UAE Gratuity Calculator 2026 — How to Calculate End of Service Gratuity

What is End-of-Service Gratuity in UAE?

End-of-service gratuity is a legally mandated lump-sum payment that employers in the UAE must provide to employees when their employment contract comes to an end, regardless of the reason for separation. It serves as a financial recognition of the employee's years of loyal service and is a fundamental right enshrined in UAE Labour Law — most comprehensively updated under Federal Decree-Law No. 33 of 2021, which came into effect on 2 February 2022. Gratuity applies to all employees in the UAE private sector, regardless of nationality, contract type, or job level.

The gratuity payment is calculated on the basis of the employee's basic salary and their total number of completed years of continuous service with the same employer. It is entirely separate from other end-of-service payments such as outstanding leave encashment, notice period compensation, airfare repatriation allowance, or any unpaid salary dues. Employers are required to calculate and settle gratuity within a reasonable period after the employment relationship ends. Failure to pay, underpayment, or unjustified delays can result in formal labour complaints filed through the Ministry of Human Resources and Emiratisation (MOHRE), financial penalties, and compelled payment orders through the UAE courts.

UAE Gratuity Calculation Formula 2026

The UAE gratuity formula is structured in two tiers based on total years of completed service. The calculation always uses the employee's daily basic salary, which is derived by dividing the monthly basic salary by 30 calendar days. Below is the authoritative formula applicable in 2026:

• Service less than 1 year: No gratuity is payable. The employee must complete a minimum of 12 consecutive months of service to be entitled to any gratuity.
• Service between 1 and 5 years (Tier 1): The employee earns 21 days of basic salary for each completed year of service.
• Service exceeding 5 years (Tier 2): For each completed year beyond the first five, the employee earns 30 days of basic salary per year. The Tier 1 amount for the first five years is added to the Tier 2 amount for the remaining years.
• Cap: Total gratuity cannot exceed the equivalent of two full years of basic salary, regardless of total service length.

Worked Example 1 — 3 Years of Service

Consider an employee with a monthly basic salary of AED 10,000 who has completed exactly 3 years of continuous service.

• Daily basic salary = AED 10,000 ÷ 30 = AED 333.33
• Gratuity = 21 days × AED 333.33 × 3 years = AED 20,999.79
• Rounded total: approximately AED 21,000

Worked Example 2 — 7 Years of Service

The same employee, still earning AED 10,000 basic salary per month, but now completing 7 years of service with the same employer.

• Daily basic salary = AED 10,000 ÷ 30 = AED 333.33
• Gratuity for first 5 years (Tier 1) = 21 days × AED 333.33 × 5 = AED 34,999.65
• Gratuity for remaining 2 years (Tier 2) = 30 days × AED 333.33 × 2 = AED 19,999.80
• Total gratuity = AED 54,999.45 (approximately AED 55,000)

Worked Example 3 — 10 Years of Service

An employee earning AED 15,000 basic salary per month with 10 years of service:

• Daily basic salary = AED 15,000 ÷ 30 = AED 500
• Tier 1 (first 5 years) = 21 days × AED 500 × 5 = AED 52,500
• Tier 2 (next 5 years) = 30 days × AED 500 × 5 = AED 75,000
• Total gratuity = AED 127,500
• Cap check: Two years' basic salary = AED 15,000 × 24 = AED 360,000. The calculated amount is well under the cap, so the full AED 127,500 is payable.

Gratuity for Limited vs Unlimited Contracts (2021 Law)

The Federal Decree-Law No. 33 of 2021 overhauled the UAE employment contract framework. Under the new law, all employment contracts must be fixed-term (limited duration) contracts of up to three years, which are renewable indefinitely. The previous unlimited contract model — where employment continued with no specified end date — was phased out, and all pre-existing unlimited contracts were required to be converted to fixed-term contracts by 1 February 2023.

For employees hired after February 2022 under the new law, the gratuity calculation follows the standard formula above regardless of contract type, since all contracts are now fixed-term. For employees whose employment spanned the transition period and who held legacy unlimited contracts, some nuances may apply. Under the old framework, employees on unlimited contracts who resigned before completing five years received a reduced gratuity (one-third for 1–3 years, two-thirds for 3–5 years). Under the new 2021 law, this reduction mechanism has been simplified, and employees who resign after completing the minimum service threshold are entitled to the full formula-based gratuity. Employers managing staff who were hired before February 2022 should review each case individually or consult legal counsel to ensure the transitional rules are applied correctly.

Gratuity on Resignation vs Termination

The circumstances under which an employment relationship ends can affect the gratuity entitlement in certain edge cases, particularly for legacy contracts:

• Employee resigns voluntarily: Under the 2021 law, an employee who resigns after completing at least one full year of service is entitled to full gratuity calculated using the standard formula. There are no pro-ration reductions for resignation under the new law framework, unlike under the old unlimited contract rules.
• Employer terminates without cause (redundancy or business reasons): The employee is entitled to full gratuity for all completed years of service, plus notice period pay and any other contractual entitlements. This is the most straightforward scenario.
• Termination for cause under Article 44: Where an employer dismisses an employee for serious misconduct (such as fraud, violence, or disclosure of confidential information as defined in Article 44 of the Decree-Law), the employer may withhold or reduce the gratuity payment. However, this right must be exercised through proper legal channels — employers cannot unilaterally withhold gratuity without formal documentation and, if disputed, a MOHRE ruling.
• Mutual agreement or contract expiry: When a fixed-term contract expires without renewal, or when both parties agree to end the employment, the employee receives full gratuity based on total completed years of service with no reductions.

What's Excluded from Gratuity Calculation?

One of the most common points of dispute in end-of-service settlements is the question of which salary components count toward the gratuity base. UAE Labour Law is unambiguous on this point: gratuity is calculated solely on basic salary. The following components are explicitly excluded from the gratuity calculation base, no matter how large they are relative to the overall package:

• Housing or accommodation allowance
• Transportation or car allowance
Annual performance bonuses or discretionary bonuses
• Sales commissions and incentive payments
• Food or meal allowances
• Utility and telephone allowances
• Overtime payments
• Any other supplementary or variable pay component not forming part of the fixed basic salary

This means an employee earning AED 5,000 basic salary with AED 10,000 in various allowances (total package AED 15,000) will have their gratuity calculated only on the AED 5,000 basic component. Employment contracts should clearly and explicitly separate the basic salary from all allowances to prevent ambiguity and disputes at the time of settlement.

How AiTIME Calculates Gratuity Automatically

Manually computing gratuity for even a small workforce is time-consuming and highly error-prone, particularly when employees have different joining dates, varying salary histories, mixed contract types, and differing service lengths. AiTIME's integrated payroll and HR module automates the entire gratuity lifecycle — from first day of employment through to final settlement — ensuring mathematical accuracy and full compliance with UAE Labour Law at every stage.

AiTIME stores each employee's joining date, contract type, and complete basic salary history from the moment they are onboarded. As each pay period passes, the system automatically accrues the correct gratuity liability for every employee on your books, giving finance teams real-time visibility into the company's total end-of-service obligation. This accrual visibility is critical for financial planning and audit readiness.

When an employee exits — whether through resignation, termination, retirement, or contract expiry — AiTIME instantly generates a fully itemised final settlement calculation. The output includes gratuity broken down by service tier, outstanding annual leave balance, any notice period dues, and a grand total figure ready for approval and processing. The platform handles partial year proration accurately and supports all separation scenarios, including Article 44 terminations where adjustments may apply.

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Frequently Asked Questions

Is gratuity calculated on basic salary or total package?

Gratuity is calculated on basic salary only. Housing, transport, food, and performance bonuses are not included in the gratuity base. Only the fixed basic salary component as stated in the employment contract is used. This is clearly defined in Federal Decree-Law No. 33 of 2021 and has been consistently upheld in MOHRE rulings and UAE court decisions.

What if an employee works for less than one full year?

An employee who has completed less than 12 consecutive months of continuous service with the same employer is not entitled to any gratuity under UAE Labour Law. Gratuity entitlement begins only upon completion of the first full year of service. Partial months within a year that has been fully completed are typically prorated in the final settlement calculation.

Can gratuity be paid in installments?

UAE Labour Law requires gratuity to be paid in full at the time of end-of-service settlement. There is no statutory provision for installment payments. If an employer and departing employee reach a mutually agreed deferred payment arrangement after the employment ends, it should be documented in writing. Unjustified delay in paying gratuity entitles the employee to file a MOHRE complaint and may result in penalty interest being ordered by the UAE Labour Court.

Does gratuity apply to part-time employees?

Yes. Part-time employees registered under UAE Labour Law and the part-time employment framework introduced under Federal Decree-Law No. 33 of 2021 are entitled to end-of-service gratuity. Their gratuity is calculated on a pro-rata basis relative to their contracted working hours as a proportion of a standard full-time working week, using the same 21-days/30-days formula applied to their actual basic salary.

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