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Dubai: Calculating your end-of-service (gratuity) pay is important. Knowing how the total sum is reached will help you identify any errors made by your company.

Contract types

A limited or fixed term contract is where the employee agrees to stay with the company for a certain number of years with a set end date. Resigning before the end of this period could mean one or all of these; a labour ban, loss of labour rights or even payment of compensation to the employer.

An unlimited contract has no such period clause or number of years, and therefore, has no end date. However, a notice period of one to three months is applicable for termination of contract from either side.

Gratuity pay is calculated based on the your basic wage/salary paid into your account without additional allowances or bonuses.

Article 134 of the Labour Law clarifies what this constitutes:

"The wage used as a basis for calculating the end of service gratuity shall not include payments made to the worker in reimbursements, housing, transport and travel allowance, overtime pay, representation allowance, cashier’s allowances, children education allowance, allowances for recreational and social services, and any other bonuses or allowances."

No gratuity pay?

If you are terminated from your job, unless you break the rules as stated in Article 139 of the Labour Law, the employee is still entitled to gratuity pay. The rules in this Article state:

The employee shall be deprived of his/her end of service gratuity in the following two cases:

a - If he or she is dismissed from service for any of the reasons set forth in Article 120 or if he or she quits employment in view of avoiding the dismissal in accordance with the article. (This article deals with dismissal during or at end of probation, or due to charges of material loss, failure to perform basic duties even after a warning, interrogation, crime etc.)

b - If he or she resigns without notice in cases other than the ones set in Article 121 (if employer breaches contract or in case of assault), and such with regards to unlimited contracts, or prior to the completion of five years of continuous service in limited contracts.

Calculations for Limited Contract gratuity pay

Less than 1 year of service

Leaving work before completing one (1) year of service means that you are not entitled to any gratuity pay.

Between 1 year and 5 years of service

Employee is entitled to full gratuity pay based on 21 days salary for each year of work.

5 or more years of service

Employee is entitled to full gratuity pay based on 30 days salary for each year of work.

Calculation example

Basic salary example: Dh10,000

a. 10,000 ÷ 30 = 333.30. Your daily wage is Dh330.30.

b. 330.30 x 21 = 6,936.30. So 21-days salary is Dh6,936.30 in gratuity entitlement for each year of service. Multiply this figure for every year of service up to 5 years.

For 30 days calculation for those exceeding 5 years of service

c. 330.30 x 30 = Dh9,909. So 30-days salary is Dh9,909 in gratuity entitlement for each year of service – so long as the total figure does not exceed total salary of two years.

Therefore, regardless of the years spent at a firm, total gratuity in the above example cannot exceed Dh240,000. 

Calculations for Unlimited Contract gratuity pay

Less than 1 year of service

Leaving work before completing one (1) year of service means that you are not entitled to any gratuity pay.

Between 1 year and 3 years of service

Employee is entitled to one third (1/3) of the 21-days gratuity pay.

Between 3 years and 5 years of service

Employee is entitled to two thirds (2/3) of the 21-days gratuity pay.

5 or more years of service

Employee is entitled to full 21-days gratuity pay for each year of service.

Calculation example

Basic salary example: Dh10,000

a. 10,000 ÷ 30 = 333.30. Your daily wage is Dh330.30

b. 330.30 x 21 = 6,936.30. So 21-days salary is Dh6,936.30

Of this figure of Dh6,936,30, only 1/3 is payable if you have worked between 1 and 3 years, so the total gratuity pay would be Dh2,312.10.

Only 2/3 is payable if you have worked between 3 and 5 years, so the total gratuity pay would be Dh4,624.20.

The full Dh6,936.30 is payable if you have completed 5 years.

These calculations are not to be treated as law, they are for your reference only. For any disputes or further clarification, contact the UAE Ministry of Human Resources and Emiratisation.

Formula

1. Basic salary ÷ 30 = Daily wage

2. Daily wage x 21 = 1 year gratuity figure (Or x30 if applicable)

3. 1 year gratuity figure x years of service = Total gratuity owed 

Only continue for Unlimited Contract calculation

4. Total gratuity owed ÷ 3 = One third (1/3) of total gratuity

5. Either take this figure (between 1 and 3 years) or multiply it by two (between 3 and 5 years)

6. For over 5 years, total gratuity owed will be payable.

Source:  UAE Ministry of Human Resources and Emiratisation Laws

Gulf News is not responsible for any amendments made to the UAE Labour Law. All labour disputes must go through the Ministry of Labour. This article may only be used as a guide.