The employer’s guide to end-of-service gratuity. How to get the number right, and everything else that belongs in a final settlement.
- Covered expatriate employees with at least one year of continuous service qualify.
- Calculate on the last basic wage (monthly basic ÷ 30), not the total package.
- Total gratuity is capped at two years’ wage.
- Resigning does not reduce gratuity under the 2021 law.
What gratuity is, and its scope
End-of-service gratuity is a statutory benefit paid when employment ends. It is only one part of the final settlement, which can also include outstanding wages, unused annual leave and other amounts due. Calculate gratuity on its own first, then reconcile it with everything else.
Who qualifies
- Minimum service: at least one year of continuous service. After that, a fraction of a further year counts proportionately.
- Service dates: take them from employment records, not a manually entered number of years. Days of absence without pay are excluded.
- Work arrangement: part-time and other models are adjusted by the contractual working-hours ratio. Temporary employment under one year does not qualify.
How to calculate it
Years 1–5: 21 days × daily wage × years
After year 5: 30 days × daily wage × years
Total ≤ two years’ wage
| Qualifying service | Rate | Note |
|---|---|---|
| Years 1 to 5 | 21 days per year | Based on last basic wage |
| Each year after year 5 | 30 days per year | Based on last basic wage |
| Part of a year | Proportionate share | After the one-year minimum |
| Maximum | Two years’ wage | For example 24 × AED 10,000 basic = AED 240,000 |
- Confirm the last basic wageUse the contractual basic salary in current payroll. Housing and transport allowances are generally excluded.
- Establish qualifying serviceCount continuous service from verified dates and exclude unpaid absence.
- Apply the rates21 days per year for the first five years, then 30 days, with fractions pro-rated.
- Check the cap, then reconcileCompare the result with the contract, service history and payroll. Take advice for unusual terms or special regimes.
Worked examples
Illustrative only. They assume the standard federal rules apply, the employee is eligible, basic salary is unchanged, and all service qualifies. A 30-day month is used for the daily wage.
Keep the assumptions and source records for every real settlement. These examples explain the logic and are not a case-specific legal review.
Resignation and termination
The final settlement
| Component | What to do |
|---|---|
| Outstanding salary | Pay wages due to the end date, reconciled with attendance and payroll cut-offs. |
| Gratuity | Calculate separately, as above. |
| Unused annual leave | A separate entitlement, not part of gratuity. Verify the wage basis (commonly basic wage ÷ 30 per day) and pay it in the same window. |
| Other entitlements | Check the contract, company policies and applicable law. |
| Deductions | Only where legally permitted and documented. Never deduct arbitrarily. |
Prepare a breakdown listing each payment and deduction separately, with its basis and the records used. A full settlement checklist follows in our next article.
The alternative Savings Scheme
The UAE also offers a voluntary alternative to traditional gratuity for participating employers and eligible employees. Employers contribute to approved investment funds. Official guidance lists employer contributions of 5.83% of monthly basic salary for employees under five years of service and 8.33% beyond that. The scheme has its own rules for benefits, payment and gratuity accrued before enrolment, so don’t assume the traditional formula applies unchanged. Keep records showing which system applies and any transition period.
Errors to avoid
Reconcile contract and payroll basic wage first.
Use verified dates and keep the calculation.
Confirm the regime and work arrangement.
Calculate each component separately.
Assign an owner and an internal date.
Document the legal basis for every deduction.
Frequently asked questions
Is gratuity paid after one year of service?
Yes. A covered expatriate employee with at least one year of continuous service qualifies, once the employment regime has been confirmed.
Do employees who resign still get gratuity?
Yes. Under Federal Decree-Law No. 33 of 2021, resignation no longer reduces gratuity for eligible employees.
Is gratuity calculated on basic or total salary?
On the last basic wage. Allowances such as housing and transport are generally excluded.
What is the gratuity rate?
21 days of basic wage per year for the first five years, 30 days per year beyond that, up to a cap of two years’ wage.
Are partial years included?
Yes, once the one-year minimum is met. Qualifying fractions are calculated proportionately.
How long does the employer have to pay?
Within 14 days of the end of the contract, under the standard federal framework.
Is unused leave part of gratuity?
No. It is a separate final-settlement entitlement and should be calculated and paid separately.
Need a second pair of eyes on your settlements?
The HR Partner Middle East can review your offboarding and final-settlement process and align your HR practices with your business. Try our gratuity calculator or talk to the team.
Contact The HR Partner Middle EastSources: Federal Decree-Law No. 33 of 2021 (Article 51 on gratuity), the UAE Government portal (u.ae) and MOHRE. Nov 2026. General guidance only; not legal advice. Always confirm current requirements before paying a settlement.