How Gratuity is Calculated in UAE

Last updated: February 2026

What is Gratuity?

Gratuity, also known as end of service benefit, is a payment made by employers to employees upon termination of employment in the UAE. It is a mandatory benefit under UAE Labour Law for employees who have completed at least one year of continuous service.

Eligibility for Gratuity

  • Must have completed at least 1 year of continuous service
  • Applies to both unlimited and limited contract employees
  • Calculated based on basic salary only

Gratuity Calculation Formula

For Unlimited Contracts:

  • First 5 years: 21 days of basic salary for each year
  • After 5 years: 30 days of basic salary for each additional year

For Limited Contracts:

  • All years: 21 days of basic salary for each year of service

Calculation Examples

Example 1: 3 Years Service (Unlimited Contract)

Basic Salary: AED 10,000

Years of Service: 3 years

Calculation:
Daily Salary = 10,000 ÷ 30 = AED 333.33
Gratuity = 3 years × 21 days × 333.33 = AED 21,000

Example 2: 7 Years Service (Unlimited Contract)

Basic Salary: AED 15,000

Years of Service: 7 years

Calculation:
Daily Salary = 15,000 ÷ 30 = AED 500
First 5 years: 5 × 21 × 500 = AED 52,500
Next 2 years: 2 × 30 × 500 = AED 30,000
Total Gratuity = AED 82,500

Important Points to Remember

  • Gratuity is calculated on basic salary only, not gross salary
  • Allowances (housing, transport) are not included
  • Maximum gratuity is capped at 2 years' basic salary
  • Payment must be made within 14 days of employment end
  • Gratuity is tax-free in UAE

When Gratuity May Be Reduced

If you resign before completing 5 years with an unlimited contract:

  • Less than 1 year: No gratuity
  • 1-3 years: No gratuity
  • 3-5 years: Entitled to one-third of gratuity
  • 5+ years: Full gratuity

Use Our Calculator

Calculate your exact gratuity amount instantly with our UAE Gratuity Calculator.