UAE End-of-Service Gratuity: How to Calculate It

UAE end-of-service gratuity is a key employment entitlement for eligible employees. This guide explains who qualifies, how gratuity is calculated, what salary figure to use, and what employers should check before processing final settlements.

End-of-service gratuity is one of the most important employment entitlements in the UAE. For employees, it represents a lump-sum payment due at the end of employment, provided the legal eligibility requirements are met. For employers, it is a recurring compliance obligation that must be calculated accurately, budgeted for, and paid within the required timeframe when an employment relationship ends.

Under the UAE Labour Law, foreign full-time employees who complete at least one year of continuous service are generally entitled to end-of-service gratuity upon termination of employment. The amount is calculated by reference to the employee’s last basic wage, not the total salary package. This distinction is critical because many UAE employment contracts separate basic salary from housing, transport, commissions, bonuses, and other allowances.

For businesses operating in the UAE, gratuity calculations should be part of a broader employment compliance process. Mistakes can arise when payroll teams use the wrong salary base, fail to exclude unpaid absences, overlook pro-rata service, or apply outdated rules that are no longer aligned with the current legal framework.

UAE gratuity calculator

Use the calculator below to estimate end-of-service gratuity under the standard UAE Labour Law framework for full-time foreign employees.

Calculator inputs:

• Employee’s last basic monthly salary;
• Employee’s total monthly wage, for cap-checking purposes;
• Employment start date;
• Employment end date;
• Number of unpaid absence days, if any;
• Employment type: full-time, part-time, or employment-sharing; and
• For part-time or employment-sharing workers: contracted annual working hours and standard full-time annual working hours.

Calculator output:

• Length of qualifying service;
• Daily basic wage;
• Gratuity for the first five years of service;
• Gratuity for service beyond five years;
• Pro-rata gratuity for partial years;
• Estimated total gratuity;
• Cap check against the applicable two-year wage ceiling; and
• Indicative final settlement note.

This calculator is intended for general guidance only. The final amount may vary depending on the employee’s contract, applicable jurisdiction, unpaid leave history, work model, deductions permitted by law or court judgment, and whether the employer participates in an approved alternative end-of-service benefits scheme.

Who is eligible for end-of-service gratuity in the UAE?

A foreign full-time employee is generally eligible for end-of-service gratuity after completing at least one year of continuous service with the same employer. Employees with less than one year of service are not entitled to gratuity under the standard full-time calculation.

The entitlement applies at the end of employment, whether the employment ends through resignation, expiry of a fixed-term contract, termination by the employer, or another legally recognized end-of-contract event. Under the current UAE Labour Law, the main statutory calculation does not apply a reduced gratuity rate simply because the employee resigns. This is an important distinction from older rules, which many employers and employees still mistakenly reference.

UAE national employees are generally subject to the UAE pension and social security framework rather than the standard foreign-worker gratuity calculation. Some free zones and financial free zones also operate separate employment frameworks, meaning employers should confirm the governing regime before applying the federal gratuity formula.

What salary is used to calculate gratuity?

For most UAE private-sector employees covered by the federal Labour Law, gratuity is calculated using the employee’s last basic wage. The basic wage is the wage stated in the employment contract for the work performed and does not include other allowances or benefits in kind.

This means that housing allowances, transport allowances, education allowances, commissions, bonuses, and other contractual or discretionary benefits are generally excluded from the gratuity base unless they form part of the basic wage under the employment contract.

This distinction is one of the most common sources of disputes. Employers should ensure that employment contracts clearly distinguish between basic salary and allowances, while employees should review their contract and salary certificate before estimating gratuity.

How UAE end-of-service gratuity is calculated

For a foreign full-time employee who has completed at least one year of continuous service, gratuity is calculated as follows:

• For the first five years of service, the employee is entitled to 21 days of basic wage for each year of service; and
• For each year of service beyond five years, the employee is entitled to 30 days of basic wage for each additional year.

The employee is also entitled to a pro-rata gratuity amount for any part of a year worked after completing at least one full year of continuous service. Days of absence from work without pay are excluded from the calculation of the service period.

The basic calculation is:

• Daily basic wage = monthly basic salary divided by 30;
• Gratuity for the first five years = daily basic wage multiplied by 21 multiplied by years of service up to five years;
• Gratuity for service beyond five years = daily basic wage multiplied by 30 multiplied by years of service beyond five years; so
• Total gratuity = first-five-year gratuity plus additional-year gratuity, subject to the applicable statutory cap.

The total end-of-service gratuity for a foreign worker must not exceed two years’ wage. Because the law distinguishes between basic wage and wage, employers should review the cap carefully when processing high-value settlements or complex compensation packages.

How part-time and employment-sharing gratuity is calculated

For workers operating under part-time or employment-sharing arrangements, the UAE Executive Regulations provide a proportional calculation mechanism.

The calculation starts by identifying the value of the end-of-service gratuity that would be due under a full-time employment contract. That amount is then multiplied by the proportion of contracted annual working hours compared with annual working hours under a full-time contract.

In simplified terms:

Part-time gratuity = full-time gratuity multiplied by the ratio of contracted annual working hours to full-time annual working hours

For example, if an employee works 50 percent of the annual hours of a comparable full-time employee, the end-of-service gratuity would generally be calculated as 50 percent of the full-time gratuity amount.

This proportional method does not apply in the same way to temporary employment where the duration is less than one year, as gratuity is not applicable if the period of service is below the one-year threshold.

What should be excluded from the service period?

Unpaid absences should not be included in the calculation of the employee’s service period for gratuity purposes. This means payroll and HR teams should review attendance records, unpaid leave approvals, and any other unpaid absence records before finalizing the calculation.

Paid annual leave, public holidays, maternity leave, and other paid statutory leaves should be treated according to the applicable law and contract terms. The key point for gratuity calculations is that unpaid absence days can reduce the qualifying service period and therefore affect the final amount.

When must gratuity be paid?

At the end of the employment contract, the employer must pay the employee’s wages and other legal and contractual entitlements within the statutory settlement period. This includes end-of-service gratuity, where applicable, as well as any other amounts due under the law, employment contract, or company rules.

For employers, this makes exit management a compliance-sensitive process. Final settlement should not be treated as a purely administrative payroll task. HR, payroll, and legal teams should coordinate to confirm the employee’s final working date, notice period, unused leave balance, unpaid absences, outstanding loans or advances, and any deductions that may be permitted under the applicable rules.

Can employers deduct amounts from gratuity?

Employers may deduct certain amounts from end-of-service gratuity where such deductions are due by law or by a court judgment and where the relevant procedural requirements are met.

Examples may include amounts owed by the employee for loans or overpayments, certain pension or insurance-related deductions, penalties imposed under an approved disciplinary framework, debts arising under a court judgment, or amounts connected to damage caused by the employee where the legal requirements are satisfied.

Because deductions from final entitlements can be disputed, employers should document the legal basis for any deduction and ensure the employee has received a clear final settlement statement.

Key takeaways

UAE end-of-service gratuity is calculated primarily by reference to the employee’s last basic wage and length of continuous service. For eligible foreign full-time employees, the standard formula provides 21 days of basic wage for each year of the first five years of service, and 30 days of basic wage for each year beyond that. Employees who have completed at least one year of service are also entitled to a pro-rata amount for partial years worked.

For employers, gratuity is both a legal obligation and a financial liability. Accurate calculations require clean employment contracts, reliable payroll records, clear salary breakdowns, and a jurisdiction-specific understanding of the rules. Businesses operating across mainland UAE, free zones, DIFC, and ADGM should review their employment policies regularly to ensure that gratuity calculations remain compliant.

When in doubt, consulting a tax, legal, or employment professional is strongly recommended.

• Previous Article UAE Free Zone vs Mainland 2026: Where to Invest?
• Next Article