UAE gratuity: When can your employer deduct your end-of-service benefits?

Dubai: Your end-of-service gratuity is one of the biggest financial cushions for employees in the UAE - especially during job changes or unexpected terminations. But many workers don’t realise that under UAE Labour Law, certain deductions can legally be made from your gratuity, and even your bank may freeze or use it to repay outstanding loans.

Here’s what the law says about gratuity deductions, how they can happen, and what you can do to protect your benefits.

What the UAE Labour Law says about gratuity deductions

Under Article (29) of Cabinet Resolution No. (1) of 2022, which implements Federal Decree-Law No. (33) of 2021 on Labour Relations, employers are allowed to deduct specific amounts from an employee’s end-of-service benefits in the following cases:

• Recovering overpayments or loans: If the employer has paid extra wages or granted a loan that remains unpaid.

• Unpaid contributions: For retirement pensions, end-of-service contributions or insurance that the worker was legally required to pay.

• Penalties for violations: As specified in the company’s approved disciplinary regulations.

• Court-ordered debts: Any amounts deducted based on a judicial ruling against the worker.

• Damage caused by the worker: If the employee’s negligence or breach of instructions led to loss or damage of tools, machinery, products or materials owned by the employer.

Employers must follow the proper legal procedures before making any deduction, and these deductions generally cannot be made more than three months after the amount becomes due, unless otherwise agreed.

Can banks deduct or freeze your gratuity?

Many UAE residents are unaware that banks can also use your gratuity to recover unpaid debts, such as personal loans or credit card balances.

When you sign a loan agreement, it often includes a clause authorising the bank to claim your end-of-service benefits if you default or leave your job while owing money. This is based on the contractual agreement between you and the bank.

To protect yourself:

• Inform your bank if you plan to leave your job. This allows you to discuss repayment or restructuring options.

• Consider using a different bank account — one where you have no loans or liabilities — to receive your gratuity.

• Clear any outstanding debts before your employment ends, if possible, to avoid your account being frozen.

Who is eligible for gratuity in the UAE?

Gratuity is only paid to employees who have completed at least one year of continuous service with the same employer.

The law defines continuous service as uninterrupted employment with the same company or its legal successor, from the start date until termination.

It’s also important to note that unpaid leave does not count towards your total service period for gratuity calculation. If you’ve taken significant unpaid leave, your final payout may be slightly lower.

How to calculate your end-of-service gratuity

The calculation of gratuity in the UAE depends on your basic salary and years of service:

• Less than one year: No gratuity entitlement.

• One to five years: 21 days of basic salary for each year of service.

• More than five years: 21 days’ basic salary for each of the first five years, plus 30 days’ basic salary for each year thereafter.

• Maximum limit: The gratuity amount cannot exceed the equivalent of two years’ basic salary.

Key takeaways for UAE Employees

• Employers can legally deduct gratuity only under specific circumstances outlined in the law.

• Banks may also freeze or claim gratuity to recover outstanding debts if permitted by your loan contract.

• Always review your employment and loan agreements carefully before resigning or changing jobs.

• Plan ahead - pay off debts, inform your bank and ensure your gratuity is protected.