What is end-of-service gratuity in the UAE?
End-of-service gratuity (EOSB) is a mandatory lump-sum payment every private-sector employer in the UAE must provide to employees who complete at least one year of continuous service. Governed by Federal Decree-Law No. 33 of 2021 (UAE Labour Law), gratuity is calculated based on the employee's basic salary only — allowances for housing, transportation, utilities, and furniture are excluded. The payment is due within 14 days of the employment contract ending.
How do you calculate UAE gratuity?
The formula uses your daily basic wage (monthly basic salary ÷ 30) multiplied by days per year of service: 21 days per year for the first 5 years, then 30 days per year for each year after 5. For example, with a basic salary of AED 10,000 and 7 years of service: daily wage = AED 333.33; first 5 years = 333.33 × 21 × 5 = AED 35,000; next 2 years = 333.33 × 30 × 2 = AED 20,000; total gratuity = AED 55,000. You can pair this with a salary to hourly calculator to understand your true compensation per hour.
What is the UAE gratuity formula?
The formula has two tiers based on years of service:
- 1–5 years: Gratuity = (Basic Salary ÷ 30) × 21 × Years of Service
- Over 5 years: Gratuity = [(Basic Salary ÷ 30) × 21 × 5] + [(Basic Salary ÷ 30) × 30 × (Years − 5)]
The total gratuity is capped at 2 years' basic salary regardless of how long you've worked. Employees with less than 1 year of service are not entitled to any gratuity.
What is a UAE gratuity calculation example?
Consider an employee with a monthly basic salary of AED 15,000 who worked for 10 years on a limited contract. Daily wage = 15,000 ÷ 30 = AED 500. First 5 years: 500 × 21 × 5 = AED 52,500. Next 5 years: 500 × 30 × 5 = AED 75,000. Total = AED 127,500. The 2-year cap is 15,000 × 24 = AED 360,000. Since AED 127,500 is under the cap, the full amount is paid. Planning what to do with your gratuity? A compound growth calculator can show how investing it grows over time.
What is the difference between limited and unlimited contract gratuity?
Since February 2022, all new UAE employment contracts must be fixed-term (limited) under the new Labour Law. Limited contract employees receive full gratuity whether they resign or are terminated. However, many employees still hold legacy unlimited (open-ended) contracts. Under these older contracts, resignation penalties apply: employees who resign with 1–3 years of service receive only 1/3 of the gratuity, those with 3–5 years receive 2/3, and only those with 5+ years receive the full amount. Termination by the employer always pays full gratuity on both contract types.
Is UAE gratuity taxable?
No. The UAE does not levy personal income tax, so your end-of-service gratuity is received tax-free. This is one of the significant financial benefits of working in the UAE. However, if you're an expat from a country with worldwide taxation (such as the US), you may need to report the gratuity in your home country's tax return. The gratuity is also not subject to any social security deductions. For long-term financial planning with your gratuity payout, consider using a FIRE calculator to map out your path to financial independence.
When is an employee not entitled to gratuity in the UAE?
An employee loses their right to gratuity in the following situations: service of less than one year, dismissal for gross misconduct under Article 44 of the Labour Law (theft, fraud, assault, substance abuse at work, or sharing confidential information), or abandonment of work without lawful notice. Employers must pay gratuity within 14 days of the contract ending — failure to do so entitles the employee to legal recourse through MOHRE or UAE labour courts. Unpaid leave days are deducted from the total years of service when calculating the final gratuity amount.