End-of-service gratuity is the single most-asked-about financial entitlement in the UAE private sector — and the one most frequently miscalculated. The reason is almost always the same: people calculate it on their total salary when the law calculates it on basic salary only. If your contract says AED 12,000 per month but the basic-salary line reads AED 6,000, with the rest split into housing and transport allowances, your gratuity is built on the 6,000, not the 12,000. That single detail cuts many employees’ expectations in half.
This guide explains exactly how end-of-service gratuity works in the UAE in 2026, who qualifies, how to calculate it step by step (with worked examples), what changed under the new labour law, and the practical mistakes employers and employees make most often.
The governing law: Article 51 of Federal Decree-Law No. 33 of 2021
End-of-service gratuity is governed by Article 51 of Federal Decree-Law No. 33 of 2021, in force since 2 February 2022. It applies to all private-sector employees who have completed at least one year of continuous service. Free-zone employees should check their zone’s own regulations.
The gratuity formula
- First 5 years: 21 days of basic salary per year.
- Beyond 5 years: 30 days of basic salary per additional year.
- Partial years: pro-rated after the one-year mark.
- Cap: total cannot exceed two years’ basic salary (Article 53).
Daily rate: monthly basic salary ÷ 30.
What counts as basic salary
Only the fixed wage stated as “basic salary” in the MOHRE-registered contract. Excludes: housing allowance, transport allowance, bonuses, commissions, overtime, and in-kind benefits.
Worked examples
Example 1: Three years, AED 8,000 basic
Daily rate: AED 266.67 | 21 × 3 = 63 days | Total: AED 16,800
Example 2: Seven years, AED 10,000 basic
First 5 years: 105 days | Next 2 years: 60 days | Total: 165 × AED 333.33 = AED 55,000
Example 3: Twelve years, AED 15,000 basic
105 + 210 = 315 days | 315 × AED 500 = AED 157,500 | Cap (AED 360,000) does not apply: AED 157,500
Example 4: Twenty years, AED 20,000 basic
105 + 450 = 555 days | 555 × AED 666.67 = AED 370,002 | Cap (AED 480,000) does not apply: AED 370,002
What changed under the new law
Resignation no longer reduces gratuity. Under the old law, employees on unlimited contracts who resigned with less than five years received a reduced gratuity. Decree-Law 33/2021 abolished this. Since February 2022:
- Resigned employees receive the same full gratuity as terminated employees.
- The unlimited/limited distinction no longer affects gratuity.
- The only disqualification is dismissal for gross misconduct (Article 44).
If your payroll still applies the old reduction formula, update it.
Who qualifies
- Minimum one year of continuous service.
- Continuous service includes probation (once completed), annual leave, and paid sick leave.
- Unpaid leave days are excluded unless the contract says otherwise.
- Part-time employees: entitled, pro-rated to working hours.
- Domestic workers: covered by Federal Decree-Law No. 9 of 2022 (different rules).
When must the employer pay
All final entitlements, including gratuity, must be paid within 14 days from the end of the employment contract. Failure triggers MOHRE enforcement and potential labour-court claims.
Forfeiture
Gratuity is forfeited only on dismissal for gross misconduct under Article 44 (violence, dishonesty, intoxication, disclosure of trade secrets, seven-day unexcused absence). In all other scenarios — resignation, non-renewal, mutual agreement, redundancy — the employee gets full gratuity.
Common mistakes
- Calculating on total salary instead of basic. The most common error.
- Still applying the old resignation-reduction formula. Void since February 2022.
- Not paying within 14 days. Statutory deadline.
- Ignoring partial years. 3 years and 7 months = 3.58 years, not 3.
- Structuring basic salary too low. Legal, but may be challenged in court if extreme.
- Forgetting free-zone differences. DIFC and ADGM have their own rules.
The Savings Scheme alternative
The UAE has introduced an optional end-of-service savings scheme managed through approved investment vehicles. The employer contributes a percentage of salary into a fund during employment, and the employee receives accumulated returns at the end of service. This is optional — most employers still use the traditional system. The scheme relieves employers of accruing balance-sheet gratuity obligations while potentially providing employees with higher returns through investment. Employees offered the choice should compare projected investment returns against the guaranteed statutory formula before deciding.
The final settlement: gratuity is one piece
Gratuity is paid as part of the final settlement, which includes:
- End-of-service gratuity.
- Outstanding salary for the last working period.
- Accrued but untaken annual leave (paid at the basic-salary rate).
- Repatriation — the employer generally covers the return flight to the employee’s home country.
- Any amounts owed by the employee (loans, advances) may be deducted, but must be documented.
The entire settlement must be completed within 14 days. MOHRE offers a complaints channel for employees whose employers fail to pay on time.
Gratuity vs. pension
The UAE does not have a universal pension for expatriate workers. Gratuity is the closest equivalent — a lump sum designed as a financial cushion. UAE nationals are covered by pension through the General Pension and Social Security Authority (GPSSA). For expatriates, gratuity is your only employer-funded end-of-service entitlement, making the basic-salary split in your contract genuinely important.
Record-keeping for employers
Maintain a clear record for each employee: MOHRE-registered basic salary (and changes over time, since gratuity is on the last basic salary), start date, any unpaid leave periods, and contract type/term. This should produce the correct gratuity figure without guesswork at every exit.
How Dynamic Logics can help
Getting gratuity right is a compliance obligation. Dynamic Logics helps employers set up compliant contracts with clear salary structures, advises on final-settlement calculations, and supports the HR processes around departures. If you need help getting the numbers right, get in touch.
Frequently asked questions
How is gratuity calculated? 21 days of basic salary per year for the first five years, then 30 days per year after. Capped at two years’ basic salary.
Is gratuity reduced if I resign? No. Full gratuity applies on resignation under the current law.
What is basic salary for gratuity? The fixed wage in your MOHRE contract. Excludes allowances, bonuses, commissions.
Payment deadline? 14 days from contract termination.
Part-time employees? Yes, pro-rated to working hours.
Related guides
- Employment Contract Guide — where the basic-salary split is set.
- Offer Letter Format — get the salary structure right from the start.
- UAE Salary Guide 2026
Sources
- Federal Decree-Law No. 33 of 2021, Articles 51–53 (gratuity entitlement, calculation, cap).
- MOHRE — end-of-service benefits guidance (mohre.gov.ae).
- Official UAE Government Portal — End-of-service benefits in the private sector
Last reviewed: August 2026. Informational only, not legal or financial advice. Consult MOHRE or a UAE employment lawyer for your specific case.
