The Ultimate Guide: What is the Formula for Calculating Gratuity in UAE?

Are you working in the United Arab Emirates (UAE) and wondering how gratuity is calculated? Whether you are planning to resign or considering a new job opportunity, understanding how gratuity is calculated is essential to ensure you receive the correct amount.

What is Gratuity?

Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for their services rendered. It is a mandatory benefit in the UAE that is governed by the UAE Labour Law.

Who Is Eligible for Gratuity in UAE?

According to the UAE Labour Law, both limited and unlimited contract employees are eligible for gratuity. Limited contract employees are those who have a fixed-term employment contract, while unlimited contract employees have an open-ended employment contract.

Factors to Consider for Gratuity Pay Calculation

The calculation of gratuity in the UAE depends on several factors, including:

• The type of employment contract (limited or unlimited)
• The employee's last basic salary
• The duration of employment

What are the Types of Contracts?

In the UAE, there are two types of employment contracts:

• Limited Contracts: These contracts have a fixed duration, typically ranging from 1 to 5 years. The gratuity calculation for limited contracts follows a specific formula.
• Unlimited Contracts: These contracts have no fixed duration and can be terminated by either party with notice. The gratuity calculation for unlimited contracts follows a different formula.

Gratuity Pay Calculation for Limited Contracts

The formula for calculating gratuity for limited contracts in the UAE is as follows:

Gratuity = (21 x Monthly Basic Salary x Years of Service) / 365

Here, the monthly basic salary refers to the employee's basic salary excluding any allowances or bonuses. The years of service represent the total number of years the employee has worked for the employer.

Gratuity Pay Calculations for Unlimited Contracts

The formula for calculating gratuity for unlimited contracts in the UAE is as follows:

Gratuity = (30 x Monthly Basic Salary x Years of Service) / 365

Similarly, the monthly basic salary refers to the employee's basic salary excluding any allowances or bonuses. The years of service represent the total number of years the employee has worked for the employer.

FAQs

Here are some frequently asked questions about gratuity calculation in the UAE:

1. How is gratuity calculated in UAE? Gratuity is calculated based on the employee's monthly basic salary and years of service.
2. Is gratuity in UAE calculated on the basic salary? Yes, gratuity is calculated based on the employee's basic salary.
3. What is the new gratuity law in UAE 2023? The new gratuity law in UAE 2023 has not been specified in the scraped data.
4. Is gratuity added to the monthly salary? No, gratuity is paid as a lump sum amount separate from the monthly salary.
5. When should anyone not be paid gratuity? There are certain scenarios where an employee may not be entitled to gratuity, such as termination due to misconduct or resignation within the probation period.

These are just some of the frequently asked questions about gratuity calculation in the UAE. It is important to consult the UAE Labour Law and seek professional advice for accurate and up-to-date information.

Conclusion

Calculating gratuity in the UAE may seem complicated, but understanding the formula and factors involved can help you ensure that you receive the correct amount. As an employee, it is essential to be aware of your rights and entitlements when it comes to gratuity. By familiarizing yourself with the calculation formula and consulting the UAE Labour Law, you can be well-prepared for your future career moves and retirement.