How to Calculate Gratuity in the UAE: The 2026 Formula, 5 Worked Examples and the Mistakes HR Teams Make

Gratuity — officially the end-of-service benefit — is a lump sum that private-sector employers in the UAE pay foreign employees when their employment ends. It is not a bonus and it is not optional. It is set by the UAE Labour Law, Federal Decree-Law No. 33 of 2021, which took effect on 2 February 2022 and replaced the 1980 law most people still half-remember.

Every week someone asks us to sanity-check a final settlement: an HR manager closing out a resignation, a founder budgeting for their first leavers, or an employee who suspects the number on the settlement sheet is wrong. The maths is simple once you know the rules. The mistakes come from the details — which salary, which days, which years.

You are entitled to gratuity if all of these apply:

• You work in the private sector under the federal Labour Law (mainland and most free zones).
• You have completed at least one year of continuous service with the same employer.
• You are not a UAE or GCC national covered by a pension scheme instead.

Here is the whole formula in five steps. If you remember nothing else from this article, remember this.

Written as a formula:

The jump from 21 to 30 days after year five is the detail most quick estimates get wrong. It only applies to the years after the fifth — the first five years stay at 21 days each.

Basic salary only. This single rule causes more disputes than everything else combined.

UAE employment contracts usually split pay into a basic salary plus allowances — housing, transport, phone, education. Gratuity is calculated on the last basic wage stated in the contract. Allowances, overtime, commission and bonuses are left out unless the contract says otherwise.

That is why two people on the same AED 20,000 package can walk away with very different gratuity. Someone on AED 12,000 basic and AED 8,000 allowances earns gratuity on 12,000. Someone on AED 8,000 basic earns it on 8,000.

For commission-based roles the law allows a different approach based on what the contract defines as the wage, so sales staff should read their contract carefully.

These examples use the formula exactly as above. Run your own numbers in the calculator, then compare.

Notice the fourth example: part years are counted pro rata once you pass the first full year. You do not lose the four months.

Under the old law, yes. Under the current law, no — and this is the change that still catches people out.

Before February 2022, employees on unlimited contracts who resigned received only a third or two thirds of their gratuity, depending on length of service. Federal Decree-Law No. 33 of 2021 removed those reductions. An employee who resigns now receives the full 21/30-day entitlement, provided they have completed at least one year of service.

Two things can still reduce the final payment:

• Amounts the employee owes. The employer may deduct legally due amounts, such as an outstanding salary advance or loan.
• Unpaid absence days, which are excluded from the service period (covered in the next section).

If an employer claims a reason to withhold gratuity, ask for it in writing with the article of the law it relies on, and check it with MOHRE before signing the settlement.

Unpaid leave and absences. Days of unpaid absence are excluded from the service period. If you worked four years but took 60 days of unpaid leave, your service is four years minus 60 days.

Probation. Probation counts towards service if you stay on after it ends. Someone who resigns during probation, before a year of service, gets no gratuity.

Part-time employees. Gratuity is calculated in proportion to the hours actually worked under the part-time contract.

Contract renewals. Consecutive contracts with the same employer and no break count as continuous service. A break between contracts can reset the clock, so keep renewal dates tidy.

The law requires employers to pay all end-of-service dues — gratuity, unpaid salary, accrued leave — within 14 days of the contract ending.

If payment is late or disputed:

1. Raise it in writing with HR and keep a copy.
2. File a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) through its app, website or call centre.
3. MOHRE mediates first. Unresolved claims move to the labour courts.

Keep your contract, payslips, leave records and resignation or termination letter together — they are the evidence that settles most disputes quickly.

After helping UAE companies automate payroll and HR answers, we see the same errors again and again. None of them are complicated; they happen because settlements are done by hand, once in a while, under time pressure.

An HR policy assistant trained on your contracts and handbook answers staff questions about leave, gratuity and notice periods instantly, and hands anything sensitive to HR. See our HR Policy Assistant and the full list of AI agents.

In 2023 the UAE approved a voluntary alternative end-of-service savings scheme for the private sector. Employers who join pay regular contributions into approved investment funds instead of building up a lump-sum liability, and employees receive their accumulated savings when they leave.

It is optional for employers, so most employees in the private sector are still on the traditional formula above. If your employer has joined the scheme, your entitlement follows the scheme rules for the period covered — ask HR which applies to you.

For employers, the scheme turns an unpredictable lump sum into a steady monthly cost. Whichever route you choose, budget for it: gratuity is a real liability that grows every month an employee stays.

Use this checklist when an employee resigns or a contract ends. Tick items as you go — your progress is saved in this browser.