What is End of Service Gratuity in UAE?
End of service gratuity in the UAE is a legally required payment given to employees who complete at least one year of continuous service. It is calculated based on the employee’s basic salary and years of service under 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 how to use an end of service calculator UAE, the applicable legal framework, and key considerations for both employees and employers when calculating gratuity under UAE labour law.
UAE Gratuity Calculator (2026 Updated Formula for Private Sector Employees)
Use this simple formula to estimate your gratuity:
Gratuity = (Basic Salary ÷ 30) × Gratuity Days × Years of Service
Gratuity Days:
- 21 days (for 1–5 years)
- 30 days (for 5+ years)
The total gratuity cannot exceed 2 years’ salary.
This formula is widely used in any gratuity calculator UAE 2026 to estimate end-of-service benefits accurately based on basic salary and years of service.
UAE Gratuity Formula Breakdown
As per UAE Labour Law (Federal Decree-Law No. 33 of 2021), gratuity is calculated based on the employee’s last basic salary (excluding allowances such as housing, transport, and bonuses).
Step 1: Calculate Daily Wage
Daily Wage = Basic Salary ÷ 30
Step 2: Apply Based on Years of Service
For Service Up to 5 Years:
- 21 days’ basic salary for each year of service
For Service Above 5 Years:
- 21 days’ salary for the first 5 years
- 30 days’ salary for each additional year
Step 3: Apply the Full Formula
Gratuity = (Basic Salary ÷ 30) ×
[(21 × Years up to 5) + (30 × Years above 5)]
The total gratuity cannot exceed two years’ salary under UAE labour law.
This structured approach is commonly used in advanced end of service calculator UAE tools to ensure accurate results.
How to Calculate Leave Salary in UAE
In addition to gratuity, employees in the UAE are entitled to receive payment for any unused annual leave at the time of contract termination. This is commonly referred to as leave salary.
Leave Salary Formula
Leave Salary = (Basic Salary ÷ 30) × Number of Unused Leave Days
Key Considerations
- Leave salary is calculated based on basic salary only, unless stated otherwise in the contract
- It applies to unused accrued annual leave
- It must be paid along with gratuity and final settlement
Example
An employee earning AED 12,000 basic salary with 10 unused leave days:
(12,000 ÷ 30) × 10 = AED 4,000
This is typically calculated alongside gratuity in a complete leave salary and gratuity UAE settlement.
Gratuity on Resignation vs Termination in UAE
One of the most common concerns for employees searching for UAE gratuity law private sector is whether gratuity differs based on how employment ends. Under the current UAE Labour Law, the calculation method is generally consistent, but certain conditions may influence entitlement.
Resignation
Employees who voluntarily resign after completing at least one year of service are entitled to gratuity. The calculation follows the standard 21/30-day structure.
Termination
Employees terminated by the employer are also entitled to gratuity, provided eligibility criteria are met. Employers must settle payments within the legal timeframe.
Important Notes
- Termination due to gross misconduct may result in loss of gratuity
- Gratuity is always calculated based on basic salary and years of service
- Legal context of termination should be reviewed carefully
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 our expert lawyers at Davidson & Co. for personalised guidance and support. Our team can help you navigate the complexities of UAE labour law and ensure you receive your full entitlements.
Frequently Asked Questions on UAE End of Service Benefits
Is gratuity mandatory in UAE?
Yes, gratuity is mandatory for employees in the UAE private sector who complete at least one year of continuous service, as per UAE labour law.
Is leave salary included in gratuity?
No, leave salary is calculated separately from gratuity. It is paid for unused annual leave and is included in the final settlement along with gratuity.
When should gratuity be paid?
Employers are legally required to pay gratuity within 14 days from the employee’s last working day.
What is the maximum gratuity limit in UAE?
The total gratuity amount cannot exceed the equivalent of two years’ basic salary under UAE labour law.
How can I calculate my gratuity in UAE?
You can calculate gratuity using a standard formula or by using a reliable gratuity calculator UAE 2026, which estimates your end-of-service benefits based on your basic salary and years of service.
Do I get gratuity if I resign in UAE?
Yes, employees who resign after completing at least one year of continuous service are entitled to gratuity. The calculation follows the same structure as per UAE labour law, unless termination involves misconduct.
How is gratuity calculated for 2 or 3 years in UAE?
For service periods under 5 years, gratuity is calculated as 21 days’ basic salary for each year of service. This method is used in most end of service calculator UAE tools.
Is gratuity calculated on full salary or basic salary?
Gratuity is calculated only on the basic salary. Allowances such as housing, transport, bonuses, and commissions are not included.
Last updated: 17th April, 2026
