Gratuity Eligibility and Calculation in the UAE: A Complete Guide

Gratuity is an essential component of end-of-service benefits for workers in the UAE. It is a legal entitlement designed to reward employees for their years of service, ensuring a financial cushion upon the end of their employment. Per the UAE Labour Law (specifically Federal Decree-Law No. 33 of 2021 and its recent updates), gratuity benefits are calculated based on various factors, including an employee's last basic salary, total years of service, and the specific type of employment contract.

In this comprehensive guide, we’ll explore gratuity eligibility and calculation in the UAE, covering all key aspects that both employers and employees must understand to ensure accurate gratuity payments.

What is Gratuity?

Gratuity, also referred to as the end-of-service benefit, is a lump sum payment that an employer is legally required to provide to an employee when their employment ends. This end-of-service gratuity serves as a form of financial security.

According to MOHRE (Ministry of Human Resources and Emiratisation), the total gratuity is calculated using only the basic salary as gratuity basis, excluding allowances like housing or transport. This benefit is paid in addition to other dues, such as unused annual leave or outstanding salary.

Eligibility for Gratuity in the UAE

To be eligible for a gratuity payment, an employee must meet the criteria outlined per UAE Labour Law:

• Minimum Service Period: You must have completed at least one year of continuous service to be entitled to gratuity.

• Employment Contract: Both limited and unlimited contracts are recognized, though the law now mandates a transition of all employment contracts in the UAE to fixed-term (limited) models.

• Continuous Service: Gratuity is calculated based on the duration of uninterrupted service. Unpaid leave or "work abandonment" can affect gratuity calculation.

Gratuity Calculation Basis

The calculation of gratuity is based on several factors, including the employee’s basic salary, years of service, and the type of contract. Let’s take a closer look at these components:

1. Basic Salary
   The gratuity calculation uses the basic salary only, excluding allowances like housing, transportation, or any bonuses. This is an important consideration when determining the final gratuity payment.

2. Service Years
   The total number of years an employee has worked for an employer directly impacts the gratuity calculation. Employees who have been with the company for a longer period are entitled to more gratuity. The duration of service is typically divided into segments:

   • Less than 1 Year

   • 1–3 Years

   • 3–5 Years

   • More than 5 Years

How a UAE Gratuity Calculator Works

A UAE gratuity calculator simplifies the complex uae gratuity calculation process by automating the legal formulas set by the Ministry of Human Resources and Emiratisation (MOHRE). To calculate your gratuity, you simply input your last basic salary, start and end dates, and contract type into an online gratuity calculator.

The gratuity calculation in the UAE is primarily determined by your tenure: an employee is entitled to gratuity after completing one year of continuous service. For the first five years, the gratuity calculation is based on 21 days of basic salary for each year, while those with more than five years of service are entitled to 30 days of basic salary for each additional year.

Gratuity Calculation Rules for UAE

Understanding how to calculate your benefits is vital. The calculation method depends on whether you were terminated or if you chose to resign.

1. If the Employee is Terminated (or Completes Contract)

If the employer ends the employment contract, the employee is entitled to full gratuity based on the following:

• 1–5 Years of Service: 21 days of basic salary for each year of service.

• More than 5 Years of Service: 21 days for the first five years, plus 30 days of basic salary for each additional year of service.

2. If the Employee Resigns (Unlimited Contract - Legacy)

For those still transitioning from older unlimited contracts, resignation impacts the amount:

• 1–3 Years of Service: Entitled to 1/3 of 21 days' basic salary for each year.

• 3–5 Years of Service: Entitled to 2/3 of 21 days' basic salary for each year.

• Over 5 Years of Service: Entitled to the full 21 days for the first 5 years and 30 days thereafter.

Note: Under the new UAE Labour Law, most employees are now on limited contracts where resignation after one year usually grants the full 21/30 day calculation, provided the notice period is served.

Termination vs Resignation

The reason for ending employment plays a significant role in the gratuity calculation. There are distinct rules for employees who resign voluntarily versus those who are terminated:

• Resignation:
  If an employee resigns voluntarily, the gratuity calculation follows the rules mentioned earlier (1/3 or 2/3 of 21 days' salary for 1–3 years or 3–5 years of service). The employee must serve the notice period as stipulated in the contract; otherwise, they may lose some entitlement.

• Termination by Employer:
  If the employer terminates the contract, the employee is entitled to the full gratuity amount according to the rules, even if they haven’t completed the minimum service period.

Unlimited vs Limited Contracts

The type of employment contract used to be the biggest factor affecting gratuity.

• Limited Contract: Fixed-term (max 3 years, renewable). Resigning or being terminated generally follows the 21/30 day rule after 1 year of service.

• Unlimited Contract: These are being phased out by MOHRE. If you are still on one, the "sliding scale" (1/3 or 2/3) for resignation still applies.

How to Calculate Gratuity in the UAE in an Unlimited Contract

Under the legacy unlimited contract structure, the calculation in UAE for end-of-service benefits depends heavily on whether you resign or are terminated. If an employee is entitled to gratuity after completing at least one year of continuous service, the amount is determined by their last basic salary. When an employer terminates the contract, the end of service benefit is calculated as 21 days of basic pay for each of the first five years and 30 days for each additional year.

However, if you choose to resign from your job in the UAE with an unlimited contract, a sliding scale applies: you receive one-third of the gratuity for 1–3 years of service, two-thirds for 3–5 years, and the full amount only after 5 years. To ensure accuracy and see how your uae is calculated based on these rules, it is highly recommended to use an online gratuity calculator. Whether you search for a calculator Dubai or a gratuity calculator Abu Dhabi, these tools help you calculate gratuity in UAE correctly so you can confirm exactly how much the employer must pay gratuity at the end of your tenure. While the law has shifted toward a gratuity for a limited contract model, understanding these specific nuances remains vital for those still on open-ended agreements who need to calculate gratuity in the UAE for their final settlement.

Gratuity Calculator

A gratuity calculator simplifies the process by allowing employees and employers to easily estimate gratuity payments based on certain inputs. To use a gratuity calculator, the following details are required:

1. Basic Salary

2. Years of Service

3. Contract Type

4. Reason for Employment End (Resignation vs. Termination)

This tool can quickly calculate the amount of gratuity based on the formula described above and is particularly useful for employers and HR professionals to avoid mistakes in manual calculations.

Common Mistakes in Gratuity Calculation

• Including Allowances: Gratuity is only on the basic salary for each year.

• Incorrect Service Dates: Not accounting for unpaid leave can affect gratuity.

• Misunderstanding the Law: The new UAE laws have changed how limited and unlimited contracts are treated. Always check the latest MOHRE updates.

Additional End-of-Service Benefits

In addition to gratuity, employees in the UAE may also be entitled to:

• Unused Annual Leave: Payment for unused leave days must be made at the end of service.

• Outstanding Salary: Any unpaid salary must be settled.

• Severance Pay: In certain cases, severance pay may be required in addition to gratuity.

How Young & Right Can Help You with Gratuity Eligibility and Calculation in the UAE

At Young & Right, we specialize in guiding employees and employers through gratuity eligibility and the gratuity calculation method in the UAE. Here's how we can help:

1. Accurate Gratuity Calculations

We provide a user-friendly gratuity calculator for both Abu Dhabi and Dubai, ensuring you learn how to calculate gratuity based on basic salary and years of service.

2. Contract Type Clarification

Whether you're on an unlimited contract or a limited contract, we help you understand how your gratuity will be calculated based on your employment type and separation reason.

3. End-of-Service Benefits

Beyond gratuity pay, we ensure you're aware of any additional end-of-service benefits in the UAE, including unused leave or severance pay.

4. Personalized Consultation

We provide expert advice tailored to your situation to determine if you're eligible for gratuity in the UAE and help calculate the exact amount you're entitled to.

Conclusion

Understanding how to calculate gratuity is crucial for both workers in the UAE and their employers. As we navigate 2025 and move into 2026, the new UAE labour law has standardized many aspects of end-of-service benefits, making it easier for an employee is eligible for gratuity to receive their fair dues. Whether you are working in the UAE under a limited or unlimited contract, the calculation is based primarily on your last basic salary and the total duration of employment.

By using a uae gratuity calculator or a dedicated mohre gratuity calculator uae, you can know how much gratuity you are entitled to gratuity based on the 21 days of basic salary for the first five years and 30 days of basic salary for basic salary for each additional year. Remember, while employment contracts in the UAE have shifted toward fixed terms, the calculation method remains a protection for your end-of-service gratuity.