In the UAE, end-of-service gratuity is calculated based on basic salary and length of service, not allowances. Employees who complete at least one year of continuous service are entitled to gratuity. The calculation is generally 21 days’ basic salary per year for the first five years and 30 days per year thereafter, subject to statutory caps.
For a full legal overview, see: UAE Labour Law Explained
What Is End of Service Gratuity in UAE?
End-of-service gratuity (EOSB) is a statutory payment owed to employees when their employment ends after completing at least one year of service.
It is governed by the UAE Labour Law and applies to most private-sector employees regulated by MOHRE.
Does Contract Type (Limited vs Unlimited) Affect Gratuity?
Historically, there were distinctions between limited and unlimited contracts in how resignation affected gratuity. However, under the current legal framework, gratuity calculation primarily depends on length of service and basic salary, not merely the contract label.
Key Principle
Gratuity calculation is based on:
• Basic salary only (excluding housing, transport, bonuses)
• Total completed years of service
• Lawful termination status
• Applicable statutory caps
Contract wording alone does not eliminate entitlement.
How to Calculate Gratuity in UAE for Limited Contract
A limited contract (fixed-term contract) ends either upon expiry or earlier termination. In both cases, gratuity must be calculated if the employee has completed at least one year of service.
Step-by-Step Calculation Formula
Step 1: Confirm Basic Salary
Gratuity is calculated only on basic salary, not gross salary.
Example:
Basic salary = AED 8,000
Allowances = AED 4,000
Gratuity calculation is based only on AED 8,000.
Step 2: Determine Length of Service
Minimum eligibility = 1 year continuous service.
Step 3: Apply Gratuity Rate
| Years of Service | Gratuity Calculation |
|---|---|
| 1 – 5 years | 21 days’ basic salary per year |
| More than 5 years | 30 days’ basic salary per year |
| Maximum Cap | 2 years’ total salary |
Example – Limited Contract
Employee:
• Basic salary: AED 10,000
• Service period: 3 years
Daily wage = 10,000 ÷ 30 = 333.33 AED
21 days × 3 years = 63 days
Gratuity = 63 × 333.33 = AED 20,999.79
How to Calculate Gratuity in UAE for Unlimited Contract (Legacy Context)
Under older employment structures, unlimited contracts sometimes included different resignation implications. However, calculation mechanics for gratuity were still based on service duration and basic salary.
Today, the core calculation framework remains consistent.
UAE End of Service Gratuity (EOSB) Calculator
Calculates gratuity using a common approach: basic salary only, eligibility from 1+ year, 21 days/year for first 5 years, then 30 days/year thereafter, with a cap of two years’ salary. Always validate against your jurisdiction and case facts.
Result
Example – Unlimited Contract (7 Years Service)
Employee:
• Basic salary: AED 12,000
• Service: 7 years
Step 1 – First 5 years:
21 days × 5 = 105 days
Step 2 – Remaining 2 years:
30 days × 2 = 60 days
Total = 165 days
Daily wage = 12,000 ÷ 30 = 400 AED
Gratuity = 165 × 400 = AED 66,000
Does Resignation Affect Gratuity?
One of the most searched questions is whether resignation reduces gratuity.
Under the current labour framework:
• Employees who complete at least 1 year are generally entitled to gratuity.
• Misconduct termination may impact entitlement.
• Notice compliance remains critical.
Situations That May Affect Gratuit
Gratuity may be affected if:
• Employee is dismissed for serious misconduct
• Service is less than one year
• There are unpaid leave deductions
• Court finds breach of contract
UAE Gratuity Calculator vs Manual Calculation
Many employees search for an “EOSB calculator UAE” or “UAE gratuity calculator online.” While online calculators provide estimates, they often:
• Assume correct service length
• Ignore unpaid leave deductions
• Do not assess termination legality
• Do not account for disciplinary dismissal scenarios
Manual verification is always recommended before accepting a final settlement.
How to Calculate Gratuity for Partial Years of Service
Gratuity is not limited to full years only. If an employee has worked additional months beyond completed years, those months are calculated proportionally.
Formula for Partial Year
Daily Wage = Basic Salary ÷ 30
Gratuity Days = Applicable daily entitlement × total service days
Example
Employee:
• Basic salary: AED 9,000
• Service: 4 years and 6 months
First 4 years:
21 days × 4 = 84 days
Remaining 6 months:
21 days × 0.5 = 10.5 days
Total = 94.5 days
Daily wage = 9,000 ÷ 30 = 300 AED
Gratuity = 94.5 × 300 = AED 28,350
Partial service must be calculated proportionally.
Interaction Between Gratuity and Leave Encashment
End-of-service settlement typically includes more than gratuity alone.
Employers must settle:
• Accrued but unused annual leave
• Pending salary
• Notice period compensation (if applicable)
• Contractual benefits
Leave encashment is calculated separately from gratuity.
Common Employer Calculation Mistakes
Gratuity disputes frequently arise due to calculation errors rather than entitlement disagreements.
Frequent Errors
• Calculating gratuity on gross salary instead of basic salary
• Ignoring partial year calculation
• Deducting unauthorized amounts
• Failing to settle dues promptly
• Misclassifying termination as misconduct
Maximum Gratuity Cap in UAE
UAE law imposes a maximum limit on gratuity.
Statutory Cap
Gratuity may not exceed the equivalent of two years’ total salary.
This cap applies regardless of:
• Contract type (limited or unlimited)
• Length of service beyond statutory limit
Understanding this cap is crucial in long-service employment relationships.
When Gratuity May Be Forfeited
Gratuity may be impacted if:
• Employee is dismissed for serious misconduct
• Service is less than one year
• Court determines legal grounds for forfeiture
Legal interpretation often depends on documented evidence and procedural compliance.
Corporate Compliance Considerations
For employers, gratuity is not just an HR issue — it is a compliance and risk-management matter.
Businesses should:
• Maintain accurate payroll records
• Separate basic salary from allowances clearly
• Draft contracts carefully
• Conduct termination audits before dismissal
When a Legal Dispute Arises
If gratuity is unpaid or miscalculated:
1️⃣ Attempt written clarification with employer
2️⃣ File complaint with MOHRE
3️⃣ Escalate to Labour Court if necessary
Timely action protects entitlement.
Key Takeaways – How to Calculate Gratuity in UAE for Limited and Unlimited Contract
• Gratuity is calculated on basic salary only
• Minimum eligibility = 1 year continuous service
• 21 days per year (first 5 years)
• 30 days per year (after 5 years)
• Maximum cap applies
• Contract label (limited/unlimited) does not override statutory calculation
Legal Advisory Note
Gratuity disputes often involve:
• Termination classification
• Notice compliance
• Misconduct allegations
• Contract interpretation
Whether you are an employee seeking unpaid dues or a company managing workforce restructuring, early legal review reduces exposure and strengthens resolution outcomes.
calculate gratuity For limited - Frequently Asked Questions
How to calculate gratuity in UAE for limited contract?
Gratuity for a limited (fixed-term) contract is calculated based on the employee’s basic salary and total completed years of service. The standard formula is:
- 21 days’ basic salary per year for the first 5 years
- 30 days’ basic salary per year after 5 years
- Subject to a maximum cap of two years’ total salary
The contract being “limited” does not change the basic statutory formula for gratuity calculation under UAE Labour Law.
How to calculate gratuity in UAE for unlimited contract?
For unlimited contracts (particularly legacy contracts prior to full transition to fixed-term), the calculation method is similar:
- Calculate daily basic wage (Basic Salary ÷ 30).
- Multiply by 21 days per year for the first 5 years.
- Multiply by 30 days per year after 5 years.
- Apply the statutory cap of two years’ salary if applicable.
The key determinant is service duration and basic salary, not the contract label alone.
Is gratuity calculated on basic salary or total salary?
Gratuity is calculated strictly on basic salary only.
It does not include:
- Housing allowance
- Transportation allowance
- Bonuses
- Overtime
- Commissions
Many disputes arise when employees mistakenly calculate gratuity using gross salary instead of basic salary.
Do I receive gratuity if I resign in UAE?
Yes, provided you have completed at least one year of continuous service.
However, entitlement may be affected if:
- Resignation occurs during probation
- Termination is due to serious misconduct
- Contractual or legal violations exist
Proper notice period compliance is also required.
What is the minimum service required to qualify for gratuity?
An employee must complete at least one year of continuous service to qualify for end-of-service gratuity.
If employment duration is less than one year, gratuity is generally not payable.
Is gratuity different between limited and unlimited contracts?
Under current UAE Labour Law framework, gratuity is primarily calculated based on:
- Years of service
- Basic salary
The distinction between limited and unlimited contracts no longer significantly changes gratuity mechanics, though termination consequences may differ.
How is gratuity calculated for more than 5 years of service?
For service exceeding five years:
- First 5 years: 21 days per year
- After 5 years: 30 days per year
Example structure:
7 years of service = (5 × 21 days) + (2 × 30 days)
What is the maximum gratuity payable in UAE?
The total gratuity amount cannot exceed the equivalent of two years’ total salary, regardless of how long the employee has worked.
Can an employer deduct amounts from gratuity?
Employers may deduct only lawful amounts supported by valid documentation.
Unlawful or excessive deductions may be challenged through MOHRE or labour court proceedings.
What happens if the employer does not pay gratuity?
If gratuity is not paid:
- File a complaint with MOHRE.
- Attempt settlement through mediation.
- Escalate to Labour Court if unresolved.
Delays or refusal to pay may expose the employer to legal liability.
Does sick leave affect gratuity calculation?
Paid sick leave typically does not eliminate gratuity entitlement. However, extended unpaid leave periods may impact total service calculation depending on the circumstances.
Is an online gratuity calculator legally binding?
No. Online gratuity calculators provide only estimates. They do not account for:
- Misconduct termination
- Partial-year calculations nuances
- Free zone variations
- Contractual clauses
A legal review is recommended in complex or disputed cases.
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