UAE gratuity calculation: What happens if your basic salary is reduced?

Dubai: A salary cut can affect more than your monthly income, it could also have an impact on the end-of-service gratuity you receive when you leave your job.

But if your employer reduced your salary without your written agreement, does the lower amount automatically become the basis for your gratuity? That is the question a Gulf News reader is facing after their employer cut their salary by 20 per cent.

“I did not sign any contract or form agreeing to the salary reduction, and my offer letter and employment contract still show my original salary. Will my gratuity be based on my old or reduced salary?” the reader asked

Salam Pappinissery, CEO of YAB Legal Services, said an employer cannot simply rewrite an employee’s contractual salary without agreement and documentation.

Under UAE Federal Decree-Law No. 33 of 2021, the basic wage is the wage specified in the employment contract, and that amount must be stated in the contract itself.

For a mainland UAE private-sector employee, a lawful salary reduction generally needs to be agreed and documented, such as through a signed addendum, a revised MOHRE-registered contract or other clear written consent from the employee.

“General financial pressure, a downturn, or conflict-related disruption to the business is not, on its own, a recognised ground under the law for cutting a contractual wage. The permitted grounds for deductions from wages are set out narrowly in the legislation and do not extend to a general pay cut of this kind,” Pappinissery said.

There is an important point employees should be aware of.

Continuing to work and accepting the reduced salary for a period could later be used by an employer to argue that the employee implicitly accepted the change.

Pappinissery advised employees who have not agreed to the reduction to record their objection in writing before resigning.

For an eligible full-time private-sector employee, end-of-service gratuity is calculated using the last basic wage. The calculation is 21 days’ basic wage for each of the first five years of service and 30 days’ basic wage for each year thereafter, subject to the statutory cap.

This means the basic wage used at the time of leaving can have a direct impact on the gratuity amount.

However, where the employment contract and offer letter still show the original, higher salary and the employee never signed an agreement accepting the reduction, there may be grounds to argue that the original basic wage remained the legally applicable amount.

“Where your contract and offer letter still record the original, higher salary, and you never signed anything accepting the reduction, you have a reasonable basis to argue that the original basic wage remained the legally applicable one, and that your gratuity should be calculated on that figure rather than on the reduced amount,” Pappinissery said.

If the employee did sign a variation or amended MOHRE-registered contract reflecting the lower salary, however, that reduced figure could properly be used.

For an eligible full-time private-sector employee, end-of-service gratuity is calculated using the last basic wage. The calculation is 21 days’ basic wage for each of the first five years of service and 30 days’ basic wage for each year thereafter, subject to the statutory cap.

This means the basic wage used at the time of leaving can have a direct impact on the gratuity amount.

However, where the employment contract and offer letter still show the original, higher salary and the employee never signed an agreement accepting the reduction, there may be grounds to argue that the original basic wage remained the legally applicable amount.

“Where your contract and offer letter still record the original, higher salary, and you never signed anything accepting the reduction, you have a reasonable basis to argue that the original basic wage remained the legally applicable one, and that your gratuity should be calculated on that figure rather than on the reduced amount,” Pappinissery said.

If the employee did sign a variation or amended MOHRE-registered contract reflecting the lower salary, however, that reduced figure could properly be used.

If you disagree with the calculation, do not sign an unconditional release stating that all dues have been fully and finally settled.

If a signature is required simply to acknowledge receipt of a cheque or transfer, Pappinissery said an employee can note that the amount has been received for review only and that they dispute the basis of the calculation.

Employees should keep copies of:

If the employer does not correct the calculation after a written demand, employees can file an individual labour complaint with the Ministry of Human Resources and Emiratisation (MOHRE).

MOHRE will typically attempt to resolve the matter amicably first. If the dispute remains unresolved, it can be referred to the labour court, Pappinissery said.

Employees should also act promptly. Labour claims are subject to limitation periods under UAE law, and the applicable deadline can depend on the circumstances of the case. For this reason, employees considering a claim should raise the matter with MOHRE as soon as possible rather than waiting.