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Gratuity calculation in Abu Dhabi, Dubai, UAE

Guide to how to calculate final gratuity salary payment, severance pay, (or annual bonus as some might call it) in Abu Dhabi, Dubai, UAE when you resign, or get fired, or when your job is terminated, based on federal UAE Labour Law information.

This should not be read as any sort of legal document or interpretation, it is only our opinion of what we understand of the UAE Labour Law and should not be assumed to be accurate or correct. Consult the UAE Labour Department or a lawyer in the UAE to get authoritative or professional information. Your HR department or PRO is not necessarily an authoritative source of information and opinion - remember that they are paid by the employer to do their job, not by the employee.

• In the UAE, the federal labour law says that workers are entitled to severance pay (more commonly known as the "gratuity") upon termination of their employment, whether by completing a fixed period contract, or resigning from a job with an unlimited contract.
• This is intended to compensate for the lack of a government pension scheme for expatriate workers resident in the UAE.
• How much you get will depend on whether you had a limited or unlimited contract, and on whether you resigned or not. Check carefully what sort of contract you have.
• If your contract specifies how much gratuity you are entitled to, check the calculation according to the labour law anyway. Usually, such contracts provide greater benefits, but if they do not, then you should have a case for claiming your entitlement according to the labour law, even if you signed such a contract.
• Unlimited contract holders receive substantially less than limited contract holders. Usually. To calculate your gratuity entitlement, follow the following steps.

Some job categories are not covered by the UAE Labour Law - maids and other domestic servants for example, which means they are not automatically entitled to a gratuity payment irrespective of years of service.

Maids and domestic workers in the UAE - gratuity update

• 15 May 2012 (Emirates 24-7) - a new draft law was approved by the UAE Cabinet in January 2012 to grant domestic helpers an end-of-service gratuity. Unknown when the law will actually come into force.

Termination, resignation, being fired - what's the difference?

• A contract, whether unlimited or limited, is terminated when it ends, whether by the employee, employer, or mutual agreement. How it ends can affect your gratuity payment. In particular, if you resign from an unlimited contract, you won't be entitled to as much gratuity payment as workers who complete a limited contract (see article 137 of the labour law).
• If you resign, then you chose to terminate the contract. If an employer asks or forces you to resign, then you still resigned, and it was your choice to terminate the contract according to the labour law (being forced to resign is another issue, and it is better to deal with that before signing a resignation letter, not after).
• If you get fired, then your employer chose to terminate the contract.
• If given a choice between being fired and resigning, your gratuity payment is not the only factor to consider - it is possible that an employer fires you for a reason that results in no gratuity payment, even though your contract was terminated by your employer (see articles 120 and 139 of the labour law).

Note that a resignation is not something your employer can choose to accept or not. He might be able to negotiate or try to manipulate you into changing your mind, but his refusal to accept a resignation is meaningless (legally) if you want to terminate your contract. Of course there are consequences to your decision but you do have the choice to terminate a contract whenever you like. Just as your employer does.

Limited contract holders shorter than 1 year

• No gratuity entitlement. But if unfairly or arbitrarily dismissed you might be entitled to up to 3 months salary as compensation.

Unlimited contract holders working less than 1 year

• No gratuity entitlement. But if unfairly or arbitrarily dismissed you might be entitled to up to 3 months salary as compensation.

Limited contract holders (or fixed term contracts) longer than 1 year

1. Did you complete your contract? If yes, you are entitled to 21 days salary for every year of employment less than 5 years, and 30 days salary for each year of employment over 5 years, up to a maximum of 2 years salary.
2. If you did not complete your contract, then you get nothing if you were employed less than 5 years, otherwise the full amount according to the calculation in step 1.

Unlimited or indefinite contract holders longer than 1 year

1. Were you terminated by your employer, fired, or did you resign? If terminated or fired by your employer, you should be entitled to the full amount of gratuity with the same calculation as for limited contract holders. If you resigned, then probably not. If you think you can negotiate a better deal than the calculation below, do it before you resign (and get something in writing), it is unlikely your employer will do you any favors after you resign.
   • If you were asked to resign, and you agreed because you felt like you had no choice, then you still resigned, even if it did not feel like a voluntary resignation. An involuntary resignation is not the same as being fired or terminated by your employer, and that will probably make a difference when it comes to gratuity payments. Which appears to be a financial incentive for employers to encourage you to resign when they don't want you any more.
2. Did you resign (Article 117 of the Labour Law - "... left his work at his own option ..."), and give the correct notice period (usually 30 days)? If yes, then the amount is according to the following:
• Employed for less than 1 year - no gratuity
• Employed between 1-3 years - 7 days for each year of employment (1/3 of the limited contract amount)
• Employed between 3-5 years - 14 days for each year of employment (2/3 of the limited contract amount)
• Employed longer than 5 years - 21 days for each year up to 5 years, and 30 days for each year after 5 years (same as for limited contract holders). Maximum limit of 2 years worth of salary.
3. If you did not give the correct notice period, then no gratuity entitlement unless the employer has not fulfilled their obligations according to the UAE Labour Law, or the employer has assaulted the employee (Article 121 conditions for permission to leave employment without notice). You might have to file a case with the Ministry of Labour in the UAE to claim your gratuity in this case, and they might not agree with your claim.

Additional notes on calculating severance pay

• Gratuity is calculated on final base salary only (not initial salary), any additional allowances are ignored.
• Employees who are entitled to a gratuity will have it calculated pro-rata for part-years of employment.

Confusion and differences between limited and unlimited contracts

• It is common for employees in the UAE to be on a limited contract which is renewed repeatedly after completion of the fixed term. The gratuity applicable in this case should be that for a limited contract. But check carefully what your contract says.
• If a contract specifies a possible notice period for terminating before completion, then it is still a limited contract and you might not be entitled to any gratuity if you do not complete the contract, even if you give the correct notice as specified in the contract. However, such contracts do usually include a clause to detail what gratuity will be paid in those circumstances, and those clauses should have legal validity.
• Being required to give a period of notice of renewal or non-renewal of a fixed term contract does not make it an unlimited contract. It is still a limited contract, and the gratuity calculations for a limited contract should still apply. If an employer claims otherwise, contact the Ministry of Labour to at least ask for clarification, and possibly file a complaint.

Article 138 clarification (minimum 5 years employment on limited contracts?)

This information related to limited contracts only, not unlimited (or indefinite) contracts.

• Article 138 does not say you must work a minimum of 5 years to be entitled to a gratuity payment. It says you must work a minimum of 5 years to be entitled to a gratuity payment if you resign before completing a limited contract (whether it's a 1, 2, 3, 4, 5, or more, year contract). The article specifies "continuous" years of service. Some examples:
• If you complete a 2 year contract and leave at the end of it, you are entitled to a gratuity.
• If you complete a 2 year contract, and renew it, but then resign after 1 year employment into your second contract, you are not entitled to a gratuity payment (it's not clear whether or not you forfeit your gratuity for the first 2 year contract which you completed - assume you don't receive it).
• If you complete a 3 year contract, renew it, and resign 1 year after renewal, you are not entitled to a gratuity.
• If you complete a 3 year contract, renew it, and resign 2 years after renewal, you are entitled to a gratuity for the full period because you have completed 5 continuous years of service.

Other End of Service benefits due to employees

• Payment equivalent to notice period if no notice given (by the employer) for an unlimited contract.
• Payment to the end of contract or 3 months salary (the lesser of the two options) if contract terminated prematurely by the employer.
• Overtime and salary or wages due but not paid yet.
• Payment equivalent to leave or holiday time not used.
• Repatriation expenses to the home country of the employee, according to the labour law or contract.

UAE Labour Law on gratuity and severance pay

Below is the original text of the UAE Federal Labour Law with the section on gratuity payments. Articles 132, 137, and 138 refer specifically to the calculation of gratuity. Different sources of what appears to be the original text might have slightly different wording, which might or might not be important.

Last update Wednesday 14-Aug-2013. Page development 4L 5C.

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