Gratuity is an end-of-service benefit provided to employees in the United Arab Emirates (UAE) as per the UAE Labor Law. It is a mandatory payment that employers must make to their employees who have completed a certain period of service. In this blog, we will discuss in detail how to compute gratuity in the UAE.
What is Gratuity in the UAE?
Gratuity is a lump sum payment made by an employer to their employees as a token of appreciation for their service. It is paid at the end of the employment contract or when the employee resigns or retires. Gratuity is a legal entitlement for all employees in the UAE, except for those employed in the public sector.
Who is eligible for Gratuity in the UAE?
Employees who have completed at least one year of continuous service are eligible for gratuity in the UAE. There are a few exceptions to this rule, though. For example, employees who are terminated for gross misconduct or those who resign without notice are not eligible for gratuity.
How to Compute Gratuity in UAE?
How is Gratuity calculated in the UAE, and what is the formula?
Gratuity in the UAE is calculated based on the employee’s basic salary and the number of years of service completed.
The calculation formula is as follows:
Gratuity = (Basic Salary ÷ 30) × 21 × (Number of Years of Service)
For example, if an employee’s basic salary is AED 5,000 per month and they have completed five years of service, their gratuity will be calculated as follows:
Gratuity = (5,000 ÷ 30) × 21 × 5 = AED 17,500
Understanding the basic salary and service period for Gratuity calculation
Basic salary refers to the fixed monthly salary paid to an employee, excluding any allowances, bonuses, or overtime pay. The service period for gratuity calculation starts from the date of employment and ends on the date of termination. Any fraction of a year is calculated on a pro-rata basis.
Gratuity calculation in case of unlimited and limited contracts
In the case of unlimited contracts, the gratuity is calculated based on the total length of service with the employer. However, for limited contracts, the gratuity is calculated based on the remaining period of the contract, or three months’ salary, whichever is greater.
Gratuity payment upon termination of employment in the UAE
If an employee’s employment is terminated by the employer, the gratuity payment must be made within 30 days of the termination date. However, if the employee resigns, the gratuity payment must be made on the last working day.
How to calculate Gratuity for domestic workers in the UAE?
Domestic workers are also entitled to gratuity in the UAE, based on their basic salary and length of service. However, the calculation formula is different from that of other employees.
For domestic workers, the gratuity calculation is as follows:
Gratuity = (Basic Salary ÷ 365) × 30 × (Number of Years of Service)
How to calculate Gratuity for part-time workers in the UAE?
Part-time workers are also entitled to gratuity in the UAE, but the calculation formula is based on the number of days worked.
The gratuity calculation for part-time workers is as follows:
Gratuity = (Daily Wage ÷ 30) × 21 × (Number of Years of Service)
Factors that can impact Gratuity calculation in the UAE
There are several factors that can impact the calculation of gratuity in the UAE. These include the type of contract, the duration of service, the basic salary, and any allowances or bonuses that the employee may receive.
How to maximize your Gratuity payment in the UAE?
There are a few things that employees can do to maximize their gratuity payments in the UAE.
- Firstly, it is important to ensure that all employment contracts are properly documented and signed by both parties. This will avoid any disputes over the length of service or the basic salary.
- Secondly, employees should make sure to complete at least five years of continuous service with their employer, as this will entitle them to the maximum gratuity payment.
- Finally, employees should be aware of any allowances or bonuses that they are entitled to, as these can also be included in the calculation of gratuity. It is important to keep track of all earnings and to ensure that they are properly documented.
How to claim your Gratuity payment in the UAE?
Employees can claim their gratuity payment from their employer upon the termination of their employment contract. If the employer fails to make the payment, the employee can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) or take legal action.
What to do if there is a dispute over Gratuity payment in the UAE?
If there is a dispute over the calculation or payment of gratuity in the UAE, employees can file a complaint with the MOHRE. The MOHRE will investigate the complaint and attempt to resolve the dispute through mediation. If mediation is unsuccessful, the case may be referred to the labor court for resolution.
In conclusion, gratuity is an important benefit that employees in the UAE are entitled to. It is calculated based on the employee’s basic salary and length of service, and there are certain rules and regulations that govern its calculation and payment. By understanding how gratuity is calculated and taking the necessary steps to ensure that all employment contracts are properly documented, employees can maximize their gratuity payment and ensure that they receive what they are entitled to.
FAQs on how to compute gratuity in UAE
1. Can gratuity be paid in installments?
No, according to the UAE Labor Law, gratuity must be paid as a lump sum payment. This means that the entire amount of gratuity owed to an employee must be paid to them in one payment. Employers are not allowed to pay gratuity in installments or delay the payment in any way.
2. Is gratuity taxable in the UAE?
No, gratuity is not subject to income tax in the UAE. This means that the entire amount of gratuity owed to an employee is tax-free. However, it is important to note that other forms of compensation such as salaries and bonuses may be subject to income tax in the UAE, depending on the employee’s residency status and income level.
3. Can gratuity be forfeited?
Gratuity cannot be forfeited, except in cases of termination for gross misconduct. In other words, if an employee is terminated due to a serious violation of the company’s policies or the law, the employer may be able to forfeit the employee’s gratuity payment. However, in all other cases, gratuity is a legal entitlement and cannot be forfeited.
4. Can employees negotiate the gratuity payment with their employer?
No, gratuity is a legal entitlement and cannot be negotiated. The UAE Labor Law outlines specific rules and regulations regarding the calculation and payment of gratuity, and employers are required to follow these rules. However, employees can take steps to ensure that they receive the maximum amount of gratuity that they are entitled to, such as ensuring that their employment contracts are properly documented and that they complete at least five years of continuous service with their employer.