Dubai: With the UAE implementing a new Labour Law – Federal Decree-Law No. 33 of 2021 – which came into effect from February this year, there are several changes to the legislations that regulate relationships between employers and employees in the private sector. With the new Labour Law coming into effect, how will an employee’s gratuity be affected?
Gulf News spoke with legal and HR experts in the UAE to find out what employees need to know about the changes in gratuity calculations.
What is the biggest change in gratuity calculation with the new law?
According to Nikhil Nanda, who manages operations at HR consultancy Innovations Group, one of the key takeaways for employees to keep in mind is that while the earlier law had two different methods of calculating gratuity for limited and unlimited contracts, the new law is going to switch all contracts to a limited form – with the limit being of three years. Companies have been given up to February 2, 2023 to make these changes in their employees’ contracts.
“The earlier law had a different gratuity calculation for limited and unlimited contracts. As per the new Labour Law, all contracts are limited and hence gratuity is calculated on 21 days of basic salary for every year of service completed, up to five years. Post completion of five years of service, gratuity is calculated on 30 days for every year thereon. Hence, Gratuity is calculated on 21 days for first five year and 30 days for every year where the period of service is more than five years,” Nanda said.
This calculation is different, then, compared to the earlier law, where gratuity for unlimited contracts was broken down for Year 1 to 3, then for Year 3 to 5 and then from the fifth year of service onwards.
The earlier law had a different gratuity calculation for limited and unlimited contracts. As per the new Labour Law, all contracts are limited and hence gratuity is calculated on 21 days of basic salary for every year of service completed, up to five years. Post completion of five years of service, gratuity is calculated on 30 days for every year thereon. Hence, Gratuity is calculated on 21 days for first five year and 30 days for every year where the period of service is more than five years.
Also, the calculation in the old Labour Law was different for when the employee was terminated from the job, compared to when the employee resigns.
Leaving work before completing one year of service means that not entitled to any gratuity pay.
Between 1 year and 3 years of service:
The employee is entitled to one-third of the 21-day gratuity pay.
Between 3 years and 5 years of service:
The employee is entitled to two-thirds of the 21-day gratuity pay.
More than five years:
If an employee has served more than five years, he is entitled to full 21 days' basic salary for the first five years and for the remainder of his service, he would get paid a full 30 days’ basic salary per year as gratuity pay.
“The new law gives more clarity to employees in terms of how gratuity is calculated. It helps employees calculate it in an easy way and ensure that employers are paying them as per law,” Nanda added.
a- Remuneration of 21 working days for every year of service of the first five years.
b- Remuneration of 30 working days for each year after the first five years.
If I resign when I still have the old, unlimited contract, how will my gratuity be calculated?
What happens to the gratuity of individuals who may still be on an unlimited contract – as per the old Labour Law – but have resigned after the new law came into effect?
"Any resignation or termination which will take place or took place after the new law came into effect will have the Articles of the new law applied," Mohammed Elmasry, Associate at Al Suwaidi and Company, told Gulf News.
"However, for any resignation or termination which took place before the implementation of the new law, but the case for gratuity was filed after the implementation of the new law, will have Articles of the old law applied," he added.
Any resignation or termination which will take place or took place after the implementation of the new law will have the Articles of the new law be applied.
New gratuity-related legislation for flexible work patterns
According to Navandeep Matta, Senior Associate at Century Maxim International law firm, another big change brought in by the new Labour Law is the introduction of gratuity calculations for different work patterns.
“The new Labour Law has introduced different types of work patterns like temporary, part-time and flexible work contracts to encourage work-life balance. So, you can choose the type of work contract that suits you and you will be entitled to receive gratuity at the end of the service,” Matta said.
“The gratuity will be calculated at par with a full-time worker, and as defined in their labour contracts. The yardstick for who is a full-time worker is someone who works for 48 hours a week, eight hours a day. Based on this benchmark, a worker who is not full-time will also have his or her gratuity calculated depending on the number of hours of work they put in,” Matta said.
The gratuity will be calculated at par with a full-time worker, and as defined in their labour contracts. The yardstick for who is a full-time worker is someone who works for 48 hours a week, eight hours a day. Based on this benchmark, a worker who is not full-time will also have his or her gratuity calculated depending on the number of hours of work they put in.
Matta clarified that Article 52 of the UAE Labour Law, as well as Article 30 (1) of the implementing regulations of the law, determine the end-of-service benefits due to workers working in part-time or job-sharing work models as follows:
The number of working hours set out in the employment contract per year [for the part-time worker] divided by the number of working hours in the full-time contract per year multiplied by 100, equal to the percentage on which the end-of-service benefit should be calculated. Then, this percentage should be multiplied by the value of the end-of-service benefit due for the full-time employment contract.
