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16/12/2025
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Gratuity is one of the most important end-of-service benefits for employees in the UAE. It’s a legal entitlement provided under the Federal Decree-Law No. 33 of 2021 (the New UAE Labour Law) for employees who have worked for a company for a specified period. Understanding how to calculate your gratuity is essential to ensure you receive the full gratuity pay you are owed when your employment contract ends.
This guide will walk you through the precise gratuity calculation in the UAE as per the regulations effective in 2025, covering contract types, eligibility, and the legal context.
Gratuity is a severance payment calculated based on the employee's last drawn basic salary and their total years of continuous service.
• Basis of Calculation: Gratuity is only calculated on the Basic Salary (the fixed monthly amount). Allowances like housing, transport, or commissions are excluded.
• Payment Timeline: The employer must pay the full gratuity amount within 14 days of the employee's last working day.
To be eligible to receive gratuity, a foreign worker in the UAE private sector must meet these conditions:
Minimum Service: The employee must have completed at least one year of continuous service with the employer. Days of absence without pay are typically excluded from the service period calculation.
Contract Type: The rules apply to both Limited and Unlimited contracts (though the New Law mandates all new contracts be fixed-term/limited).
Termination Reason: Generally, an employee is entitled to gratuity upon the end of their service, whether by the end of the contract, termination by the employer, or resignation.
The method of calculating gratuity differs based on the type of contract and the length of service. Below are the main calculation formulas:
1. Gratuity Calculation for Limited Contracts
For employees working under a limited contract, the gratuity is calculated differently based on the number of years worked.
Formula for Limited Contract Employees with Service ≤ 5 Years
For employees who have served less than 5 years, gratuity is calculated as:
Gratuity = (Basic Salary × 21 days) × Years of Service
This means for every year of service, the employee is entitled to 21 days of basic salary.
Formula for Limited Contract Employees with Service > 5 Years
For employees with more than 5 years of service, the gratuity is calculated as:
Gratuity = (Basic Salary × 21 days) for the first 5 years
+ (Basic Salary × 30 days) for each additional year after 5 years
For example, if an employee has worked for 7 years, their gratuity will be calculated based on 21 days for the first 5 years and 30 days for the next 2 years.
2. Gratuity Calculation for Unlimited Contracts
Employees working under an unlimited contract are entitled to gratuity based on their length of service, and the gratuity calculation follows a similar approach as for limited contracts.
• For service less than 5 years, gratuity is calculated as 21 days' salary per year.
• For service exceeding 5 years, gratuity is calculated as 30 days' salary per year for each additional year of service after the first five years.
3. Calculating Gratuity for Terminated Employees
If the employee is terminated, the gratuity calculation will be based on the terms of their contract. Generally, an employee is entitled to gratuity if they are terminated for reasons other than gross misconduct.
4. Gratuity for Employees Who Resign
Employees who resign voluntarily are entitled to gratuity, but the amount may vary:
• If the employee has worked for less than one year, they are not entitled to gratuity.
• If the employee resigns after more than one year but less than 3 years, they are entitled to one-third of the gratuity.
• If the employee resigns after more than 3 years but less than 5 years, they are entitled to two-thirds of the gratuity.
• After 5 years of service, the employee is entitled to the full gratuity amount.
The New UAE Labour Law (UAE 2025) has significantly streamlined the rules for calculating gratuity but the type of employment contract remains one of the critical factors that affect gratuity calculation. To be entitled to receive gratuity or end-of-service gratuity, an employee must complete at least one year of service. The gratuity calculation is based on the days of salary for each service year and the resignation rules used to differ significantly between the former unlimited contract and the gratuity for a limited contract. Under the New Law, the primary formula—where the salary multiplied by the number of days is 21 days’ basic salary for the first five years of service and 30 days thereafter—applies to all contracts upon termination or end of contract. Employees who have completed gratuity after completing one year of service are entitled to full gratuity pay upon separation, ensuring that the UAE labour law that employers follow provides for an accurate gratuity calculation and that the final gratuity payment cannot exceed two years of basic salary, as per UAE legal mandate. Understanding how much gratuity you should get can be simplified using a reliable UAE gratuity calculator.
To ensure you accurately calculate your gratuity in UAE and know how much gratuity you should get per the most recent UAE Labour Law updates, utilize a free online UAE Gratuity Calculator. This essential tool simplifies the complex rules by automatically applying the tiered formula—based on the last basic salary and years of service—to provide a reliable estimate of your end-of-service gratuity. Whether you are planning your departure or simply want to learn how to calculate gratuity for future planning, this calculator is a vital resource for anyone with a job in the UAE.
The new UAE Labour Law introduced a significant harmonization, making the gratuity calculation is based on the same core formula—21 days' basic salary for the first five years and 30 days thereafter—for both limited and former unlimited contracts. The primary difference that once existed was in reduced entitlement upon resignation for unlimited contracts with short service; however, the new law now grants an employee entitled to full gratuity pay after completing one year of service, regardless of the type of employment contract or if they resign. This means the distinction between gratuity for a limited contract and an unlimited one is now minimal for those who have served for at least one year, simplifying how employees learn how to calculate gratuity in the UAE.
To simplify gratuity calculation, we will break down the entities and attributes relevant to this process:
1. Gratuity Calculator Tool
• Last Drawn Basic Salary: The salary amount to be used in the gratuity calculation.
• Currency: AED (UAE Dirham), the currency used in the calculation.
• First Working Day: The start date of employment.
• Last Working Day: The final day of employment.
• Type of Contract: Limited or Unlimited contract type.
• Reason for Exit: Resignation, termination, or end of contract.
• Calculate Button: The button used to trigger the gratuity calculation.
• Gratuity Result Display: The calculated gratuity amount shown after calculation.
• Disclaimer: Information clarifying that the result is an estimate.
2. Eligibility & Explanation Section
• Definition of Gratuity: A legal benefit to employees at the end of their service.
• Eligibility Criteria: Defines eligibility based on service duration and contract type.
• Gratuity Calculation Explanation: Detailed steps on how gratuity is calculated for different contract types.
• Legal Context: Reference to UAE Labour Law regarding gratuity entitlement.
3. Calculation Logic
• Formula for Limited Contracts ≤ 5 Years: Basic salary × 21 days × number of years worked.
• Formula for Limited Contracts > 5 Years: Basic salary × 21 days × first 5 years + Basic salary × 30 days × additional years.
• Unlimited Contract Calculation: Same as limited, but gratuity is based on the employee's service, with the same formulas.
Using a gratuity calculator endorsed by the MOHRE (Ministry of Human Resources and Emiratisation) is the best way to calculate your gratuity in UAE and know how much gratuity you should get. This crucial tool simplifies the complex UAE gratuity calculation process, which is often intricate due to varying entitlements based on years of service and the employee's contract in the UAE (especially concerning older contracts). As the new UAE labour law introduced major changes, the calculator ensures the gratuity payment as per the latest legislation—which UAE labor law dictates is based solely on basic salary—is correct. This is one of the most important benefits in the UAE, allowing employees in their job in the UAE to learn how to calculate gratuity accurately and understand that their gratuity is calculated based on the current gratuity law principl
Under the UAE Labour Law, an employee becomes eligible for gratuity by completing a minimum of one year of continuous service with the employer. This end-of-service gratuity is a legal entitlement for expatriate workers whose gratuity calculation is based on their last basic salary. Critically, any employee who completes one year of service is now entitled to full gratuity pay upon the termination or end of their contract in the UAE, regardless of whether they resign or are terminated (provided termination is not for gross misconduct), ensuring they know how much gratuity they are owed per the law.
At Young & Right, we understand that calculating gratuity in the UAE can be a complex process, as it involves various factors defined by the UAE Labour Law. Whether you're unsure about your eligibility for gratuity, need help understanding gratuity payment calculations, or need accurate gratuity figures based on your service, our team of experts is here to guide you through it.
Understanding Gratuity in the UAE
In the UAE, gratuity is an end-of-service benefit paid to employees who have completed one year of service with their employer. It is calculated based on the last basic salary and the number of years of service completed. The gratuity calculation is governed by Article 51 of the UAE Labour Law, ensuring that employees receive their gratuity benefits as per the set rules.
Understanding how to calculate gratuity is crucial for any employee working in the UAE. Whether you’re on a limited or unlimited contract, gratuity is a legal entitlement and should be calculated accurately. If you're unsure about how to proceed, we recommend reaching out to experts who can help you navigate the complexities of gratuity calculations.
At Young & Right, we specialize in financial and legal advisory services. If you need assistance with calculating your gratuity or understanding your entitlements under the UAE Labour Law.
• Type of Employment Contract: Whether you are employed on a limited contract or unlimited contract affects the calculation.
• Complete One Year of Service: To be eligible for gratuity, employees must have completed one year of service with the company.
• Salary for Each Year Beyond: For each additional year of service beyond the first five years, your gratuity increases in proportion to your basic salary for each year.
• Gratuity Payment Timing: As per the UAE labour law, employers must pay gratuity within 14 days of termination or completion of service.
Contact Young & Right for expert advice and assistance with your gratuity calculation. We provide detailed guidance to ensure you're receiving the full benefits you're entitled to under the law.
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