UAE gratuity rules: Can banks take your end-of-service benefits to repay loans?

Dubai: Leaving a job in the UAE does not necessarily mean employees can immediately access their full end-of-service gratuity, particularly if they have an outstanding personal loan.

Banks may freeze or use gratuity payments to recover outstanding debts, even when borrowers have not missed an instalment. However, legal experts say there are limits to what banks can withhold, and employees may have grounds to challenge deductions.

So, can a bank take your entire gratuity to settle a loan? What happens if you resign or lose your job but continue making repayments? UAE legal experts explain the rules and what borrowers should know.

Can UAE banks take your gratuity to settle a personal loan?

According to Ahmed Odeh, Ahmed Odeh, Managing Partner, MIO & Partners, banks can generally use an employee's end-of-service gratuity to settle outstanding personal loans, provided the loan agreement permits it and the bank complies with UAE Central Bank regulations.

“Under those rules, personal loans are repaid from salary or end-of-service benefits, so most loan agreements require both to be paid into the lending bank, which may use them to cover the debt. When an employee leaves, the bank may freeze the account receiving the gratuity as a precaution, while still collecting instalments.”

However, Odeh explained that having an outstanding loan does not give a bank unrestricted access to a borrower's gratuity.

“Holding the gratuity as a guarantee and using it to repay the loan are separate actions, each requiring legal justification. Borrowers who keep paying on time may have a valid case for its release.”

Can banks deduct your entire end-of-service gratuity?

Not necessarily. According to Odeh, UAE Central Bank regulations prohibit banks from freezing more than the borrower owes. Banks also cannot freeze gratuity to repay a home loan.

The employee's consent is another important consideration.

“Consent is usually given in the loan agreement, so the bank may not need to ask again. However, no clause can override these rules. Borrowers can request a full loan statement, object to any amount frozen beyond what they owe, and complain to the bank. Failing that, they can approach Sanadak, the UAE’s independent banking complaints body, or the courts,” Odeh said.

What if you resign but continue paying your loan instalments?

Even if an employee continues making repayments after leaving their job, the terms of the original loan agreement remain important.

According to legal expert Praise Olawanle, trainee solicitor at Stephenson Harwood Middle East LLP, employees should not assume that UAE Labour Law automatically gives banks the right to claim their gratuity.

“The Labour Law controls when an employer can make deductions, such as for loans the employer itself has advanced. Any right a bank has comes from the loan agreement it signed with the borrower/employee. So, the wording of that loan agreement is critical,” Olawanle said.

This means employees should carefully review the terms they agreed to when taking out the loan.

“If the bank had no contractual basis, or the loan wasn't yet due, then an employee may be able to query that and seek a refund,” Olawanle said.

What does UAE Labour Law say about deductions?

Under Article 25 of the UAE Labour Law, deductions or withholding of an employee's wages are permitted only in specified circumstances.

These include repayment of loans advanced by the employer, subject to the employee's written consent, without interest and within the applicable deduction limits.

Where multiple deductions apply, the total amount deducted or withheld cannot exceed 50 per cent of the employee's wage.

However, as Olawanle explained, these employment-related deductions are separate from a bank's contractual rights under a personal loan agreement.

Can your employer transfer your gratuity directly to a bank?

Employers must also be cautious before transferring an employee's end-of-service benefits to a lender.

“Unless the employer has given the bank a specific written undertaking, it has no obligation to pay an employee's gratuity to a lender, and doing so could expose it to a complaint from the employee,” Olawanle said.

She added that the Labour Law permits deductions from gratuity only in limited circumstances.

“Before agreeing to any request from a bank, or issuing a salary or liability letter, employers should check exactly what they have committed to and should get the employee's clear written consent before paying any part of the gratuity to a third party on their behalf.”