Navigating the complexities of gratuity calculation in the UAE can be challenging, yet it’s crucial for expatriate workers seeking to understand their entitlements. The UAE labor law provisions offer a financial safety net for expats, marking the end of their employment contracts with a gratuity payment. This article unfolds the essential guidelines and calculations to arm you with the knowledge needed for 2024.
Essential provisions under UAE Labor Law
As per Article 51 of the UAE Labor Law, expatriate workers in the private sector are eligible for gratuity pay, reflecting their service duration and contract types, among other criteria. Key points include:
- Eligibility for gratuity pay starts after completing one year of continuous service.
- Gratuity calculation is based on the worker’s last basic salary, excluding allowances such as transportation and accommodation.
- Employers may deduct any legitimate dues from the gratuity pay.
- End-of-service benefits must be settled within 14 days from employment termination.
Understanding contract types
To calculate your gratuity accurately, first determine if you’re under a limited or unlimited contract:
- Limited Contract: Specifies employment start and end dates, terminating automatically upon expiry.
- Unlimited Contract: Open-ended, allowing termination with mutual consent or after serving a notice period (1 to 3 months).
Gratuity calculation: Limited contracts
- Less than 1 Year: No gratuity for employees resigning or terminated within the first year.
- 1 to 5 Years: Entitled to 21 days’ basic salary per year of service.
- Over 5 Years: Receives 30 days’ basic salary per year of service.
Calculation Method: Divide the monthly wage by 30 to find the daily rate, then multiply by 21 or 30 days, depending on the service period.
Example: A monthly wage of AED10,000 over 4 years equals AED6,999.30 per year (AED10,000 ÷ 30 x 21).
Gratuity calculation: Unlimited contracts
- Less than 1 Year: No gratuity entitlement.
- 1 to 3 Years: One-third of 21 days’ salary.
- 3 to 5 Years: Two-thirds of 21 days’ salary.
- Over 5 Years: Full gratuity based on 21 days’ salary per year of service.
Example: For a AED10,000 monthly wage over 4 years, the gratuity is AED4,666.20 per year ((AED10,000 ÷ 30) x 21 days x 2/3).
No gratuity situations
Per Article 139, an employee forfeits gratuity if dismissed for reasons in Article 120, resigns without notice (except under Article 121 conditions), or resigns before completing 5 years in a limited contract.
Securing your gratuity benefits
Understanding your gratuity benefits is essential, whether you’re resigning or ending your job under different circumstances. This entitlement serves as a support during job transitions or retirement, highlighting the importance of comprehending the UAE’s gratuity calculation system for 2024.