Gratuity in the UAE: meaning & how to calculate it

What is gratuity?

Gratuity — also called the end-of-service benefit — is a lump sum an employer pays an employee when their employment ends. It is a legal entitlement under the UAE Labour Law, designed to reward continuous service. In most cases an employee who has completed at least one year of continuous service is entitled to gratuity when they leave, whether they resign or their contract ends.

How gratuity is calculated

Gratuity is calculated on the basic salary only — not on allowances like housing, transport or commission. As a general rule for employees who have completed one year or more: 21 days of basic salary for each of the first five years of service, and 30 days of basic salary for each additional year beyond five. The total is capped at two years’ pay. The precise entitlement can depend on the contract type and reason for leaving, so always confirm the current rules with MOHRE.

A worked example

Say an employee has a basic salary of AED 6,000 and has worked for exactly four full years. Their daily basic wage is roughly AED 6,000 ÷ 30 = AED 200. For 21 days per year: 21 × 200 = AED 4,200 per year, and over four years that is about AED 16,800 in gratuity. The figure rises for each additional year and for the 30-day rate after five years.

Why accurate service records matter

Because gratuity depends on length of service and basic salary, accurate records of joining dates, leave and employment history are essential to calculate it correctly and avoid disputes. Keeping employee records, attendance and payroll data in one system — as M1 TimePilot does — means the numbers behind a final settlement are already there when someone leaves.

This article is general information, not legal advice. Confirm current gratuity rules with MOHRE.