The UAE Labour Law, No. 8 of 1980 (as amended), applies to all employers in the UAE and specifies a predetermined list of end-of-service benefits (EoSB) for employees, including gratuity.

Here’s a quick rundown of the essential facts about end-of-service gratuity payments that employers need to know.

What Are End of Service Benefits In UAE?

Once an employee’s employment in the UAE is terminated, they are eligible for gratuity payments. In addition, the gratuity received from a job may serve as a cushion before moving into a new position.

Regardless of their profession, eligible workers in the UAE receive an end-of-service benefit (ESB) or service gratuity payment, which is mandatory under the UAE Labour Law.

This end-of-service gratuity payment is based on the employee’s past basic wage. As a result, allowances like housing, transportation, utilities, and furnishings will not be considered.

The employer may demand that the employee pay any outstanding debt to the firm from the gratuity amount.

However, Article 120 of the UAE Labour Law empowers you as an employer to terminate a contract without providing notice because of concerns related to the employee’s behavior or performance. In that case, you do not have to pay any gratuity.

To figure out the gratuity calculation, you must consider three aspects:

1. Contract type

The first thing to look for is whether your employee has a limited or unlimited contract since the calculations vary depending on the type of employment contract.

2. Basic salary per day

Basic salary is an essential parameter for settling the end service gratuity pay. To determine the Basic Salary per Day, divide the monthly basic pay of the employee on the payslip by 30.

3. Reason for the termination of the contract

The gratuity calculation amount would vary based on whether or not you, as the employer, terminates or the employee resigns while under the contract.

Additional Benefits in Case of Unfair Dismissal

If employees believe they have been unlawfully dismissed, they may turn to the legal system.

• Employees who meet the required standards may need to be compensated for up to three months’ pay.
• For short-term contracts, the compensation amount should not exceed the three-month wage or the payment for the remainder of the contract term, whichever is shorter, unless otherwise stated in the contract.

How to calculate gratuity

Based on the parameters mentioned above, here’s the calculation of gratuity.

For Limited contract

The employees who have worked for more than one year in continuous service are only eligible for an end-of-service gratuity when their service comes to an end. Therefore, leave without pay needs to be subtracted from the service period.

Service period in between one year to five years

The amount is calculated based on the basic salary of 21 days for every year of employment.

More than five years of service

Suppose the employee has served your company for more than five years. In that case, they are entitled to the total gratuity payment of 30 days’ salary for every year of service after the initial five years (the first five years’ consideration is already discussed above), as covered in Article 132

Please be advised that if your employee quit before the limited contract is finished, they will not receive a gratuity as per Article 138 of the UAE Labour Law. However, if their total years of continuous service are more than five years, this condition does not apply.

For Unlimited Contract

For an unlimited contract, the gratuity amount is determined by whether the employee quit the firm or the company asked them to leave.

In between one to five year years of service

For every year of the five years of employment, the employee is entitled to 21 days’ basic wage.

More than five years of service

Employees who work for you for more than five years are eligible for 30 days’ pay for each extra year (over five years), provided that their total amount is not more than their two years’ salary.

If the employee ends the contract

Furthermore, there are times when the employee quits. In such circumstances, gratuity compensation for EoSB in UAE is determined as follows:

• There is no gratuity due if the employee terminates the agreement before a year has elapsed.
• A gratuity equivalent to 33% of 21 days’ basic pay is paid for a service that lasts more than a year but not more than three years.
• If the service lasts more than three years but fewer than five, the gratuity is two-thirds (75%) of 21 days’ basic salary.
• If your former employee works for more than five years, their gratuity is calculated by multiplying the number of years worked by 30 days of basic pay per year.

What Should You Do While Firing an Employee?

Unless the employee is terminated for gross misconduct, the employee is entitled to immediate payment of their end of service gratuity under the United Arab Emirates Gratuity Law.

When we speak of end-of-service benefits, the employer must consider payment of remaining annual leave days (usually not more than 60 days), overtime, unpaid leave days that should be deducted while calculating gratuity, and air ticket in case the employee is leaving the country.

The employee has a right to apply for an annual labor ban if the employee hasn’t served the notice period (30/60/90 days, whichever is agreed by the contract).

Additionally and importantly, the employee cannot stay on the same visa after employment visa termination; within 30 days, they should either exit the country or change to a visit/tourist visa. Therefore, it is in the employer’s interest to resolve the matter within 30 days after the visa is canceled.

Conclusion

Unless you terminate the employee for gross misconduct, they are entitled to immediate payment of their end of service gratuity as per the United Arab Emirates Gratuity Law.

If the employee thinks there is an unlawful act from your end, they might document the case to the Labour Court for end-of-service benefits dispute resolution. For the case, you have to submit sufficient documentary reasons with detailed records throughout the employment, or otherwise, the post-termination rights of the employee are more likely to be upheld.

We hope you find this information helpful as an employer in the UAE.

To learn more, contact us

📧 hello@bizzmosis.com ☎️ +971 4 568 6522 📞 +971 52 979 8169

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