How Is Your Gratuity Calculated?
In the UAE, gratuity calculation follows Federal Decree Law No. 33 of 2021, entitling employees with at least one year of service to end-of-service gratuity. The amount is 21 days' basic salary per year for the first five years, rising to 30 days per year thereafter, capped at two years' total salary. For partial years, it's prorated based on completed months. In Saudi Arabia, under the Labour Law, it's one month's salary per year, with similar proration. GCC variations exist, like Oman's 15 days per year. Use your last basic salary as the base, excluding allowances.
Gratuity Formula Under UAE Law
UAE Federal Decree Law No. 33 of 2021 outlines the gratuity formula in Article 51. For employees on unlimited contracts, calculate 21 days' basic salary for each of the first five years of service. From the sixth year onward, it increases to 30 days' basic salary per year. The total cannot exceed two years' basic salary. Basic salary excludes housing, transport, or other allowances—only fixed wage counts. For limited-term contracts, gratuity is half the unlimited rate: 7 days for first five years, 14 days thereafter. Prorate for incomplete years using the formula: (days per year × months worked / 12). If dismissed for gross misconduct under Article 44, no gratuity applies. In Dubai free zones like DIFC, similar rules align with federal law but check zone-specific regulations.
Common Calculation Pitfalls in GCC
A frequent error in UAE is including allowances in the basic salary base, violating Article 51 of Federal Decree Law No. 33 of 2021—only core pay qualifies. In Saudi Arabia, the Labour Law requires one month's final wage per year, but probation periods over three months delay eligibility. For tenants or part-time workers in Dubai under RERA Law No. 26 of 2007 for rental disputes, gratuity ties to employment status, not tenancy. Watch for contract clauses like 'no gratuity if terminated early'—these must comply with law or they're void. Example: An employee earning AED 10,000 basic salary with 3.5 years service gets (21 × 3.5 × 10,000 / 30) = AED 24,500, but miscalculating partial year drops it to AED 21,000. In Qatar, Law No. 14 of 2004 caps at three years' salary, differing from UAE's two-year limit. Verify service continuity, as breaks reset the clock.
Key Points
- • UAE Article 51: 21 days' basic salary for first five years of service.
- • From year six, UAE gratuity rises to 30 days' basic pay annually.
- • Saudi Labour Law: One full month's final salary per completed year.
- • Prorate partial years by months worked divided by 12 in UAE calculations.
- • Upload contracts to TenderScan AI for instant gratuity clause extraction and legal compliance check.
Calculate Your Gratuity Accurately Today
Upload your employment contract to TenderScan AI for AED 99 and receive a detailed breakdown of your gratuity entitlement, highlighting UAE Labour Law compliance, potential shortfalls, and custom calculations based on your exact terms.
Upload Contract — AED 99Frequently Asked Questions
What if my UAE contract specifies a different gratuity rate?
Under Federal Decree Law No. 33 of 2021, any contract clause offering less than the statutory minimum (21/30 days' basic salary) is invalid—law prevails. Higher rates are enforceable if clearly stated. For example, a clause promising 25 days from year one binds the employer. In free zones like ADGM, align with federal baselines unless specified otherwise. Always cross-reference with your service duration for accurate totals.
How does gratuity work for fixed-term contracts in Dubai?
For limited-term contracts in Dubai, UAE law halves the gratuity: 7 days' basic salary per year for the first five years, 14 days thereafter, per Article 51. If the contract ends naturally, full eligibility applies after one year. Early termination by employer without cause entitles full rate; employee resignation may forfeit if under one year. RERA doesn't directly apply to employment but ensures rental addendums don't interfere with labour rights.
Is gratuity taxable in the UAE or Saudi Arabia?
Gratuity is tax-free in the UAE under current federal regulations, with no income tax on end-of-service benefits. In Saudi Arabia, it's also exempt from zakat and income tax for residents. However, for expats, home country rules may apply upon repatriation. Calculate using basic salary only to avoid disputes—totals up to two years' pay in UAE remain non-taxable, ensuring full retention of your entitlement.