Gratuity for salaried employees in UAE and how to calculate it!

By Sakshi Srivastav - 11 Aug 2021 Last Updated: 18 Sep 2021
Gratuity for salaried employees in UAE and how to calculate it!

Gratuity is a one-time payment made by an employer to an employee as a show of appreciation for their contributions to the firm. It's critical to understand an employee's eligibility and the amount of gratuity he or she will earn. It is one of the components of a remuneration package. It is given to employees who have worked for the company for more than a year in a row. It is typically given at the conclusion of a company's service. In the United Arab Emirates, gratuity is accepted by the majority of businesses.

Different types of Employment Contracts in UAE

Every organization typically follows one of two types of contracts. There are two types of contracts: limited contract and unlimited contract.

Limited Contract

  • Employees that sign a limited contract agree to work for the company for a set period of time. Both parties have the option to terminate or extend the contract based on mutual agreement.

Unlimited Contract

  • The term "unlimited" refers to the fact that no specific time period is specified. An employee can offer his services for as long as he wants if both parties agree.

How do you calculate Gratuity in the United Arab Emirates?

In the United Arab Emirates, gratuity is calculated in a straightforward manner.

Limited Contract

  • If an employee has worked for the company for 1-5 years, 21 days salary is determined each year.
  • If an individual has worked for the company for more than 5 years, 30 days of salary is counted each year.

Gratuity computation in UAE for limited contract

  • Calculate the daily compensation based on the company's service.
  • Your annual gratuity will be calculated by multiplying it by 21 or 30 (depending on total service).
  • Multiply it by the amount of years you've worked there.

Let's say the starting wage is AED 15000 and the employee has been with the company for three years.

  • Calculate your daily wage as follows: 15000/30 = 500
  • Multiply by 21 (if you haven't worked for more than 5 years): 500 multiplied by 21 equals 10500.
  • Multiply that by the amount of years you've spent with the company: 10500 multiplied by three equals 31500.

As a result, you will receive a gratuity of AED 31500.

Unlimited Contracts

  • If an individual has worked for the company for 1-3 years, 13 of 21 days salary is counted each year.
  • If an employee has worked for the company for three to five years, the company considers and calculates two-thirds of a year's wage.
  • If an individual has worked for the company for more than 5 years, 30 days of salary is counted each year.
  • In the UAE, the computation of gratuity in the event of resignation differs from the calculation in the event of termination. If an employee is fired from a company with no complaints, the company considers and calculates 30 days of salary each year.

Gratuity computation in UAE for unlimited contract

  • Calculate the per-day salary based on the services provided by the company.
  • Your annual gratuity will be calculated by multiplying it by 21 or 30 (depending on total service).
  • Take a third or a quarter of the total (depending on the tenure)
  • Multiply it by the amount of years you've worked there.                                                                                      

Let's say the starting wage is AED 15000 and the employee has been with the company for three years.

  • Calculate daily wage: 15000/30 = 500
  • Multiply with 21(as worked for less than 5 yrs): 500*21 = 10500
  • Take ⅔ of the annual gratuity calculated: ⅔*10500 = 7000
  • Multiply it with the number of years worked in the organization: 7000*3 = 21000

As a result, you will receive a gratuity of AED 21000

In the UAE, there are a few things to keep in mind while calculating gratuity.

  • Gratuity is not available to employees who have worked for the company for less than one year.
  • According to Article 132 of the UAE Labour Law, gratuity will not exceed two years' wages.
  • Only basic salary will be used when computing gratuity, according to Article 134 of the UAE Labour Law. There are no allowances for food, transportation, or other expenses.
  • According to Article 135 of the UAE Labour Law, if an employee borrows money from the company, the employer can remove that amount from the gratuity.
  • Expats are entitled to a gratuity, but not to a pension.

Eligibility Criteria for Gratuity in UAE

You can forfeit your end-of-service gratuity if you do a few things. Like-

  • If a worker leaves the company before the contract expires, he will not be eligible for a gratuity unless he has worked for the company for more than five years.
  • If he quits the company without giving any notice,
  • When it comes to providing forged documents to the organisation,
  • If the employee causes the company to suffer any material loss or damage, the worker will be fired.
  • If a worker fails to meet the organization's basic requirements

Conclusion

Regardless of the contract form, an employee who has worked for an employer for more than a year is entitled to gratuity under UAE labour law. Each employee's gratuity is different, depending on their income and contract type. Hence we hope with the help of the information devised by our Experts at Dhanguard, you will be able to understand and calculate Gratuity without any hassle. We hope this blog provided you with incite full information. For more information on other related aspects, feel free to check out our Website as well.

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