An employee resigns after seven years with the company. Their final monthly salary is AED 15,000, but the employment contract shows a basic wage of AED 10,000.
Which figure should HR use? Should the first five years and the remaining two years be calculated at the same rate? Do allowances count? Does resignation reduce the amount? When should the final payment be made?
A gratuity calculation in the UAE can appear simple until an actual employee file reaches the HR desk. One incorrect salary figure or service date can change the final amount and create a dispute.
This guide explains the standard calculation for eligible full time foreign employees in the UAE private sector. It also includes three worked examples that HR teams can follow.
The information was checked on October 27, 2026 against the Ministry of Human Resources and Emiratisation guidance and Federal Decree Law No. 33 of 2021. Rules may change, so HR teams should confirm the current law before processing a final settlement.
Start with the employee’s legal coverage
Before calculating anything, confirm that the employee falls under the relevant UAE private sector labor law.
The standard formula in this guide generally applies to an eligible full time foreign employee covered by Federal Decree Law No. 33 of 2021.
Different rules may apply to:
- UAE nationals covered by pension and social security legislation
- Domestic workers
- Government employees
- Employees in the Dubai International Financial Centre
- Employees in Abu Dhabi Global Market
- Employees covered by a special free zone employment framework
- Employees registered under the voluntary alternative end of service benefits system
- Part time and job sharing employees
MOHRE states that a full time foreign employee becomes entitled to gratuity after completing at least one year of continuous service.
If the employee has not completed one year, the standard statutory gratuity described here is not payable.
Use the final basic wage, not the total salary
This is one of the most common causes of incorrect gratuity calculations.
The gratuity is based on the employee’s last basic wage. It is not normally calculated using the complete salary package.
Suppose an employee receives:
- Basic wage: AED 8,000
- Housing allowance: AED 2,500
- Transport allowance: AED 1,000
- Other allowance: AED 500
- Total monthly wage: AED 12,000
The gratuity calculation begins with AED 8,000, not AED 12,000.
HR should check the employment contract and payroll record rather than relying only on the amount transferred to the employee’s bank account.
Federal Decree Law No. 33 of 2021 states that gratuity for an eligible foreign employee receiving a monthly, weekly, or daily wage is calculated using the last basic wage received.
The standard gratuity formula
The calculation uses two service periods.
For each year within the first five years of service, the employee receives the value of 21 days of basic wage.
For each year after the first five years, the employee receives the value of 30 days of basic wage.
The basic structure is:
First five years
21 days of basic wage for each year
Service after five years
30 days of basic wage for each additional year
Maximum entitlement
The total gratuity cannot exceed the value of two years of wage.
MOHRE confirms these rates in its employer and worker guidance.
For the worked examples below, the monthly basic wage is converted into a daily rate by dividing it by 30.
Example one: Three years of service
An employee has:
- Final basic wage: AED 6,000 per month
- Continuous service: Three years
- Unpaid absence: None
Step one: Calculate the daily basic wage
AED 6,000 divided by 30 equals AED 200 per day.
Step two: Calculate the gratuity days
The employee completed three years, all within the first five years.
21 days multiplied by three years equals 63 days.
Step three: Calculate the gratuity
63 days multiplied by AED 200 equals AED 12,600.
Estimated gratuity: AED 12,600
This calculation uses only the basic wage. Housing, transport, and other allowances are not added.
Example two: Seven years of service
An employee has:
- Final basic wage: AED 10,000 per month
- Continuous service: Seven years
- Unpaid absence: None
The first five years and the remaining two years must be calculated separately.
Step one: Calculate the daily basic wage
AED 10,000 divided by 30 equals AED 333.33 per day.
Step two: Calculate the first five years
21 days multiplied by five years equals 105 days.
105 days multiplied by AED 333.33 equals AED 35,000.
Step three: Calculate the next two years
30 days multiplied by two years equals 60 days.
60 days multiplied by AED 333.33 equals AED 20,000.
Step four: Add both periods
AED 35,000 plus AED 20,000 equals AED 55,000.
Estimated gratuity: AED 55,000
A frequent payroll mistake is applying 30 days to all seven years. The 30 day rate applies only to the service completed after the first five years.
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Example three: Four years and six months of service
An employee has:
- Final total monthly wage: AED 12,000
- Final basic wage: AED 8,000
- Continuous service: Four years and six months
- Unpaid absence: None
This example shows how a partial year is handled.
Step one: Calculate the daily basic wage
AED 8,000 divided by 30 equals AED 266.67 per day.
Step two: Calculate the first four years
21 days multiplied by four years equals 84 days.
84 days multiplied by AED 266.67 equals AED 22,400.
Step three: Calculate the additional six months
Six months equals half a year.
21 days multiplied by half a year equals 10.5 days.
10.5 days multiplied by AED 266.67 equals AED 2,800.
Step four: Add both periods
AED 22,400 plus AED 2,800 equals AED 25,200.
Estimated gratuity: AED 25,200
The AED 12,000 total wage is not used because the employee’s final basic wage is AED 8,000.
MOHRE states that an eligible employee is entitled to gratuity for a part of a year in proportion to the period worked, provided the employee has already completed at least one year of continuous service.
Unpaid absence can change the service period
Unpaid days of absence are excluded when calculating the eligible service period.
This means HR should not rely only on the joining date and final working date. The leave record must also be checked.
For example, an employee may appear to have completed exactly four years based on calendar dates. If the employee took an extended period of unpaid leave, the service period used for gratuity may be shorter.
Before finalizing the calculation, HR should reconcile:
- Joining date
- Final working date
- Contract history
- Unpaid leave
- Employment model
- Final basic wage
- Previous settlements
- Alternative savings scheme registration
Paid annual leave, approved paid leave, and unpaid absence should not be grouped together. Their treatment is different.
Resignation does not mean using an old reduced formula
Some HR files still contain gratuity tables created under the previous UAE labor law. These tables may reduce gratuity when an employee resigns before completing certain service periods.
HR teams should not automatically apply these older resignation reductions to employees covered by the current law.
Article 51 of Federal Decree Law No. 33 of 2021 sets the current standard rates for eligible full time foreign employees. The calculation should be based on the applicable current legislation and the facts of the employee’s case.
When a file involves a dispute, dismissal, legal deduction, or unusual contract arrangement, HR should obtain qualified legal guidance before releasing the settlement.
Part time employees require another calculation
The standard examples above are for full time employees.
Under the Executive Regulations, gratuity for eligible part time and job sharing employees is calculated using the proportion of their contractual annual working hours compared with the annual working hours of a full time contract.
The resulting percentage is then applied to the value of the full time gratuity.
This calculation depends on contractual working hours, so HR should not simply use the full time formula without adjustment.
Payment is due within 14 days
The employer must pay the employee’s wages and other legal entitlements within 14 days from the end of the employment contract.
Gratuity should therefore be prepared as part of the complete final settlement, not handled as an open payroll item for an undefined period.
Article 53 of Federal Decree Law No. 33 of 2021 confirms the 14 day payment period.
The final settlement may also include outstanding salary, payment for eligible unused leave, approved expenses, incentives due under the contract, and lawful deductions. Each item should be shown separately so the employee can understand the calculation.
The voluntary Savings Scheme changes the process
The UAE also has a voluntary alternative end of service benefits system known as the Savings Scheme.
An employer that joins the approved system makes contributions for registered employees into an approved investment fund. The traditional gratuity calculation stops for the employee’s future service after registration, while the entitlement earned before registration is preserved and calculated under the applicable rules.
HR must therefore check whether the employee was registered in the Savings Scheme before applying the traditional formula to the entire service period.
The alternative system was established through Cabinet Resolution No. 96 of 2023.
A final HR checklist
Before approving a gratuity calculation in the UAE, confirm:
- The employee is covered by the relevant law.
- The employee completed at least one year of eligible continuous service.
- The final basic wage has been verified.
- Allowances have not been included in the basic wage.
- The first five years and later years have been calculated separately.
- Any partial year has been calculated proportionately.
- Unpaid absence has been excluded from the service period.
- The employee’s work model has been confirmed.
- Savings Scheme participation has been checked.
- The complete settlement will be paid within the required period.
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Frequently asked questions
Is UAE gratuity calculated on basic wage or total salary?
For an eligible employee covered by the standard rules, gratuity is calculated using the last basic wage. Housing, transport, and other allowances are not normally included.
Does an employee qualify after less than one year?
The standard gratuity under Article 51 requires at least one year of continuous service.
Are partial years included?
Yes. Once the employee has completed one year of continuous service, an additional part of a year is calculated in proportion to the period worked.
Does unpaid leave count toward gratuity service?
Unpaid days of absence are excluded from the service period used for the calculation.
When must the final settlement be paid?
The employer must pay wages and other legal entitlements within 14 days from the end of the contract.
Does the same formula apply in DIFC and ADGM?
Not necessarily. DIFC and ADGM have their own employment frameworks. HR should apply the rules governing the employee’s workplace and contract.
