example:
Total Package (CTC): AED 162,000 per year (includes all benefits
and end-of-service gratuity)
Why problematic? This suggests gratuity is "included" and already paid, which is false and potentially illegal.
Red flag phrases:
- "CTC inclusive of gratuity"
- "Gratuity paid monthly as part of salary"
- "No separate gratuity payable"
If you see these: Request clarification in writing. Gratuity cannot be waived or "pre-paid" as part of CTC.
Employer Obligations
What employers MUST do:
Pay statutory minimum gratuity (21/30 days formula)
Calculate on basic salary as stated in contract
Settle within 14 days of termination
Cannot deduct or withhold gratuity (except lawful deductions)
Cannot claim "gratuity already included in CTC"
What employers CAN do:
Offer enhanced gratuity above legal minimums (e.g., 30 days per year for all years)
Include enhanced gratuity terms in contract as added benefit
Pay gratuity earlier than 14-day deadline
What employers CANNOT do:
Reduce gratuity below statutory minimums
Claim gratuity is "part of CTC" to avoid payment
Require employee to waive gratuity rights
Withhold gratuity beyond 14 days without lawful cause
Real Case Scenario
Employee complaint: "My employer says I'm not entitled to gratuity because my CTC already includes it."
MOHRE ruling: Employer must pay full statutory gratuity. "CTC inclusive of gratuity" clauses are void. Employee entitled to standard 21/30-day formula.
Result: Employer ordered to pay AED 42,000 gratuity + penalties for late payment.
How to Protect Your Gratuity Rights
Step 1: Verify contract breakdown
- Ensure contract clearly separates basic salary from allowances
- Check for any clauses attempting to waive or reduce gratuity
- If unclear, request written clarification
Step 2: Keep documentation
- Copy of signed contract
- Payslips showing basic salary line
- Labour Card showing registered basic salary
Step 3: Calculate your expected gratuity
- Use our calculator above
- Compare with any employer estimates
Step 4: Upon resignation/termination
- Request gratuity settlement statement within 7 days
- Verify calculation matches legal formula
- If discrepancy, file MOHRE complaint immediately
Frequently Asked Questions
1. Can employer reduce my basic salary and increase allowances to lower gratuity?
Technically yes, but if done specifically to circumvent gratuity obligations, MOHRE may challenge it. Negotiate contract terms before signing.
2. If I negotiate higher CTC, does my gratuity automatically increase?
Only if the increase is in basic salary. If increase is only in allowances/bonuses, gratuity stays the same.
3. Should I prefer Job A (higher CTC, lower basic) or Job B (lower CTC, higher basic)?
Consider gratuity impact. Higher basic = better gratuity. Calculate total compensation over expected tenure.
4. Can employer pay gratuity monthly instead of lump sum?
No. This would violate UAE labour law. Gratuity must be paid as lump sum upon termination.
5. What if my contract says "Total package AED X inclusive of gratuity"?
Request clarification. This wording is problematic. Gratuity is a separate legal obligation, not part of monthly/annual package.
6. Is gratuity taxable in UAE?
No. UAE has no personal income tax. Gratuity is paid gross (no deductions).
Quick Reference: CTC vs. Gratuity
| Question | CTC | Gratuity |
|---|---|---|
| When is it paid? | Monthly/annually during employment | One-time upon termination |
| Is it negotiable? | Yes (contract terms) | No (legal minimum mandatory) |
| Calculation base | Basic + allowances + benefits | Basic salary only |
| Conditional? | No (guaranteed during employment) | Yes (requires ≥1 year, valid termination) |
| Legal requirement? | No (business concept) | Yes (statutory obligation) |
Calculate Your Gratuity (Separate from CTC)
Use your basic salary to get accurate gratuity estimate. Gratuity is NOT part of your CTC—it's a separate legal entitlement.
Related Resources
- How to Calculate Gratuity in UAE: Complete 2025 Guide
- Does Overtime Affect Gratuity Calculation?
- Gratuity Eligibility in UAE: Who Qualifies
- UAE Labour Law 2025: Gratuity Entitlement Breakdown
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. CTC structures vary by employer. For contract-specific questions, consult MOHRE or a qualified employment lawyer.
