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How to Calculate Gratuity in the UAE?  

Gratuity Calculator

 According to the UAE Labor Law, workers working in the UAE are entitled to be paid by their employer at the end of the work as long as one year of service is completed. No remuneration will be paid if an employee resigns or is terminated before one year of employment.

Important Items to Count Gratuity:

Type of contract:

In the UAE, there are two types of employment contracts namely limited and unlimited. The rules regarding calculating gratuity under both types of contracts are different and are discussed below in detail.

Basic basic income:

The minimum wage that will be used as a basis for calculating debt but any other bonus and allowances such as housing, relocation, over time, children’s education, etc. should not be included in gratuity calculations.

Work time:

At least one year of employment must have been completed for gratuity.

Please also note that Gratuity calculations should be based on ongoing employment. In other words, if an employee was absent without pay during his or her working hours, that time should not be considered in accounting for debt. However, please note that the above gratuity calculator assumes that there is continuous service between the first and last working day. Therefore, in cases where employment is not ongoing, the gratuity calculator will need to be adjusted accordingly.

How Does the Gratuity Calculator Work?

There are two types of employment contracts in the UAE namely Limited Contract and Unlimited Contract. The law for calculating gratuity under both types of contracts is set out below:

Calculates Extra Contract Amount:

Cancellation

An employee who has an unlimited contract and resigns will apply the following rules in accounting:

  • cancellation before 1 year of service, to which you are not entitled to receive additional funding.
  • By resigning between 1 and 3 years of service, the employee is entitled to one-third of the 21-day basic wage each year as a period of employment.
  • resignation between 3 and 5 years of service, an employee is entitled to two-thirds of the 21-day basic salary for each year as a period of employment.
  • resignation after 5 years of service, the employee is entitled to 21 days’ basic salary for the first 5 years of employment and a 30-day basic salary for each additional year.
Termination

For an employee with an unlimited contract and his or her employment terminated by the employer then the following rule will apply to calculating gratuity:

  • termination before 1 year of service, the employee is not entitled to any additional compensation.
  • for completion within one year but less than 5 years of service, a credit calculation must be made as a basic 21-day wage for each service year.
  • completion after more than 5 years of service, gratuity calculation should be done as a basic 30-day salary for each service year after the first 5 years and a 21-day basic salary for the first 5 years.
  • The amount of the loan should not exceed the basic salary for two years.

Calculates the Limited Contract Gratuity:

An employee with a limited contract will apply the following rules in calculating debt:

  • The term of employment is less than 1 year, the employee is not entitled to any additional pay.
  • For a period of employment between 1 to 5 years, an employee is entitled to an income-based on 21 days’ salary for each working year.
  • For more than 5 years, an employee is entitled to a 30-day wage for each working year after the first five years and a 21-day basic wage for each of the first five years.
  • The total amount of the loan should not exceed two years of basic salary.

The above gratuity calculator assumes that the employee terminated his or her temporary employment contract.

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