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

What is Gratuity in Salary? A Comprehensive Guide 2025

Gratuity (End of Service Benefit/EOSB) is NOT part of your monthly salary. It's a statutory lump-sum payment owed by your employer when you leave your job, calculated based on your basic salary and years of service. Under Federal Decree-Law No. 33 of 2021 (Article 51), UAE private-sector employers must pay gratuity equal to 21 days' salary per year for first 5 years, then 30 days' salary per year thereafter. This is a legal entitlement, not a bonus or discretionary payment. This comprehensive guide explains what gratuity is, how it's calculated, when you receive it, and why it matters for every UAE employee.

What Is Gratuity? The Simple Definition

Gratuity = Mandatory end-of-service payment from employer to employee upon termination, resignation, or contract expiry.

Key characteristics:

• ✅ Legal obligation: Required by UAE labour law
• ✅ One-time payment: Paid as lump sum when you leave, not monthly
• ✅ Based on service length: More years = higher gratuity
• ✅ Calculated on basic salary: Excludes allowances and bonuses
• ✅ Minimum eligibility: 1 year of service required
• ✅ 14-day deadline: Employer must pay within 14 days of termination

Alternative names:

• End of Service Benefit (EOSB)
• End of Service Gratuity (EOSG)
• Termination benefit
• Service gratuity

Gratuity vs. Salary: The Key Differences

Important: Gratuity is in addition to your monthly salary, not part of it. Think of it as deferred compensation that accumulates throughout your employment.

Why Gratuity Exists

Historical and legal purpose:

1. Recognition of loyalty: Rewards employees for years of service
2. Financial cushion: Provides funds during job transition or retirement
3. Social security substitute: UAE has no social security for expats; gratuity serves this role
4. Legal protection: Prevents employers from dismissing long-term employees without compensation
5. Regional standard: Aligns with GCC labour practices

Unlike salary (which compensates work performed), gratuity compensates commitment over time.

Who Is Entitled to Gratuity?

Eligible:

• ✅ All UAE private-sector employees (mainland and most free zones)
• ✅ Expats and GCC nationals
• ✅ Full-time and part-time employees
• ✅ Minimum 1 year continuous service (post-probation)
• ✅ Valid employment contract registered with MOHRE
• ✅ Termination, resignation, or contract expiry

NOT eligible:

• ❌ Service < 1 year
• ❌ Employees terminated for gross misconduct (Article 44 violations)
• ❌ Employees who abandon employment
• ❌ Federal government employees (different rules)
• ❌ Employees without registered Labour Card

How Is Gratuity Calculated?

The official MOHRE formula:

Gratuity = (Basic Salary ÷ 30) × Days per Year × Service Years

Where:

• Basic Salary = Fixed monthly wage (excludes allowances)
• Days per Year:
  • 21 days for first 5 years
  • 30 days for years beyond 5
• Service Years = Post-probation continuous service

Step-by-Step Calculation

Example: Employee with 7 Years Service

Profile:

• Basic salary: AED 10,000/month
• Housing allowance: AED 3,000 (NOT included in calculation)
• Service: 7 years (post-probation)
• Employer terminates

Calculation:

Step 1: Calculate daily wage

Daily Wage = Basic Salary ÷ 30
Daily Wage = 10,000 ÷ 30 = AED 333.33/day

Step 2: Calculate gratuity for years 1-5

Years 1-5 = Daily Wage × 21 days × 5 years
Years 1-5 = 333.33 × 21 × 5 = AED 35,000

Step 3: Calculate gratuity for years 6-7

Years 6-7 = Daily Wage × 30 days × 2 years
Years 6-7 = 333.33 × 30 × 2 = AED 20,000

Step 4: Total gratuity

Total Gratuity = Years 1-5 + Years 6-7
Total Gratuity = 35,000 + 20,000 = AED 55,000

Employee receives: AED 55,000 (lump sum within 14 days of termination)

Resignation Penalties (If You Resign)

If YOU resign before completing 5 years, gratuity is reduced:

Example with resignation penalty:

• Basic: AED 8,000
• Service: 3 years
• You resign

Calculation:

1. Gross gratuity: (8,000 ÷ 30) × 21 × 3 = AED 16,800
2. Resignation penalty (1-3 years): 33.33%
3. You receive: 16,800 × 33.33% = AED 5,600

If employer terminated you instead: AED 16,800 (100%, no penalty)

When Is Gratuity Paid?

Timeline:

Day 0: Last working day

• Employment officially ends
• Notice period completed (if applicable)

Day 1-14: Settlement deadline

• Employer must pay gratuity within 14 days of last working day
• Payment via bank transfer or cheque
• Settlement statement provided

Day 15+: Late payment penalties

• If employer misses 14-day deadline:
  • File MOHRE complaint
  • Employer faces fines and penalties
  • Interest may accrue on delayed amount

Typical settlement includes:

• Gratuity amount (as calculated)
• Unused annual leave balance
• End-of-service air ticket (if contractual)
• Any unpaid salary or bonuses
• Minus: Lawful deductions (e.g., outstanding loans, damages)

Gratuity Eligibility Checklist

To qualify for gratuity, you must have:

✅ Minimum 1 year service (excluding probation period)
✅ Valid employment contract registered with MOHRE
✅ Active Labour Card during employment
✅ Termination or resignation (not abandonment)
✅ Basic salary clearly stated in contract
✅ NOT terminated for gross misconduct (Article 44 violations)

Probation period: Maximum 6 months probation does NOT count toward gratuity service years. Service starts after probation ends.

Example:

• Contract start: 1 January 2023
• Probation: 6 months (ends 30 June 2023)
• Service start for gratuity: 1 July 2023
• Minimum gratuity eligibility date: 1 July 2024 (1 year post-probation)

What's Included in "Basic Salary" for Gratuity?

Basic salary = Fixed monthly wage stated in contract

Example contract breakdown:

Basic Salary: AED 10,000/month  ← USE THIS for gratuity
Housing Allowance: AED 3,000/month  ← Exclude
Transportation: AED 500/month  ← Exclude
Total Monthly Salary: AED 13,500

Gratuity calculation base: AED 10,000 only

Gratuity Examples

Example 1: Short Service (2 Years, Resignation)

Profile:

• Basic: AED 6,000
• Service: 2 years
• Employee resigns

Calculation:

1. Daily wage: 6,000 ÷ 30 = AED 200
2. Gross gratuity: 200 × 21 × 2 = AED 8,400
3. Resignation penalty (1-3 years): 33.33%
4. Final: 8,400 × 33.33% = AED 2,800

Example 2: Moderate Service (4.5 Years, Terminated)

Profile:

• Basic: AED 15,000
• Service: 4 years 6 months = 4.5 years
• Employer terminates

Calculation:

1. Daily wage: 15,000 ÷ 30 = AED 500
2. Gratuity: 500 × 21 × 4.5 = AED 47,250
3. Employer termination = 100%
4. Final: AED 47,250

Example 3: Long Service (12 Years, Resignation)

Profile:

• Basic: AED 8,000
• Service: 12 years
• Employee resigns

Calculation:

1. Daily wage: 8,000 ÷ 30 = AED 266.67
2. Years 1-5: 266.67 × 21 × 5 = AED 28,000
3. Years 6-12: 266.67 × 30 × 7 = AED 56,000
4. Total: AED 84,000
5. Service > 5 years = no resignation penalty
6. Final: AED 84,000

Common Gratuity Questions Answered

1. Is gratuity taxable in UAE?

No. UAE has no personal income tax. Gratuity is paid gross (no deductions).

2. Can I claim gratuity while still employed?

No. Gratuity is only payable upon termination, resignation, or contract expiry. You cannot request advance payment during active employment (unless employer offers gratuity loans, which are separate).

3. What if I work part-time?

Same formula applies. Your "basic salary" will be the part-time monthly rate. Gratuity calculation is identical.

4. Does unpaid leave affect gratuity?

Short authorized leave (annual, sick, maternity) does NOT affect gratuity. Extended unpaid leave may, depending on contract terms.

5. Can employer deduct from my gratuity?

Only for lawful reasons:

• Outstanding employer loans (documented in contract)
• Proven damages caused by employee
• Salary advances not repaid
• Authorized deductions

Employer CANNOT deduct for visa costs, training fees, or arbitrary "administrative charges."

6. What happens if employer goes bankrupt?

File claim with MOHRE. You're a priority creditor. In liquidation proceedings, employee claims (salary + gratuity) are prioritized over most other debts.

How to Calculate Your Expected Gratuity

Step 1: Find your basic salary

• Check employment contract "Basic Salary" line
• Verify against Labour Card

Step 2: Calculate service years

• Start date = day after probation ends
• End date = last working day
• Convert to decimal (e.g., 4 years 6 months = 4.5 years)

Step 3: Use our calculator

Step 4: Verify against employer's calculation

• Request itemized settlement statement
• Compare with your calculation
• If discrepancy > 5%, query employer or file MOHRE complaint

Gratuity vs. Other Benefits

For expats: Gratuity is the primary "retirement benefit" in UAE (no pension scheme for expats).

Protecting Your Gratuity Rights

Best practices:

✅ Keep documentation:

• Copy of signed contract
• All contract amendments
• Payslips showing basic salary
• Labour Card copy

✅ Verify contract accuracy:

• Ensure basic salary matches agreement
• Check for any clauses attempting to waive gratuity (void if present)

✅ Calculate expected gratuity:

• Use our calculator periodically
• Know your entitlement before resignation

✅ Request settlement statement:

• Within 7 days of last working day
• Verify calculation matches legal formula

✅ File complaint if underpaid:

• MOHRE online complaint system
• 2-year time limit from termination date

Related Resources

• How to Calculate Gratuity in UAE: Complete 2025 Guide
• Gratuity Eligibility in UAE: Who Qualifies
• UAE Labour Law 2025: Gratuity Entitlement Breakdown
• Top 10 Questions About Gratuity in UAE

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. It is not legal advice. Gratuity entitlements depend on individual contracts and service records. For disputes, consult MOHRE or a qualified employment lawyer.