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End of Service Calculator: Gratuity and Leave Salary in UAE Labour Law

Understanding your end-of-service benefits is crucial when working in the UAE’s private sector. These benefits represent a significant portion of your total compensation and are protected by UAE labour law. This article provides a comprehensive guide to end-of-service entitlements, covering the traditional gratuity system, the new Savings scheme, and variations for different employment types. 

We’ll cover the end-of-service calculator in UAE labour law, framework, and key considerations for both employees and employers.

Traditional End-of-Service Gratuity

UAE Nationals

Emirati employees in the private sector are covered by a separate system of pensions and social security, governed by specific legislation. For detailed information on these benefits, consult the relevant government resources.

Foreign Workers

  • Eligibility: To qualify for end-of-service gratuity, foreign workers must complete at least one year of continuous service with their employer.
  • Calculating “Last Wage”: The gratuity calculation is based on your “last wage,” which refers to your basic salary. Allowances such as housing, transport, and utilities are not included in this figure.
  • Employer Deductions: If you owe any outstanding debts to your employer, they have the right to deduct these amounts from your gratuity payment.
  • Payment Deadline: Your employer is legally obligated to pay your end-of-service benefits within 14 days of your employment contract’s termination date.

Gratuity Calculation Breakdown

  • Less than 1 year of service: No gratuity payment.
  • 1 to 5 years of service: 21 days’ salary for each year of service.
  • Over 5 years of service: 21 days’ salary for each of the first 5 years, plus 30 days’ salary for each year of service beyond the first 5 years.
  • Maximum Limit: The total gratuity payment cannot exceed the equivalent of two years’ salary.

Illustrative Examples

  • Example 1: An employee with a basic salary of AED 10,000 who has worked for 3 years would receive a gratuity of AED 63,000 (10,000 / 30 x 21 x 3).
  • Example 2: An employee with a basic salary of AED 15,000 who has worked for 7 years would receive a gratuity of AED 135,000 [(15,000 / 30 x 21 x 5) + (15,000 / 30 x 30 x 2)].

The New Savings Scheme

The UAE government recently introduced the Savings scheme, a voluntary alternative to the traditional end-of-service gratuity system. This scheme allows employees to invest their end-of-service benefits in approved funds, potentially earning returns and safeguarding their savings from inflation.

Objectives and Scope

The Savings scheme aims to:

  • Protect employees from the risks of inflation, employer default, and bankruptcy.
  • Encourage employee participation in the UAE’s economic growth through investment.

This scheme applies to both private sector and free zone employees.

Investment Options

The Savings scheme offers a range of investment options to cater to different risk appetites and preferences. These include:

  • Sharia-compliant funds
  • Capital guarantee portfolios (risk-free investments suitable for unskilled workers)
  • Various other investment portfolios with varying levels of risk and potential return

Daman Investments is one of the approved providers under the Savings scheme. You can learn more about their End of Service Programme on their website.

Employer Participation

Employers wishing to participate in the Savings scheme must:

  • Submit a request to the Ministry of Human Resources and Emiratisation (MoHRE).
  • Select and contract with an investment fund licensed by the Securities and Commodities Authority (SCA).
  • Determine which employee categories and levels will be included in the scheme.

Once enrolled in the scheme, employers must:

  • Discontinue the traditional gratuity system for participating employees.
  • Ensure the preservation of employees’ accrued entitlements from the previous system.
  • Make monthly contributions to the chosen investment fund on behalf of their employees.

Contribution Structure

  • Basic Subscription Fees:
    • 5.83% of the employee’s monthly basic salary for employees with less than 5 years of service.
    • 8.33% of the employee’s monthly basic salary for employees with 5 or more years of service.
  • Payment Deadline: Contributions must be transferred to the investment fund within 15 days of the beginning of each calendar month.
  • Voluntary Contributions: Employees can choose to make additional voluntary contributions to their investment fund, either through regular instalments or lump sum payments. These contributions cannot exceed 25% of their total annual salary.

Employee Entitlements

Upon termination of employment, employees are entitled to:

  • All basic subscription amounts contributed by their employer.
  • Any investment returns generated during their participation in the scheme.

These funds must be paid to the employee within 14 days of their last day of work. Employees also have the option to continue investing in the scheme after leaving their employment.

Employees can withdraw part or all of their voluntary contributions and their investment returns at any time during their employment, subject to the terms and conditions set by the fund manager.

Scheme Supervision

The Savings scheme is jointly monitored and supervised by:

  • MoHRE: Responsible for receiving and investigating labour complaints related to the scheme.
  • SCA: Addresses complaints regarding the performance of investment fund providers.
  • Financial free zone authorities: Oversee and resolve complaints within their respective jurisdictions.

End-of-Service Benefits for Other Employment Types

Part-Time and Other Arrangements

For employees working under part-time contracts or other non-standard work arrangements, the end-of-service gratuity is calculated on a pro-rata basis. This calculation considers the proportion of working hours in the employee’s contract compared to a full-time contract.

Example

An employee with a part-time contract working 20 hours per week, where a full-time contract is 40 hours per week, would receive 50% of the gratuity entitlement calculated for a full-time employee with the same basic salary and length of service.

Summing Up

Understanding your end-of-service benefits is essential for securing your financial future in the UAE. Whether you are covered by the traditional gratuity system or opt for the new Savings scheme, it’s crucial to familiarise yourself with the applicable laws, calculations, and your rights as an employee. Planning for your financial future is a significant undertaking. Don’t hesitate to seek professional advice to ensure you make informed decisions and maximise your benefits.

Do you have further questions about end-of-service benefits in the UAE? Contact the expert lawyers at Davidson & Co. for personalised guidance and support. Our team of legal professionals can help you navigate the complexities of UAE labour law and ensure you receive your full entitlements.

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End of Service Calculator: Gratuity and Leave Salary in UAE Labour Law

Understanding your end-of-service benefits is crucial when working in the UAE’s private sector. These benefits represent a significant portion of your total compensation and are protected by UAE labour law. This article provides a comprehensive guide to end-of-service entitlements, covering the traditional gratuity system, the new Savings scheme, and variations

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