End-Of-Service Gratuity in UAE, Saudi Arabia, Qatar, Oman and Bahrain

End-of-service gratuity (EOSG) is an important part of labor regulation in the Gulf Cooperation Council (GCC). It provides financial protection to employees after the conclusion of their employment, whether through resignation or termination. In recent years, several GCC states have modernized their EOSG frameworks, let us have a look at the current framework and changes thereof.

EOSG remains a cornerstone of employee compensation and protection frameworks across the GCC. Designed to provide financial security at the conclusion of employment, EOSG ensures that employees receive a lump-sum payment or accumulated benefit based on their tenure and salary. In recent years, several GCC member states have modernized their systems to enhance transparency, improve compliance, and align with global best practices. While the core objective (rewarding employee service) remains consistent, the implementation and calculation methods now vary significantly across jurisdictions. This article examines the current EOSG frameworks in the UAE, Saudi Arabia, Qatar, Oman, and Bahrain, highlighting the latest reforms, calculation methods, and compliance requirements. It also outlines key considerations for multinational employers operating in multiple GCC markets, including policy harmonization, automation, and legal risk management.

Legal framework and eligibility requirements

United Arab Emirates (UAE)

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The UAE operates under Federal Decree Law No. 33 of 2021, which mandates EOSG for all private sector employees after completing one year of continuous service. The law applies uniformly to both limited and unlimited contracts, and thus, removes the earlier distinction between voluntary resignation and employer termination. Entitlement is denied only in cases of gross misconduct.

Saudi Arabia

Saudi labor law (Royal Decree No. M/51) establishes different eligibility thresholds based on termination type. It stipulates that employees terminated by their employer are entitled to full benefits after one year of service. And those who resign must serve at least two years to qualify for any payment.

Qatar

Article 54 of Labor Law No. 14 of 2004 provides gratuity eligibility after one year of continuous service without distinction between resignation and dismissal. The calculation applies uniformly to both resignation and dismissal scenarios.

Oman

Article 61 of the 2023 Labor Law (Royal Decree 53/2023) gives gratuity rights after one year of service. The law replaced earlier formulas and has moved toward a standard rate of one month’s basic salary per year of service.

Bahrain

Since March 1, 2024, Bahrain has a contribution-based system which is administered by the Social Insurance Organization (SIO). The new system requires monthly contributions from the employers to a centralized fund rather than end-of-employment settlements. So, the onus has shifted from employers to a government-managed contribution fund.

Calculation methods by country

UAE calculation framework

The UAE uses a two-tier calculation structure:

• First 5 years of service: 21 days of basic salary per year;
• Beyond 5 years: 30 days of basic salary per year;
• Maximum cap: Two years’ total salary; and
• Payment deadline: Within 14 days of employment termination.

For example, an employee who earns AED 10,000 monthly and who works for eight years receives AED 65,000 (AED 35,000 for the first five years and AED 30,000 for the next three).

Saudi Arabia calculation structure

Saudi Arabia applies a half-month or full-month progression:

• Years 1-5: half month’s salary per year;
• Beyond 5 years: one full month’s salary per year; and there’s no maximum statutory cap

For voluntary resignations, entitlement becomes prorated:

• Less than 2 years: No entitlement
• 2-5 years: One-third of calculated amount;
• 5-10 years: Two-thirds of calculated amount; and
• Over 10 years: Full entitlement.

Qatar calculation method

Qatar has a uniform approach of calculating gratuity. All years of service accrue minimum of 21 days’ basic salary per year. There is no cap on maximum entitlement, but employers may grant higher benefits through policy or contract. There’s also no difference between resignation and termination gratuity.

Oman’s reformed system

Oman’s 2023 labor reforms created a dual system:

• Legacy service (pre-July 2023): 15 days per year for the first three years, then one month per year.
• New service (post-July 2023): One month’s basic salary per year.

Bahrain’s contribution model

Bahrain’s 2024 changes replaced employer-paid lump sums with monthly contributions to the Social Insurance Organization (SIO):

• For years 1-3: 4.2 percent of basic salary; and
• Beyond 3 years: 8.4 percent of basic salary.

Employers remit their contributions directly to the government fund, and employees can claim benefits through the SIO at the end of their service.

Base salary definitions and exclusions

Salary components included

EOSG across the GCC is mostly calculated on the employee’s basic salary, but what constitutes basic salary can differ:

• UAE, Qatar, Oman, and Bahrain use only basic salary is used and exclude allowances; and
• Saudi Arabia includes basic salary and fixed allowances that form part of regular remuneration.

Excluded elements

The following variable components are excluded from EOSG calculations in all GCC jurisdictions:

• Performance-based bonuses or commissions;
• Overtime and incentive payments;
• Housing, transport, and other variable allowances; and
• End-of-year gratuities.

Voluntary resignation versus termination differences

The UAE no longer differentiates between resignation and termination. All employees with one year of service receive full entitlement regardless of departure cause, unless terminated for gross misconduct. Saudi Arabia has different scale for resignations and inbuilt special provisions for female employees. Those resigning within six months of marriage or within three months of childbirth receive full benefits regardless of tenure. The employees who are terminated after one year also receive full benefits Qatar, Oman, and Bahrain treat resignation and termination equally, which means they grant full benefits once the minimum service period is met.

Caps and limitations

The UAE applies a restrictive maximum cap equal to two years’ total salary, regardless of tenure or income. Other GCC countries, Saudi Arabia, Qatar, Oman, and Bahrain, have no such limits, which allows gratuity to accumulate in proportion to service duration.

Employer deductions and offsets

All GCC countries allow employers to offset certain amounts from gratuity payments, but only from these categories:

• Unpaid loans or salary advances;
• Housing or accommodation costs;
• Damages caused by employee negligence; and
• Court-ordered payments.

In the UAE, total deductions for active employees are capped at 50 percent of monthly salary and its principles are also applied when processing final settlements.

Recent reforms and measures

UAE’s alternative investment scheme

Cabinet Decision No. 96 of 2023 introduced an optional end-of-service investment scheme to allow employers to contribute monthly contributions to approved funds rather than make lump-sum payments. Contribution rates are:

• First five years: 5.83 percent of basic salary; and
• After five years: 8.33 percent of basic salary.

The initiative intends to protect employees from employer insolvency and inflation erosion and also offers potential investment returns.

Bahrain’s social insurance transition

Bahrain’s 2024 SIO run system requires registration of all eligible non-Bahraini employees and has strict norms for employers:

• Employers must make timely contributions to avoid penalties;
• Late payment interest is 5 percent; and
• Non-payment penalty is 20 percent of outstanding amount.

Employer strategy and financial planning

Employers can consider having an appropriate reserve to meet end-of-service obligations. The varying calculation methods and caps create different financial exposures:

• Highest exposure in Saudi Arabia, due to unlimited accumulation and complex resignation rules;
• Moderate exposure in Qatar and Oman, which have no caps but simpler formulas; and
• Limited exposure in UAE, which has a two-year salary maximum.

Every country in the GCC has put out clear settlement deadlines:

• UAE demands within 14 days of contract termination;
• Saudi Arabia wants within 30 days of termination; and
• Bahrain wants prompt payment to avoid legal penalties.

It is advisable to meet these deadlines to avoid administrative sanctions or legal disputes.

What should multinational employers consider

Policy standardization

Companies operating in multiple GCC markets face several complexities in standardizing EOSG policies due to differing eligibility thresholds, calculation methods, regulations and caps. One can consider hiring a professional firm to help standardize EOSG policies and ensure compliance in each country.

Technology and automation

Modern human resource management systems (HRMS) now have country-specific EOSG calculators that automatically apply national rules. They are helpful in reducing human errors in calculation and solving difficulties in navigating different regulations, especially for employers handling large cross-border workforce.

Legal risk management

As the legal environment is changing, especially in Bahrain and Oman, it becomes imperative to conduct regular legal audits and monitor the changes continuously. Employers can consider engaging legal and business expert firms who can track official circulars and update internal handbooks to reflect current entitlements and contribution requirements.

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