For most expatriates in the UAE, end-of-service gratuity is the biggest lump sum they will receive from an employer. It can easily be worth several months’ salary, yet many people only find out how it is calculated when they are serving notice. Knowing the formula early helps you check your final settlement, negotiate a job offer, and plan what to do with the money.
This guide covers the rules for private-sector employees under the current UAE Labour Law, works through four complete examples, explains how resignation, unpaid leave and the cap affect the figure, and briefly compares Saudi Arabia.
The legal basis
Gratuity is set by Article 51 of Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations, which came into force on 2 February 2022 and replaced the 1980 law. It applies to foreign employees in the mainland private sector and most free zones. UAE nationals are covered by the pension and social security system instead. The Ministry of Human Resources and Emiratisation (MOHRE) handles complaints if gratuity is not paid.
The rules in one place
- Eligibility: at least one year of continuous service. Nothing is payable under one year.
- Wage used: your last basic monthly salary. Allowances are excluded.
- Daily wage: basic monthly salary Ă· 30.
- First five years: 21 days of basic wage for each year.
- After five years: 30 days of basic wage for each additional year.
- Part years: paid pro rata, once you have completed the first year.
- Unpaid leave: days of unpaid leave or absence are not counted as service.
- Cap: total gratuity cannot exceed two years’ wage (in practice, 24 months of basic salary).
| Service period | Days of basic wage earned | Equivalent in months of basic |
|---|---|---|
| Under 1 year | 0 | 0 |
| 1 year | 21 | 0.7 |
| 3 years | 63 | 2.1 |
| 5 years | 105 | 3.5 |
| 7 years | 165 | 5.5 |
| 10 years | 255 | 8.5 |
| 15 years | 405 | 13.5 |
| 25 years | 705 | 23.5 |
| 26+ years | Capped at 720 | 24 (cap) |
The table is the fastest way to sanity-check a settlement: multiply the “months of basic” figure by your basic salary.
Worked examples
Example 1: 3 years on AED 6,000 basic
- Daily wage: 6,000 Ă· 30 = AED 200
- Gratuity: 200 Ă— 21 days Ă— 3 years = AED 12,600
Example 2: 7 years on AED 10,000 basic
- Daily wage: 10,000 Ă· 30 = AED 333.33
- First five years: 5 Ă— 21 Ă— 333.33 = AED 35,000
- Next two years: 2 Ă— 30 Ă— 333.33 = AED 20,000
- Total: AED 55,000, far below the cap of 24 Ă— 10,000 = AED 240,000
Example 3: 4 years 6 months on AED 8,000 basic
Part years count once you pass one year, so 4.5 years is used in full.
- Daily wage: 8,000 Ă· 30 = AED 266.67
- Gratuity: 4.5 Ă— 21 Ă— 266.67 = AED 25,200
Example 4: 8 years with 73 days of unpaid leave, AED 15,000 basic
- Unpaid leave removes 73 days, or 0.2 of a year, so countable service is 7.8 years
- Daily wage: 15,000 Ă· 30 = AED 500
- First five years: 5 Ă— 21 Ă— 500 = AED 52,500
- Remaining 2.8 years: 2.8 Ă— 30 Ă— 500 = AED 42,000
- Total: AED 94,500, versus AED 97,500 had there been no unpaid leave
When the cap applies
The two-year cap only matters for long service. Someone on AED 20,000 basic with 27 years would otherwise earn (5 Ă— 21) + (22 Ă— 30) = 765 days, or AED 510,000. The cap limits this to 24 Ă— 20,000 = AED 480,000. In practice the cap starts to bite after about 25.5 years.
How service is counted
Most disputes over gratuity are not about the formula but about the service period. A few points help:
- Start date: service normally runs from the first day you actually started work under the employment contract, including any probation period.
- End date: your last working day, including the notice period you served. If you were paid in lieu of notice, check your settlement letter for the date used.
- Continuity: gratuity is based on continuous service with the same employer. A contract renewal with no break is usually treated as continuous; a gap where you left and were rehired may not be.
- Unpaid leave: subtract the days. Paid annual leave and paid sick leave still count as service.
Converting days into years is simple: divide the countable days by 365. Two people with the same start date can end up with different gratuity because one took a month of unpaid leave, so it is worth keeping copies of leave approvals.
Checking your final settlement
- Confirm the basic salary used is your last basic, not an earlier one or your gross package.
- Confirm the start and end dates, and the number of unpaid leave days deducted.
- Recalculate using the 21-day and 30-day rules and compare with the employer’s figure.
- Check that other final dues are listed separately: unpaid salary, encashment of unused annual leave and, where it applies, a repatriation ticket.
- If something is wrong, raise it in writing with HR first. If it is not resolved, you can contact MOHRE through its website, app or call centre.
Resignation vs termination under the 2021 law
Under the old 1980 law, employees on unlimited contracts who resigned early lost a third or two thirds of their gratuity. Under the 2021 law, those resignation reductions no longer apply in most cases: if you have completed at least one year and resign with proper notice, you are generally entitled to the same gratuity as someone whose contract was ended by the employer. All mainland contracts are now fixed-term, which removed the old limited/unlimited distinction that drove the reductions.
A few things can still reduce what you actually receive:
- Amounts you owe the employer. The law allows deductions of sums legally due, such as an unpaid loan or salary overpayment.
- Not serving notice. Leaving without the agreed notice can mean you owe the employer pay in lieu of notice, which may be offset against your settlement.
- Alternative schemes. Some employers have moved staff into an approved end-of-service savings scheme, in which case your benefit follows that scheme’s rules.
DIFC, ADGM and other exceptions
The Dubai International Financial Centre and Abu Dhabi Global Market have their own employment laws. DIFC replaced traditional gratuity with a defined-contribution workplace savings scheme, and ADGM has its own end-of-service rules. If your employer is registered in either, the federal formula above does not apply directly. Domestic workers and government employees are also covered by separate rules.
Saudi Arabia in brief
The Saudi Labor Law takes a different approach. The end-of-service award is half a month’s wage for each of the first five years and a full month’s wage for each year after that. It is based on the full wage rather than basic only, unless your contract lawfully excludes some allowances, and there is no two-year cap.
Resignation reduces the award:
| Service when resigning (Saudi Arabia) | Share of award |
|---|---|
| Under 2 years | None |
| 2 to 5 years | One third |
| 5 to 10 years | Two thirds |
| 10 years or more | Full award |
Example: on SAR 10,000 for 7 years, the full award is (5 Ă— 5,000) + (2 Ă— 10,000) = SAR 45,000. If the contract ends or the employer terminates, that is what is paid. If the employee resigns, they get two thirds, or SAR 30,000. Our gratuity calculator has a Saudi mode that applies these rules.
Common mistakes
- Using gross salary. Applying the formula to your package including housing can overstate gratuity substantially, since allowances often make up a large share of UAE pay. Check your contract for the basic figure.
- Using 21 days for every year. Years after the fifth earn 30 days. On 10 years that difference is 45 days of pay.
- Dividing by 26 or 22. The UAE daily wage for gratuity is basic Ă· 30.
- Ignoring unpaid leave. Long unpaid breaks reduce service. Keep records of leave approvals.
- Assuming resignation wipes out gratuity. That was the old law. Under the 2021 law, one full year and proper notice generally protect it.
- Mixing up countries. Saudi rules on resignation and wage base are different; do not apply UAE figures to a Riyadh contract or vice versa.
Planning with your gratuity
Many expats use their gratuity to clear debt or fund a move home. If you are weighing a lump-sum loan repayment, the loan EMI calculator shows how much interest you would save. Pakistani professionals comparing a Gulf offer with a job at home can see what the same salary would net in Pakistan in our Pakistan salary tax guide, and anyone planning to freelance after returning should read our guide to freelancer tax in Pakistan.
Summary
Take your last basic salary, divide by 30, and multiply by 21 days for each of the first five years and 30 days for each year after that, pro rata for part years and excluding unpaid leave. Nothing is due under one year, and the total is capped at 24 months of basic. Under the 2021 law, resigning after a year with proper notice generally does not reduce it. For your exact figure, use the UAE gratuity calculator.
Frequently asked questions
How is gratuity calculated in the UAE for 5 years?
For exactly 5 years you get 21 days of basic wage per year, which is 105 days in total. Daily wage is basic monthly salary divided by 30. On a basic salary of AED 9,000 that is 300 Ă— 105 = AED 31,500.
Is UAE gratuity based on basic or total salary?
Basic salary only. Housing, transport and other allowances are excluded, and the calculation uses the last basic wage you received.
Do I lose gratuity if I resign in the UAE?
Under the 2021 Labour Law, an employee with at least one year of continuous service is generally entitled to full gratuity on resignation, as long as the notice period is properly served. The one-third and two-thirds reductions from the old 1980 law no longer apply.
Is gratuity paid if I worked less than one year?
No. Gratuity in the UAE private sector requires at least one year of continuous service. Once you pass one year, part years after that are paid pro rata.
How long does an employer have to pay gratuity in the UAE?
Final dues, including gratuity, are generally due within 14 days of the end of the contract. If they are not paid, you can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE).
Does the same formula apply in DIFC and ADGM?
No. DIFC and ADGM have their own employment laws, and DIFC replaced traditional gratuity with a workplace savings scheme. Check the rules of your free zone or your employer's savings scheme.
This guide is general information, not professional advice. Rates and rules change — check the official source before you file or sign anything. See our Disclaimer.