End of service gratuity in the UAE: How to calculate what you owe

Published Monday 12 October 2026

Table of contents

• What is end of service gratuity in the UAE?
• Who is eligible for gratuity?
• How to calculate gratuity in the UAE
• What counts as “basic salary”?
• Special cases to watch
• When and how to pay gratuity
• Keep your UAE payroll accurate with Xero
• FAQs on end of service gratuity in the UAE

Key takeaways

• Gratuity is a legal end of service payment owed to private-sector staff with at least one year of continuous service, set by Federal Decree-Law No. 33 of 2021.
• The payment is calculated on the employee's last basic salary only, at 21 days' pay per year for the first five years and 30 days per year after that.
• The total is capped at two years' basic salary and must be paid within 14 days of the last working day.
• Free zones such as DIFC and ADGM run their own schemes, so check which rules apply before you calculate.

What is end of service gratuity in the UAE?

End of service gratuity is a lump-sum payment UAE employers must make to eligible employees when their employment ends. Also called end of service benefits (EOSB), it functions as a form of retirement benefit and recognition of service under UAE labour law.

The rules are set out in Article 51 of the UAE Labour Law (Federal Decree-Law No. 33 of 2021), which came into effect on 2 February 2022. This law applies to all private-sector employers and employees in the UAE, including most free zones.

Who is eligible for gratuity?

An employee becomes entitled to gratuity after completing at least one year of continuous service with the same employer. Here's a quick eligibility checklist:

• The employee must have completed a minimum of one year of continuous service.
• Days of unpaid absence are excluded from the service calculation.
• Once the one-year threshold is reached, fractions of a year are calculated proportionally.
• There is no gratuity entitlement for employees who leave before completing one year.
• Temporary employees with contracts under one year are not entitled to gratuity.

UAE nationals working in the private sector follow a separate pension and social security system rather than the standard expatriate gratuity formula. Review this guide on hiring employees for help with getting employees set up correctly from the start.

How to calculate gratuity in the UAE

The gratuity calculation uses a tiered formula based on years of service. Follow these steps to work out what you owe a departing employee.

1. Find the daily basic wage

Divide the employee's last monthly basic salary by 30. This gives you the daily basic wage used in the formula. Use only the basic salary component, not the total package.

daily wage formula: monthly basic salary ÷ 30

2. Apply the 21-day and 30-day rule

For the first five years of service, the employee is entitled to 21 days of basic salary for each year. For each year beyond the fifth year, the entitlement increases to 30 days of basic salary per year, following the tiered formula set out in the UAE Labour Law:

• years 1 to 5: daily wage × 21 × years of service (up to 5)
• years 6 onwards: daily wage × 30 × years of service beyond year 5

3. Apply the 2-year salary cap

The total gratuity payment cannot exceed two years' basic salary (24 months), regardless of how long the employee has worked. This cap is set by federal law and applies across all emirates.

Worked example A: Employee under 5 years

An employee leaves after three years and six months with a basic salary of AED 8,000 per month.

1. daily wage: AED 8,000 ÷ 30 = AED 266.67
2. gratuity: AED 266.67 × 21 × 3.5 years = AED 19,600

The employee is owed AED 19,600 in gratuity.

Worked example B: Employee over 5 years

An employee leaves after eight years with a basic salary of AED 12,000 per month.

1. daily wage: AED 12,000 ÷ 30 = AED 400
2. irst 5 years: AED 400 × 21 × 5 = AED 42,000
3. next 3 years: AED 400 × 30 × 3 = AED 36,000
4. total gratuity: AED 42,000 + AED 36,000 = AED 78,000

The employee is owed AED 78,000 in gratuity. This is well under the two-year cap of AED 288,000 (AED 12,000 × 24 months).

What counts as "basic salary"?

Gratuity is calculated on the employee's last drawn basic salary only. This is the fixed monthly amount stated in the employment contract, excluding all allowances and variable payments.

The following are excluded from the gratuity calculation:

• housing allowance
• transport allowance
• utilities allowance
• furniture allowance
• commissions
• bonuses
• overtime payments

If your employee's contract shows a total salary of AED 15,000 but the basic salary line reads AED 7,500, the gratuity is calculated on AED 7,500. Check the MOHRE-registered contract for the correct basic salary figure.

Special cases to watch

Not every situation follows the standard formula. Here are the edge cases you need to know about:

Resignation vs termination

Under the current UAE Labour Law (effective since February 2022), employees who resign voluntarily receive the same gratuity as those whose contracts are terminated by the employer. The graduated reduction that used to apply to resignations no longer applies. An employee who resigns after one year of service receives the full 21-day entitlement, the same as a terminated employee.

Part-time and flexible contracts

For part-time employees, gratuity is calculated proportionally based on working hours. The formula compares the employee's contracted hours to full-time equivalent hours, then applies that percentage to the standard gratuity amount.

• part-time formula: (working hours in contract ÷ full-time working hours) × 100 = percentage of full gratuity entitlement

Free zones: DIFC and ADGM

Most UAE free zones, including JAFZA, DMCC, RAKEZ, and IFZA, follow the same federal gratuity rules as the mainland. DIFC and ADGM are the exceptions.

DIFC uses the DIFC Employee Workplace Savings (DEWS) scheme instead of traditional gratuity. Employers contribute monthly to a funded DEWS savings plan: 5.83% of basic salary for employees with under five years of service and 8.33% for those with five years or more.

ADGM operates under its own employment regulations with a similar savings-scheme structure. If your business is registered in either free zone, check the specific scheme documentation rather than applying the federal formula.

Unused annual leave

Unused annual leave is paid separately as part of the final settlement. It is not included in the gratuity calculation and should be calculated based on the employee's full wage, including allowances.

When and how to pay gratuity

Employers must settle all end of service entitlements within 14 days of the contract end date, under Article 53 of the UAE Labour Law. Gratuity forms part of the final settlement, alongside any unpaid wages, unused leave, and other entitlements.

You can deduct any documented amounts the employee owes you from the gratuity payment, such as outstanding loans or salary advances. Failure to pay within 14 days entitles the employee to file a complaint through MOHRE, which can escalate to court proceedings.

Keep your UAE payroll accurate with Xero

Calculating gratuity correctly starts with keeping accurate payroll records. When basic salary figures are clear and employment dates are tracked, working out end of service payments becomes straightforward. Xero helps you organise your payroll data, track employee records, and keep your finances in order so you're ready when an employee leaves.

Want some help keeping your UAE payroll accurate? Get one month free.

FAQs on end of service gratuity in the UAE

Here are answers to common questions about gratuity calculations in the UAE.

Is gratuity based on basic or gross salary?

Gratuity is calculated on the last drawn basic salary only. Allowances for housing, transport, utilities, commissions, bonuses, and overtime are all excluded from the calculation.

Does resignation reduce gratuity in the UAE?

No. Since February 2022, employees who resign after completing one year of continuous service receive the full gratuity entitlement. The old system that reduced gratuity for resignation was abolished under Federal Decree-Law No. 33 of 2021.

Is there a maximum gratuity amount?

Yes. The total gratuity payment is capped at two years' basic salary (24 months), regardless of how many years the employee has worked. This cap applies across all emirates and contract types.

How is gratuity calculated for less than five years of service?

For employees with less than five years of service, gratuity is calculated at 21 days of basic salary for each year worked. The employee must have completed at least one year to qualify, and fractions of a year are paid proportionally after that threshold is reached.

When must an employer pay gratuity?

Employers must pay all end of service entitlements, including gratuity, within 14 days of the employee's last working day. This deadline is set by Article 53 of the UAE Labour Law.