End-of-Service Gratuity in the UAE: Calculation Rules, Eligibility, and the Voluntary Savings Scheme

Complete guide to gratuity eligibility, calculation, and payment rules for private-sector employees across the UAE

End-of-service gratuity is one of the most financially significant entitlements available to private-sector employees in the UAE, yet disputes over incorrect calculations and late payments remain among the top categories of complaints filed with the Ministry of Human Resources and Emiratisation (MOHRE). Whether you are an expatriate planning an exit, an employee who has just resigned, or an employer processing a final settlement, understanding exactly how gratuity works under current law determines whether the transition goes smoothly or ends in a labour court claim.

This guide covers the full gratuity framework under Federal Decree-Law No. 33 of 2021 and its amendments: who qualifies, how to calculate entitlements step by step, what changed from the old law, how resignation and termination affect your payout, the voluntary Savings Scheme alternative, special rules for DIFC and ADGM, and what to do if your employer refuses to pay.

What Is End-of-Service Gratuity in the UAE?

End-of-service gratuity (known in Arabic as مكافأة نهاية الخدمة) is a mandatory lump-sum payment that UAE private-sector employers must provide to employees when their employment ends, provided the employee has completed at least one year of continuous service. It functions as the UAE’s primary substitute for a pension system for expatriate workers, who are not eligible for UAE national pension schemes.

The legal basis is Article 51 of Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations, which took effect on 2 February 2022 and replaced the former Federal Law No. 8 of 1980. The executive regulations are contained in Cabinet Resolution No. 1 of 2022. Gratuity applies to all private-sector employment across every emirate — Dubai, Abu Dhabi, Sharjah, and others — with the exception of employees working within the DIFC and ADGM financial free zones, which operate under their own employment frameworks.

UAE nationals working in the private sector are governed by separate pension and social security legislation administered by the General Pension and Social Security Authority (GPSSA), not the standard gratuity rules described in this guide.

Who Is Eligible for Gratuity in the UAE?

Eligibility hinges on one core requirement: the employee must have completed at least one continuous year of service with the same employer. There is no partial gratuity for employees who leave before reaching the 12-month threshold — the entitlement is zero.

Beyond that threshold, gratuity applies regardless of how the employment ended. Under the current law, employees who resign voluntarily, employees who are terminated without cause, and employees whose fixed-term contracts expire without renewal are all entitled to the same gratuity calculation. This is a significant departure from the old law, which reduced gratuity for employees who resigned before completing five years of service.

What Counts as Continuous Service?

Continuous service is calculated from the employment start date to the last working day. Paid leave — annual leave, sick leave, maternity leave, and public holidays — counts toward the service period. Unpaid leave does not. If an employee takes 60 days of unpaid leave during a three-year tenure, those 60 days are subtracted from the total service period used in the gratuity calculation. Probationary periods (up to six months) count toward continuous service if the employee completes them and continues working.

When Gratuity May Not Be Payable

Under the previous Federal Law No. 8 of 1980, employees dismissed for gross misconduct (then under Article 120) forfeited their entire gratuity. The current law has changed this position significantly. Multiple legal analyses and recent labour court interpretations confirm that under Federal Decree-Law No. 33 of 2021, employees dismissed under Article 44 (gross misconduct grounds) generally retain their right to gratuity, provided they meet the one-year minimum service requirement. However, employers may still pursue separate legal claims to recover proven damages, and courts may rule on gratuity forfeiture in extreme cases involving theft, fraud, or assault. The practical advice: if dismissed under Article 44, seek legal counsel rather than assuming your gratuity is automatically lost.

How to Calculate End-of-Service Gratuity in the UAE

Gratuity is calculated exclusively on the employee’s last drawn basic salary — the fixed monthly amount stated in the MOHRE-registered employment contract. All allowances are excluded: housing, transportation, utilities, bonuses, commissions, overtime pay, and any benefits in kind. This distinction is the single most common source of calculation errors and disputes.

Standard Gratuity Formula for Full-Time Employees

Service Duration	Gratuity Rate	Notes
Less than 1 year	No gratuity	Zero entitlement regardless of reason for leaving
1–5 years	21 days’ basic salary per year	Pro-rated for partial years beyond the first complete year
Over 5 years	21 days per year for first 5 years + 30 days per year thereafter	Pro-rated for partial years
Maximum cap	2 years’ total basic salary	Regardless of how many years served

The daily salary rate is calculated by dividing the monthly basic salary by 30, regardless of the actual number of days in the calendar month. This is the standard method specified under UAE labour law, although some employers use an annualised method (monthly salary × 12 ÷ 365). The law does not prescribe a single method for determining the daily rate, but the 30-day method is most commonly applied.

Step-by-Step Calculation Examples

Example 1: Employee with 3 years of service

Basic salary: AED 10,000/month. Daily rate: AED 10,000 ÷ 30 = AED 333.33. Gratuity: 21 days × 3 years × AED 333.33 = AED 21,000.

Example 2: Employee with 7 years and 4 months of service

Basic salary: AED 15,000/month. Daily rate: AED 15,000 ÷ 30 = AED 500.

• First 5 years: 21 days × 5 × AED 500 = AED 52,500
• Years 6–7 (2 full years): 30 days × 2 × AED 500 = AED 30,000
• Remaining 4 months (pro-rated): 30 days × (4/12) × AED 500 = AED 5,000
• Total: AED 87,500

The two-year cap for this employee would be AED 15,000 × 24 = AED 360,000, so the full AED 87,500 is payable.

Example 3: Long-serving employee hitting the cap

Basic salary: AED 8,000/month. Service: 22 years. Daily rate: AED 266.67.

• First 5 years: 21 × 5 × AED 266.67 = AED 28,000
• Next 17 years: 30 × 17 × AED 266.67 = AED 136,000
• Total calculated: AED 164,000
• Two-year cap: AED 8,000 × 24 = AED 192,000
• Payable: AED 164,000 (under the cap)

Gratuity for Part-Time and Non-Standard Work Models

Under Article 30 of Cabinet Resolution No. 1 of 2022, employees on part-time, job-sharing, or other non-standard work arrangements receive pro-rated gratuity calculated as follows: divide the number of working hours in the part-time contract per year by the number of working hours in a full-time contract per year, multiply by 100 to get a percentage, then multiply that percentage by the gratuity amount that would be due under a full-time contract.

For example, an employee working 50% of full-time hours for 4 years at AED 6,000 basic salary would first calculate the full-time gratuity (21 days × 4 × AED 200 = AED 16,800), then apply 50% to get AED 8,400. Temporary employment contracts of less than one year do not qualify for gratuity under any calculation method.

What Changed Under the New UAE Labour Law

Federal Decree-Law No. 33 of 2021, along with its subsequent amendments (Federal Decree-Law No. 14 of 2022, No. 20 of 2023, and No. 9 of 2024), introduced several changes that directly affect gratuity entitlements and employer obligations.

Aspect	Old Law (Federal Law No. 8 of 1980)	Current Law (Decree-Law No. 33 of 2021)
Contract types	Limited and unlimited contracts with different gratuity rules	All contracts are fixed-term (limited); unified gratuity calculation
Resignation penalty	Reduced gratuity (1/3 for 1–3 years, 2/3 for 3–5 years) under unlimited contracts	No reduction — full gratuity payable on resignation after 1 year
Gross misconduct dismissal	Complete forfeiture of gratuity under Article 120	Gratuity generally preserved; forfeiture only in extreme cases with court ruling
Payment deadline	Not explicitly specified	Within 14 days of contract termination (Article 53)
Alternative scheme	Not available	Voluntary Savings Scheme via Cabinet Resolution 96 of 2023

The elimination of the resignation penalty is arguably the most impactful change for employees. Under the old unlimited contract system, an employee who resigned after two years received only one-third of the calculated gratuity. Under the current law, the same employee receives the full amount. Employers who still apply old-law deductions risk MOHRE penalties and labour court claims.

Gratuity When You Resign vs When You Are Terminated

Under Federal Decree-Law No. 33 of 2021, there is no difference in the gratuity calculation between resignation and employer-initiated termination. An employee who resigns after completing one year of continuous service receives the same gratuity as an employee who is terminated without cause after the same period. This unified approach eliminated the complex tiered system under the old law that penalised voluntary leavers.

Resignation Requirements That Affect Your Settlement

While resignation does not reduce your gratuity entitlement, failing to serve the required notice period (minimum 30 days, up to 90 days as specified in the contract) may result in the employer deducting salary in lieu of notice from your final settlement, including from the gratuity amount. Serving the full notice period protects your complete payout. If you resign during the probation period, the standard requirement is 14 days’ written notice (or 30 days if you are leaving the UAE entirely). Employees who have not yet completed one year of service — including those resigning during probation — receive no gratuity regardless.

Termination for Cause Under Article 44

Article 44 of the current law lists ten specific grounds for summary dismissal without notice, including fraud, assault on colleagues, intoxication, theft, disclosure of confidential information, and unauthorised absence for seven or more consecutive days. The employer must conduct a written investigation before dismissing and must notify MOHRE within seven business days in cases involving material loss or damage. Under the current legal framework, dismissal under Article 44 does not automatically forfeit gratuity — a shift from the old law. However, the employer may deduct proven amounts owed from the gratuity and may pursue further claims through labour courts.

Employer Payment Obligations and Penalties

Employers must pay all outstanding wages, accrued leave entitlements, and gratuity within 14 days of the contract termination date, as mandated by Article 53 of the labour law. Employers may lawfully deduct amounts the employee owes — such as outstanding loans or salary advances — from the gratuity before payment.

Failure to pay within 14 days exposes employers to administrative fines, restrictions on issuing new work permits, and potential labour court judgments. Under the 2024 amendment (Federal Decree-Law No. 9 of 2024), penalties for labour law violations have increased substantially, with general fines ranging from AED 5,000 to AED 1,000,000 and doubled on repeat offences. Employees can file complaints with MOHRE free of charge, and disputes under AED 50,000 can now be resolved by MOHRE without requiring court proceedings.

The Voluntary Savings Scheme: An Alternative to Traditional Gratuity

In October 2023, MOHRE launched the voluntary alternative end-of-service benefits system — the Savings Scheme — under Cabinet Resolution No. 96 of 2023. This scheme allows employers to invest monthly gratuity contributions in regulated investment funds instead of accumulating a lump-sum liability payable at termination.

How the Savings Scheme Works

Participating employers contribute monthly to an SCA-approved investment fund. Contribution rates mirror the traditional gratuity formula: 5.83% of monthly basic salary for employees with less than five years of service, and 8.33% for those with more than five years. Contributions must be transferred within 15 days of the beginning of each calendar month.

Employees enrolled in the scheme receive the accumulated contributions plus any investment returns upon termination, rather than a traditional lump-sum gratuity. They may also choose to keep their funds invested after leaving employment or withdraw them at any time. Daman Investments is among the approved fund providers.

Voluntary Employee Contributions

Beyond the mandatory employer contributions, enrolled employees may voluntarily add up to 25% of their total monthly or annual wage. These additional contributions can be deducted from salary by the employer or paid directly by the employee as a lump sum. The scheme aims to protect employees against employer insolvency and provide growth opportunities beyond the static gratuity formula.

Key Considerations Before Enrolling

Participation is voluntary for the employer, not the employee — the employer decides whether to join and may enrol all employees, specific groups, or selected professional categories. Once employees are enrolled, the traditional gratuity system ceases to apply for them, and any gratuity accrued prior to enrolment must be calculated and settled separately. The scheme currently applies to private sector and free zone employees. Employers must register through MOHRE service channels.

Feature	Traditional Gratuity	Voluntary Savings Scheme
Employer obligation	Lump sum at termination	Monthly contributions to investment fund
Investment growth	None — fixed formula amount	Potential returns from fund performance
Employer default risk	Employee depends on employer solvency	Funds held in regulated third-party accounts
Employee contribution	Not available	Up to 25% of total wage (optional)
Cap	2 years’ basic salary	No cap — grows with contributions and returns
Non-payment penalty	MOHRE complaints, court claims	Work permit suspension after 2 months’ non-payment; AED 1,000/employee/month fine
Fund options	N/A	Capital guarantee, risk-based, and Sharia-compliant portfolios

Special Rules: DIFC and ADGM Employees

Employees working within the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) are not covered by Federal Decree-Law No. 33 of 2021. These financial free zones operate under their own employment legislation and end-of-service frameworks.

DIFC: The DEWS Plan

Since February 2020, the DIFC has replaced traditional gratuity with the DIFC Employee Workplace Savings (DEWS) plan. Employers make mandatory monthly contributions of 5.83% of basic salary for employees with less than five years of service and 8.33% for those with five or more years. There is no one-year minimum — employees qualify from day one. Employees may also make voluntary contributions to grow their retirement savings. Any gratuity accrued before 1 February 2020 remains payable separately or can be transferred into the DEWS plan.

ADGM: Choice-Based Model

From April 2025, ADGM employees can choose between the standard gratuity system (which mirrors the federal law formula) and a savings/pension-plan alternative similar to the DIFC DEWS scheme. If the savings plan is chosen, the traditional lump-sum gratuity does not apply.

Other Free Zones (DMCC, JAFZA, etc.)

Most other free zones — including DMCC, JAFZA, Dubai Silicon Oasis, and others registered with MOHRE — follow the standard federal gratuity rules. The same calculation formula, eligibility requirements, and payment timelines apply as on the mainland.

Common Gratuity Calculation Mistakes and How to Avoid Them

Gratuity disputes frequently arise from a handful of recurring errors that both employees and employers should watch for.

Mistake 1: Using gross salary instead of basic salary. Gratuity is calculated on the basic salary component only. If your contract shows a total package of AED 15,000 with AED 10,000 basic and AED 5,000 in allowances, the gratuity calculation uses AED 10,000. Employers who calculate on gross salary overpay; employees who expect gross-salary gratuity may be disappointed.

Mistake 2: Applying old-law resignation deductions. Some employers still reduce gratuity for employees who resign before five years, applying the one-third or two-thirds rules from the repealed unlimited contract system. Under the current law, these deductions are illegal. Any employee who resigned after February 2022 is entitled to the full calculated amount.

Mistake 3: Not pro-rating partial years. An employee who worked 3 years and 7 months is entitled to gratuity for the full 3 years plus a pro-rated amount for 7 months — not just for the 3 complete years. Fractions of a year count, provided the total service exceeds one year.

Mistake 4: Excluding unpaid leave from the calculation. Unpaid leave days must be deducted from the total service period. However, maternity leave (including unpaid portions) and sick leave (including unpaid sick leave) do count toward the service period and should not be deducted.

Mistake 5: Contractually excluding gratuity. Some employers include clauses in employment contracts attempting to waive or limit gratuity entitlements. Such clauses are void under UAE labour law. Gratuity is a statutory right that cannot be contracted away.

What to Do If Your Employer Refuses to Pay Gratuity

If your employer has not paid your gratuity within 14 days of your last working day, or if you believe the calculation is incorrect, the dispute resolution process follows a structured path through MOHRE and, if necessary, the courts.

• Step 1: Request a written final settlement statement from your employer’s HR department, detailing the breakdown of gratuity, unused leave salary, and any other entitlements or deductions.
• Step 2: Verify the calculation independently using MOHRE’s guidelines and your employment contract. Check that only basic salary was used, that partial years were pro-rated, and that no illegal deductions were applied.
• Step 3: File a complaint with MOHRE via their digital services portal, the MOHRE app, or a Tasheel centre. Filing is free of charge. MOHRE will attempt mediation within 14 working days.
• Step 4: If mediation fails, MOHRE issues a referral letter for the labour court. Claims under AED 50,000 may be resolved directly by MOHRE without court proceedings. For larger claims, you must file at the Labour Department of the relevant court within 15 days of receiving the referral.
• Step 5: Labour court resolution. The first hearing is typically scheduled within 30 days. Target resolution is within six months. Employees have up to two years from the date the entitlement becomes due to file a claim, as per Article 54(9) of the labour law.

Throughout this process, keep copies of your employment contract, pay slips, bank statements showing salary deposits, any written correspondence with your employer, and the final settlement statement (if issued).

FAQ

Is End-of-Service Gratuity Mandatory in the UAE?

Yes. Gratuity is a statutory obligation under Federal Decree-Law No. 33 of 2021 for all private-sector employers. It cannot be waived by contract, and employers who fail to pay face fines, work permit restrictions, and labour court liability. The obligation applies across all emirates and most free zones, with the exception of DIFC (which uses the DEWS savings plan) and ADGM (which offers employees a choice between gratuity and a savings alternative from April 2025).

What Happens to Gratuity If I Resign in the UAE?

Under the current law, resignation does not reduce your gratuity entitlement. If you have completed at least one year of continuous service and properly serve your notice period, you receive the full calculated amount — 21 days per year for the first five years and 30 days per year thereafter, based on your last basic salary. This is a change from the old law, which applied reductions of one-third to two-thirds for employees resigning under unlimited contracts before completing five years.

How Is Gratuity Calculated for an Employee with 10 Years of Service?

For 10 years at AED 12,000 basic monthly salary: the first 5 years earn 21 days per year (105 days total), and the next 5 years earn 30 days per year (150 days total), giving 255 days. Daily rate: AED 12,000 ÷ 30 = AED 400. Total gratuity: 255 × AED 400 = AED 102,000. The two-year cap (AED 288,000) is not reached, so the full AED 102,000 is payable.

Does Gratuity Include Housing and Transport Allowances?

No. Gratuity is calculated exclusively on basic salary as stated in the MOHRE-registered employment contract. Housing allowance, transport allowance, utilities, bonuses, commissions, overtime pay, and any other supplementary payments are excluded. This is specified under Article 51 of the labour law and is one of the most frequent areas of employee-employer disagreement during final settlement.

What Is the New Gratuity Law in the UAE for 2025?

The gratuity framework remains governed by Federal Decree-Law No. 33 of 2021 as amended. The most recent amendment, Federal Decree-Law No. 9 of 2024 (effective 31 August 2024), increased enforcement penalties and strengthened compliance monitoring. The voluntary Savings Scheme introduced under Cabinet Resolution No. 96 of 2023 continues to roll out, and from April 2025, ADGM introduced an employee-choice model between traditional gratuity and a savings plan. No changes to the core gratuity calculation formula (21/30 days) have been enacted.

Can My Employer Deduct Amounts from My Gratuity?

Yes, but only for legally permitted deductions. Employers may deduct outstanding loans, salary advances, or proven amounts the employee owes to the company. They may also deduct salary in lieu of notice if the employee failed to serve the required notice period. However, employers cannot deduct arbitrary amounts, training costs (unless specified in a valid training agreement), or withhold gratuity as leverage. Any disputed deduction should be challenged through MOHRE.

How Long Does My Employer Have to Pay My Gratuity?

The employer must pay all outstanding entitlements — including gratuity, unused leave encashment, and final salary — within 14 days of the employment contract’s end date, as per Article 53 of Federal Decree-Law No. 33 of 2021. Failure to meet this deadline allows the employee to file a complaint with MOHRE immediately. Under the 2024 amendments, non-compliance penalties have increased significantly.

Does the Two-Year Gratuity Cap Apply to Total Salary or Basic Salary?

The law states that total gratuity shall not exceed “the wage of 2 years.” Legal interpretation and MOHRE practice apply this cap based on the basic salary (the same base used for the calculation), meaning the maximum gratuity is 24 months of basic salary. Since the calculation itself uses only basic salary, the cap is internally consistent. For an employee with AED 10,000 basic salary, the maximum possible gratuity is AED 240,000.

Official Sources

This article references information from the following UAE government authorities and official documents:

• UAE Government Portal (u.ae) — End-of-Service Benefits for Private Sector Workers
• MOHRE — Laws and Regulations
• Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations (full text)
• Cabinet Resolution No. 96 of 2023 — Alternative End-of-Service Benefits System
• Ministerial Resolution No. 668 of 2023 — Savings Scheme Subscription
• MOHRE — Digital Services and Complaints
• General Pension and Social Security Authority (GPSSA) — UAE National Pensions
• Securities and Commodities Authority (SCA) — Approved Investment Funds

Information is current as of February 2026. UAE regulations and fees are subject to change. Always verify current requirements with the relevant official authority before proceeding with any application or transaction.

This guide is for informational purposes only and does not constitute legal advice. For specific employment disputes or complex cases, consult a qualified UAE labour law practitioner or contact MOHRE directly.