Is UAE gratuity calculated on basic salary or gross salary?
Unsure about UAE gratuity? See how your salary and the two-year cap affect your payout
Dubai: Many workers in the UAE are unsure how their gratuity is worked out - does the calculation include only the basic salary, or the full wage with allowances? A Gulf News reader raised this question, and a UAE-based lawyer explained exactly how the law defines it.
A reader reached to Gulf News to enquire about his gratuity calculation – “As per the UAE Labour Law, it states that the 'severance pay for a foreign worker shall not exceed in aggregate two years wage.’ My query is could you kindly advise if the 'wage' mentioned above is computed on basic salary or is it gross salary (basic + allowances)?”
What is the difference between basic salary and gross salary in the UAE?
The basic salary is just part of your overall salary. Many employment contracts also include allowances such as housing, transport, or other incentives.
Basic salary: Fixed amount stipulated in your employment contract.
Allowances: Additional payments such as housing, transport, sales percentage or cost-of-living support.
Gross salary (total wage): Your basic salary plus allowances.
Knowing your basic salary is important because it is used to calculate end of service gratuity, job loss (Involuntary Loss of Employment – ILOE) insurance payout, compensation for working on a public holiday and overtime pay.
Is UAE gratuity based on basic salary or gross salary?
According to Rajiv Suri, senior associate at UAE-based law firm Alsuwaidi & Company, gratuity in the UAE for full-time workers is calculated on basic salary only, not on gross salary.
Effectively, ‘wage’ means your total salary, including both basic pay and allowances. If the law had meant to include only the basic salary, it would have used the term ‘basic wage,’ which is clearly defined in the law.
What does the law say?
Article 51 of the UAE Labour Law – End of Service Benefits for Full-Time Workers – specifically uses the term ‘basic wage’ for severance payout calculation.
“As per the law, it specifically defines basic wage as the wage stipulated in the employment contract, which is paid to the worker in consideration of his work under the employment contract, on a monthly, weekly, daily, hourly or piecework basis, and which does not include any other allowances or benefits in-kind,” he explained.
At the same time, under UAE Federal Decree-Law No. (33) of 2021, ‘wage’ is defined more broadly:
Wage = Basic salary + cash allowances + benefits in kind allocated under the employment contract, according to Suri.
This may include cost of living allowances, percentage of sales, or profit-linked payments.
“However, if the gratuity calculation/end of service benefit which is calculated on ‘basic wage’ exceeds the two years 'wages', then the maximum which a person can get as a severance package would only be limited to the two years wages,” he said.
General rules for gratuity calculation in the UAE
Service less than one year: No gratuity is paid.
Service between one and five years: 21 days’ basic salary for each year of service.
Service more than five years: 21 days’ basic salary for the first five years, plus 30 days’ basic salary for each year after the first five years.
Maximum limit: The gratuity cannot exceed two years’ total salary.
Example of gratuity calculation in the UAE
If a person has a total wage of Dh10,000 with a basic wage of Dh9,000 and has worked for 30 years, the calculation is:
First five years: Dh9,000 × 21 ÷ 30 × 5 = Dh31,500
Remaining 25 years: Dh9,000 × 25 = Dh225,000
Total gratuity = Dh256,500
However, the law caps the payout at:
Dh10,000 × 12 × 2 = Dh240,000
In this case, the employee would be entitled to Dh240,000 (not Dh256,500).
“In the above scenario, the cap would be applied and the person would only be entitled to max of Dh240,000 end of service benefit even though his gratuity only works out to be Dh256,500,” Suri said.
How to check your basic salary in the UAE
Your basic salary is stated in your employment contract. You can access it through:
1. MOHRE app
Sign in with UAE Pass.
Tap on ‘Dashboard’ at the bottom.
Scroll down to ‘View contract’.
A PDF version of your employment contract will appear, showing the breakdown of your salary.
2. UAE Pass app
Go to 'Documents'.
Select 'Request a document'.
Choose 'Professional', then scroll to Labour contract.
Tap Request to access the contract.
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