1. Purpose and Audience
This comprehensive guide is designed for:
- Employees in the UAE (especially expats) who want to understand their end-of-service entitlements
- HR professionals and business owners seeking to stay compliant with UAE Labour Law
- Payroll managers responsible for accurate final settlements
Whether you’re planning to resign, switch employers, or simply want clarity on your legal entitlements, this guide will walk you through the updated 2025 gratuity calculation process.
2. What is Gratuity?
Gratuity, or End of Service Benefit (EOSB), is a one-time financial payment provided by the employer to a full-time employee upon the end of their service—assuming eligibility conditions are met.
Legal Foundation:
Under Federal Decree Law No. 33 of 2021, effective from February 2, 2022, the UAE restructured employment contract frameworks and gratuity rules. This guide incorporates all such updates, including practices prevailing as of 2025.
3. Who Qualifies for Gratuity?
You are eligible for gratuity if:
- You are a full-time employee in the private sector.
- You have completed at least one full year of continuous service with your employer.
Exceptions:
- Part-time and freelance employees are subject to different rules (Cabinet Resolution No. 1/2022 outlines proportional benefits).
- Government sector employees are covered by separate pension laws, not gratuity.
4. Understanding Employment Contracts & Their Impact
a. Pre-2022 Unlimited Contracts
Still valid for older employees. Historically, resignation under an unlimited contract often meant reduced gratuity unless service exceeded 5 years.
b. Limited Contracts (Pre-2022)
Gratuity varied depending on whether resignation was before or after the contract term. Early resignation often led to partial or no gratuity.
c. Post-2022 Unified Fixed-Term Contracts
Under the current law, all employment contracts are fixed-term, renewable for up to 3 years. Gratuity is now calculated uniformly across contract types, with resignation or termination typically not affecting eligibility (provided misconduct or absconding isn’t involved).
5. Gratuity Calculation Formula (2025 Standard)
The gratuity is calculated based on the basic salary only, excluding allowances like:
- Housing
- Transport
- Bonuses
- Overtime
✅ Gratuity Formula:
- First 5 Years
(Basic Salary ÷ 30) × 21 days × No. of service years (up to 5) - After 5 Years
(Basic Salary ÷ 30) × 30 days × No. of service years (beyond 5)
Important:
- Minimum eligibility: 1 full year
- Maximum payout: No more than 24 months’ basic salary
- Pro-rata rules apply to partial years
6. Step-by-Step Gratuity Calculation Example
Scenario:
- Basic Salary: AED 10,000
- Service Duration: 6 years and 6 months
Step 1: Calculate Daily Wage
AED 10,000 ÷ 30 = AED 333.33
Step 2: First 5 Years
AED 333.33 × 21 × 5 = AED 35,000
Step 3: Additional Year
AED 333.33 × 30 × 1 = AED 10,000
Step 4: Pro-rata for 6 months
AED 10,000 ÷ 12 × 6 = AED 5,000
✅ Total Gratuity = AED 35,000 + AED 10,000 + AED 5,000 = AED 50,000
7. Online Gratuity Calculators: Are They Reliable?
Yes—if used correctly.
They help when:
- You want instant results
- You’re unsure about exact pro-rata calculations
- You prefer automated accuracy for fractional years
Recommended Input Fields:
- Last basic salary
- Start and end dates
- Contract type (for legacy contracts)
- Termination reason (optional)
✔️ Benefits:
- Fast and error-free
- Adapts to recent labour law changes
- Perfect for non-HR professionals
⚠️ Cautions:
- May not reflect unpaid leave, absconding cases, or disciplinary terminations
- Always cross-check for high-value disputes
👉 Use our official UAE Gratuity Calculator Tool — tested and updated for 2025 compliance.
8. Real-World Factors That Affect Gratuity
| Factor | Impact on Gratuity |
|---|---|
| Less than 1 year service | ❌ No gratuity |
| Misconduct dismissal (Art. 44) | ❌ Forfeited |
| Absconding declaration | ❌ Forfeited |
| Resignation vs. termination | ✅ Equal rights post-2022 (if eligible) |
| Unpaid leave >30 days | 🧮 Deducted from total service duration |
| Service breaks | 🧮 Service recalculated if gaps exist |
9. Avoid These Common Mistakes
- ❌ Including allowances: Only basic salary counts
- ❌ Forgetting pro-rata for partial years
- ❌ Not accounting for unpaid leave
- ❌ Assuming online tools are perfect
- ❌ Using outdated contract rules (especially for pre-2022 hires)
📌 Pro Tip: Keep every payslip, contract, and visa copy. MoHRE or the court will ask for them in case of disputes.
10. Frequently Asked Questions (2025)
Q: Can I get gratuity if I resign?
A: Yes, as long as you complete 1 year and haven’t committed gross misconduct.
Q: Is gratuity taxable in the UAE?
A: No. The UAE has no personal income tax on gratuity.
Q: Can employers delay payment?
A: No. They must pay within 14 days post-termination, or face legal penalties.
Q: Can I calculate gratuity myself?
A: Yes, but it’s better to use verified calculators for accuracy.
Q: How does unpaid leave affect my gratuity?
A: It’s excluded from your total service when calculating gratuity.
11. Transparency Note on Content Creation
This guide was developed using first-hand HR consulting expertise, UAE Labour Law documentation, and updated MoHRE compliance guidelines. It was refined with the assistance of AI tools for formatting and clarity, but all legal interpretations and examples are human-reviewed and legally verified.
12. Conclusion
Gratuity is not just a legal obligation—it’s a form of recognition for service. Whether you’re an employee planning your exit, or an employer preparing for final settlements, understanding how gratuity is calculated empowers you to make informed, confident decisions.