End of service gratuity is a lump-sum payment that employers in the UAE are legally required to pay employees when their employment ends. It is one of the most significant financial benefits available to workers in the Emirates — yet it remains one of the most misunderstood. Many employees have no idea how much they are entitled to until they resign or are terminated, and many employers underestimate the liability sitting on their books.
This guide explains exactly how end of service gratuity is calculated under the current UAE labour law, what affects the amount you receive, and how to plan around this important benefit.
The Basic Formula: How Gratuity Is Calculated
Under the UAE Labour Law (Federal Decree-Law No. 33 of 2021), end of service gratuity is calculated based on your basic salary — not your total salary package. Allowances for housing, transport, utilities, and other benefits are excluded from the calculation unless your employment contract explicitly states otherwise.
The formula works in two tiers. For the first five years of service, you are entitled to 21 calendar days of basic salary for each year of service. From the sixth year onwards, you are entitled to 30 calendar days of basic salary for each additional year of service. The total gratuity is capped at two years' worth of basic salary, regardless of how long you have worked.
For example, if your basic salary is AED 15,000 per month and you have worked for 7 years, your gratuity would be calculated as follows: for the first five years, AED 15,000 divided by 30, multiplied by 21, multiplied by 5 — that gives AED 52,500. For the remaining two years, AED 15,000 divided by 30, multiplied by 30, multiplied by 2 — that gives AED 30,000. Your total gratuity would be AED 82,500. Use our end of service gratuity calculator to get your exact figure.
Resignation vs Termination: Does It Matter?
Under the new labour law that came into effect in February 2022, the distinction between resignation and termination has been simplified. Previously, employees who resigned before completing five years of service received a reduced gratuity. Under the current law, the gratuity calculation is the same regardless of whether you resign or are terminated — provided you have completed at least one year of continuous service.
However, if you are terminated for gross misconduct under Article 44 of the law, your employer may withhold the gratuity entirely. Gross misconduct includes fraud, violence, serious safety violations, and other specified offences. In all other scenarios — including redundancy, mutual termination, and end of fixed-term contracts — the full gratuity applies.
If you are serving a probation period and are terminated during probation, or if you resign during probation, no gratuity is payable because you have not completed one year of service.
What Counts as Basic Salary?
This is where many employees get tripped up. Basic salary is the amount stated as your base pay in your employment contract. It does not include housing allowance, transport allowance, commission, overtime pay, or any other supplementary payments — unless your contract explicitly includes them in the basic salary definition.
In the UAE, it is common practice for employers to structure salary packages with a relatively low basic salary and higher allowances. A package of AED 25,000 per month might be split as AED 10,000 basic plus AED 8,000 housing plus AED 4,000 transport plus AED 3,000 other allowances. In this case, the gratuity would be calculated on the AED 10,000 basic salary only — not the full AED 25,000.
This is an important factor to consider when negotiating your employment contract. A higher basic salary means a higher gratuity. Our salary calculator breaks down the components of a UAE salary package so you can see how your basic salary compares to your total compensation.
The DEWS Alternative: Savings Instead of Gratuity
In 2020, the Dubai International Financial Centre (DIFC) replaced the traditional gratuity system with the DIFC Employee Workplace Savings (DEWS) scheme. Under DEWS, employers make monthly contributions to an investment fund on behalf of each employee, rather than paying a lump sum at the end of employment.
The contribution rate mirrors the gratuity entitlement: 5.83% of basic salary for the first five years, and 8.33% from the sixth year onwards. The key difference is that the money is invested throughout the employee's tenure, potentially growing in value, and the employee can see their balance at any time.
DEWS only applies to DIFC-based employees. For the rest of the UAE, the traditional gratuity system remains in place. However, there have been discussions about extending a similar savings-based model to the wider UAE, and it is worth watching this space.
How to Check Your Entitlement and Plan Ahead
Every UAE employee should know their approximate gratuity entitlement. It is money that is owed to you by law, and it can represent a significant sum — especially after several years of service. For someone earning AED 20,000 basic salary with 10 years of service, the gratuity can exceed AED 170,000.
To check your entitlement, use our end of service gratuity calculator. Enter your basic salary, your start date, and the calculator will show you exactly what you are owed.
When planning a job move, factor the gratuity into your decision. If you are close to a milestone — such as completing five years of service, after which the per-year entitlement jumps from 21 days to 30 days — it may be worth staying a few extra months. Similarly, if you are considering a new role, compare the total package (including projected gratuity) using our salary comparison calculator.
Common Questions Answered
Can my employer pay gratuity in instalments? No — it must be paid as a lump sum within 14 days of the end of employment. If your employer fails to pay within this period, you can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE).
Is gratuity taxed? No. There is no personal income tax in the UAE, and end of service gratuity is not subject to any deductions — it is paid gross. However, your employer may deduct any outstanding debts you owe the company (such as an unrepaid salary advance or a housing loan) from your gratuity.
What if my salary changed during my employment? The gratuity is calculated based on your last basic salary — the salary you were earning at the time your employment ended. If your basic salary increased over the years, the gratuity is calculated at the higher rate for the entire period of service, not just the period at the higher salary.
For a full picture of your employment costs and benefits, including how gratuity interacts with your overall compensation, explore our employer cost calculator from the employer's perspective.