How to Calculate Gratuity in UAE?

Introduction

Gratuity is a custom in most countries, and it is customary to give some appreciation or token of thanks to someone who has done an extraordinary job for you. However, in UAE, gratuity calculation can be complex due to the different benefits employees receive at the end of their service. In this article, we will outline how gratuity should be calculated in UAE based on the other benefits an employee may receive at the end of their service. We also provide tips on how to present these gifts appropriately so as not to offend the benefits of gratuity in UAE.

A complete list of benefits available to employees at the end of their service can vary, but some common ones include retirement savings plans, medical insurance, and a bonus. Each benefit is different, and it is essential to consult a financial advisor or human resources department to determine what type of gratuity would apply based on the individual situation.

The following are general tips when calculating gratuity for employees in UAE,

The gratuity amount should reflect the years of service the employee gives. For example, if an employee has served three years, the gratuity would be three times the average salary.
The gratuity should also take into account any bonus or other awards that have been given to the employee during their service.
Gratuity should be paid in cash or by check, not deposited directly into an employee’s bank account. This will ensure that it is available when they want to retire and draw on their retirement savings plan.

Presenting a gift of gratuity in UAE

When a gift of gratuity is being presented to an employee in UAE, it is important to remember the following tips:

The gratuity should be presented as a surprise. Ideally, it should be given at the end of an employee’s final day of service.
The gift should be at most 10% of the employee’s salary.
It is appropriate to give a monetary gift or presents linked to the employee’s culture and hometown (i.e., flowers from their home country).

Gratuity in UAE Labour Law

Under UAE labour law, gratuity is considered an employee benefit and must be paid by the employment contract terms. In most cases, gratuity is calculated as a percentage of salary and should be paid on termination of service (unless agreed to otherwise in writing). Complications may arise if an employee has been dismissed for disciplinary reasons but was not given notice or pay instead of notice. The dismissal will likely entitle the employee to gratuity based on their length of service at the time they were made redundant.

Gratuity for Limited Contract

In some cases, gratuity may also be payable for limited contract employees. This is typically the case if an employee has worked for a particular company for a fixed period but has yet to have an ongoing contract or when their contract expires, and they are not offered another job with the same salary or benefits. In these instances, gratuity may only be payable by terms of the original employment agreement (e.g., pay in lieu of notice).

Gratuity for Unlimited Contract

Under UAE labour law, gratuity is not payable for unlimited contract employees. This means that an employee with a fixed-term contract but no end date or an indefinite contract (i.e., without a fixed term) will not be entitled to gratuity.

How to Check Gratuity in UAE?

If you are an employee in the UAE and would like to know how much gratuity you are entitled to, there are several ways that you can check. First, you can contact your labour law adviser or legal counsel, who will be able to help guide you through the process. Alternatively, you can request a salary calculation from your employer detailing gratuity entitlements and other bonuses and benefits. If this information is unavailable or there have been changes to your employment contract affecting gratuity entitlement, it is advisable to seek independent legal advice.

A worker is entitled to full gratuity pay based on 21 days of salary for each year of service, even if they have worked for less than five years. After the first five years of employment, a person who has worked for longer than that is entitled to a full gratuity of 30 days’ pay. If you are an employee in the UAE who would like to calculate your gratuity entitlement, there are several ways you can do this.

You can calculate your gratuity entitlement based on the years of service you have accrued. Alternatively, you can use a salary calculator to determine how much gratuity you are entitled to for a specific period (e.g., 1 year, 3 years). Suppose you need more than these options. In that case, it may be advisable to seek independent legal advice to ensure that your gratuity entitlement has been correctly calculated.

How to Calculate Gratuity in UAE for Unlimited Contract?

No set number of years of service constitutes a “full” term of employment in the UAE. If you have an unlimited contract, your employer can hire and fire you anytime without giving notice or paying severance compensation. As such, gratuity calculation for employees with unlimited contracts is not straightforward, as there is no guarantee of continuous service over a specific time. In this case, seeking independent legal advice concerning gratuity entitlement and calculations may be advisable.

Maximum Gratuity in UAE

The gratuity paid to an employee in the UAE is based on a 21-day salary for each year of service, plus 30 days’ pay if employed for over 5 years. If you have worked for more than 5 years and your gross salary exceeds AED 200,000 per month (approximately USD 57,600), then your employer must pay you a total gratuity of 40 days’ pay instead of 21 days multiplied by 30 days. Gratuity Calculation in the UAE

There are a few ways that you can calculate gratuity according to your salary and years of service in the UAE:

Use a calculator to determine how much gratuity is due based on years of service and gross salary earned.
Calculate your gratuity entitlement using a percentage of gross salary, which considers average monthly salaries in the Emirates and longevity bonuses typically given by employers (these percentages vary depending on company culture). For example, if you have worked for 3 years with an annual salary of AED 200,000, your gratuity entitlement would be 7.5% of your gross salary (AED 17,500), which equals AED 3,125.
Ask your employer for a gratuity calculation sheet outlining specific terms and conditions in the UAE. This document may also include information on overtime pay and other compensation benefits you are entitled to receive upon termination of employment.

Housemaid Gratuity in UAE

Housemaids in the UAE are not legally entitled to a gratuity, and employers rarely provide one. Most maids receive around USD 160 per month (approximately AED 4,000), plus food and accommodation. If you have worked for more than 12 months, your employer may give you an additional allowance of USD 30 per month (AED 100).

Conclusion

In short, gratuity in UAE is calculated on gross salary and includes overtime pay and other bonuses. It can be paid as a lump sum or monthly instalments after a year of service. The employee is entitled to receive a gratuity of 15 days’ salary for every year of service, irrespective of the number of years since termination. This would be equivalent to a total gratuity payment of 45 days’ salary on terminating without notice.

FAQ – How to Calculate Gratuity in UAE?

Is gratuity calculated on basic salary?

No, gratuity is calculated on gross salary. This means that overtime pay and other bonuses are included when calculating gratuity entitlement.

How much is gratuity in 5 years?

The gratuity payable in 5 years is calculated based on service rendered for the last five years and gross salary earned during that time.

Who is eligible for new gratuity rules 2022?

Every employee who has completed a minimum of 12 months of service with the same employer will be covered under gratuity regulations promulgated from September 1, 2022.

What is the gratuity payable in cases of termination?

In case of termination where no notice is given, the periodic salary will constitute the basis for calculating the gratuity amount payable to an employee, whether pre-termination or post-termination.

Is gratuity calculated on monthly or yearly?

Gratuity is based on a year’s service.

Why is gratuity 15 by 26?

The gratuity of 15 is calculated based on a year’s service. Therefore, the gratuity payable in cases of termination will be 26 percent, that is, 2/12th or AED 36 per month (with effect from September 1, 2022), as an increase over a periodical salary basis.