In the UAE, gratuity is a benefit employees get by law at the end of their employment periods. For government or private sector or resident or foreign workers, it is important to know how gratuity will be calculated. The guide below reveals the conditions for gratuity calculations as well as all the legalities, the employees, and employers in UAE states.
What is Gratuity in the UAE?
Gratuity is the amount paid to an employee by the employer when the employee ceases to be employed in an organization. The amount is meant to compensate for the length of the employee’s service with the company and is mandatory by law in the UAE. As per the UAE Labor Law, any worker whose length of service with a particular employer completes at least one full year is entitled to gratuity.
It is an employee’s safety net as financial support for when they are out of a company’s employment. This applies to both Emirati nationals and foreign employees. Gratuity is calculated according to the number of years worked and the last salary drawn.
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Legal Framework for Gratuity Calculation
The end-of-service gratuity calculation in the UAE is governed by Federal Law No. 8 of 1980, popularly referred to as the UAE Labour Law. The regulations specify the terms and conditions under which all private sector employees are entitled to receive their end-of-service gratuity.
Key Legal Points:
- Eligibility: Workers who have served a continuous period of one year and above are entitled to gratuity.
- No Entry: If the employee resigns from the position before completing one year, the employee will not receive any gratuity.
- Full-time Employment only: Gratuity is full-time; this does not equate to part-time or temporary contract holders.
Both employees and employers should understand this law to prevent disputes in court as well as from the wrong gratuity payment.
How is Gratuity Calculated in the UAE?
Gratuity is calculated in proportion to the basic salary the employee receives and how long he has worked for his employer. Here is the formula concerning the number of years:
For Employees with More Than 1 Year of Service:
- First 5 Years: Severance pay at the rate of 21 days of basic salary for each year of service.
- Beyond 5 Years: 30 days of basic salary for each additional year of service.
This is the way gratuity is calculated:
- 1 to 5 years: 21 days’ wages per year
- 5+ years: 30 days’ wages per year
Example:
In calculations using the amount paid per month, AED 10,000, the basic salary was worked: 6 years. Since:
- For the first 5 years: 5 x 21 days = 105 days of basic salary.
- For the remaining 1 year: 1 x 30 days = 30 days of basic salary.
- Total days = 105 + 30 = 135 days of the salary.
- Gratuity = (135 days ÷ 30) x 10,000 AED = AED 45,000
What is the Impact of Resignation on Gratuity?
According to the UAE Labor Law, if an employee voluntarily quits before fulfilling a one-year service term, they are not entitled to gratuity. However, if an employee has worked for more than a year, they will receive a gratuity amounting to reduced gratuity according to years worked in the organization.
In Case of Resignation:
- Less than 1 Year: No gratuity.
- More than 1 Year: Employees are entitled to gratuity but calculated in proportion to years worked.
- For instance, if someone resigns after 2 years, he would get 42 days of salary instead of 21 for one year of work.
What Happens to Gratuity in Case of Dismissal?
Employees who have been dismissed for reasons other than gross misconduct have the right to gratuity. In case of wrongful termination, the employee qualifies for the total gratuity.
In gross misconduct as defined by the UAE Labor Law, an employee loses the right to a gratuity. It is the duty of the employees and employers alike to define forfeiture clauses clearly so far as gratuity is concerned.
What Are the Exceptions in Gratuity Calculation?
Though in the majority of cases, gratuity is granted to employees, there are strange instances defined under the UAE Labor Laws.
- Discharge on Account of Gross Misconduct: An employee who has been discharged on account of gross misconduct shall not be entitled to gratuity.
- Part-Time and Temporary Workers: Employees who are working part-time or under a temporary contract are not generally entitled to gratuity.
- Foreign Workers Leaving the UAE: Foreigners must settle residency formalities before they are entitled to gratuity. Their gratuity is supposed to be paid immediately upon exit from the UAE.
These exceptions can be immensely important for understanding employees and employers dealing with issues of gratuity.
Gratuity for Emirati and Expatriate Workers
All Emirati citizens and expatriate employees can enjoy gratuity payments from employees. However, the way a certain worker earns or receives gratuity may differ between worker types.
Differences between Emiratis and Expatriates:
- Emiratis: In addition to the normal gratuity, these employees are entitled to additional benefits through the pension and social security schemes by which the UAE Government funds.
- Expatriates: Expatriates are not entitled to pension benefits from the government; therefore, they are entitled to gratuity, as provided under the UAE Labor Law.
Regardless of such differences, gratuity is one of the most important components of an employee’s salary package in both cases.
How to Claim Your Gratuity in the UAE?
It is a very simple process to claim gratuity in the UAE, but the steps must be ascertained duly to avoid delays or disputes. Here is how the whole thing works:
- Date of End of Employment: Upon termination or resignation, the gratuity of the employee is calculated by the employer.
- Verification: The employer verifies the employee’s period of service, basic salary, and any deductions for the employee’s behavior.
- Payment: Gratuity is usually paid at the same time as the final salary, and the employee can choose to receive it either in cash or by bank transfer.
The employee can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) if the gratuity is not calculated properly or fairly.
Gratuity Calculation for Different Types of Contracts
In the UAE, employees are working under two main types of employment contracts, i.e., limited contracts and unlimited contracts. The rules for gratuity calculations differ slightly for the two.
For limited contracts:
- If contract termination takes place before the date of completion of the contract, part of the gratuity might be forfeited by the employee depending upon his length of service.
For unlimited contracts:
- Complete gratuity is granted to the employees for the actual years of working regardless of contract termination by the employer or resignation by the employee.
Understanding these distinctions will clear up what gratuity an employee stands to get.
FAQs
1. Who is eligible for gratuity in the UAE?
Employees who have completed at least one year of continuous service with the same employer are eligible for gratuity under UAE labor law.
2. Is gratuity based on total salary or basic salary?
Gratuity is calculated based only on the employee’s basic salary, excluding allowances like housing, transport, or bonuses.
3. What happens to my gratuity if I resign?
If you resign after completing one year, you are still eligible for gratuity, but the amount may be reduced depending on your total length of service.
Conclusion
The gratuity is one of the important entitlements introduced in the UAE as a symbol of the government’s endeavor to protect workers’ financial rights. It is important for both the employers and the employees to be aware of the gratuity laws, how calculations are made, and variances surrounding termination, resignation, and contract types.
When employees realize what their gratuity will be, they will be able to financially plan for their future upon exit from employment. Employers must apply the gratuity laws to be legally sound and to maintain good employment relations.
Under the aegis of the UAE Labor Law, the two parties can thus ensure correct and fair computation and payment of gratuity.