End-of-service gratuity in the UAE: how it is calculated

End-of-service gratuity is a statutory lump sum owed to a foreign worker when their employment ends, calculated on their final basic salary. Under the UAE Labour Law (Federal Decree-Law No. 33 of 2021), a full-time employee earns 21 days of basic pay for each of the first five years of service and 30 days for each year after that. The total is capped at two years of pay.

When it accrues

Gratuity is due only after one year of continuous service. An employee who leaves before completing a year is owed nothing. Time spent on unpaid leave does not count toward the service total. Partial years beyond the first are paid pro rata.

What it is calculated on

The calculation uses basic salary, not total pay. Housing, transport, and other allowances are excluded, which is why how a package splits basic against allowances directly changes the gratuity an employer carries. A package set with a low basic to control gratuity exposure is a recognised structuring choice, and one a comp lead should model deliberately rather than discover at exit.

The 2021 change that matters

The previous law reduced gratuity for employees who resigned before five years of service. The 2021 law removed that penalty. Resignation and termination now produce the same figure, and all contracts became fixed-term. Any guidance written before 2022, and any framework built on UK-style occupational pensions, does not describe the current UAE position.

Free zones run their own rules

The DIFC operates a funded scheme, DEWS, where the employer makes monthly contributions in place of an accrued end-of-service lump sum. The ADGM has its own regime. An employee in a DIFC entity is covered by DEWS, not by the mainland calculation above.

What this means for budgeting

Gratuity is an accruing liability, not an exit cost. It builds from day one of the second year and rises faster after year five. Carrying it on the balance sheet, rather than recognising it only when someone leaves, is the difference between a planned cost and a surprise.