How to Calculate End of service benefits for employees in UAE

The labor law of UAE states that employees are entitled to receive a particular set of benefits when the decided tenure of the employment comes to an end. This set of benefits is known as end-of-service benefits. It is the responsibility of the payroll department to calculate end-of-service benefits for all employees. If a company uses outsourced payroll services in UAE for its employees, it has to ensure that end of service benefits are also covered in the services.

These benefits comprise gratuity which is given as a token of appreciation to the employee for the hard work and devotion they invested in the organization during the tenure of their service. The end of service benefits is paid to the employees when their contract of service gets terminated or they willfully resign from the position under a few terms and conditions which will be discussed in detail below.

What are end-of-service benefits in UAE?

According to UAE’s labor law, end of service benefits is a legal monetary entitlement that employees receive from their employers when their service is terminated according to the contract as long as they are eligible for the entitlement. After the completion of the employment contract in UAE, the employees of the private sector are entitled to the following benefits:

  • All unpaid wages or dues for overtime
  • Leaves encashment (in the case leaves were not availed)
  • End of service gratuity
  • In case of an unlimited contract, employees are given a notice period along with any outstanding dues applicable for the period
  • Any expenses of repatriation applicable as per employment contract or UAE’s labor law for end of service

Read also: How to Calculate End Service Benefits in KSA

How are end-of-service benefits calculated in Dubai?

Article 134 of UAE Labor law states the clauses for end of service gratuity as:

(1) Without prejudice to the provisions of some laws regarding the granting of pensions and gratuities to employees of some establishments, the end of service gratuity shall be computed on the basis of the last wage which the employee was entitled to, in respect of those drawing their salary per month, week or day, and on the basis of average daily wage stipulated in Article (57) in respect of those drawing their wages on piece work basis.

(2) The wage which is considered as a basis for computation of the end of service gratuity shall not include anything given to the employee in kind, housing allowance, transport allowance, travel allowance, overtime allowance, representation allowance, cashier’s allowance, children’s education allowance, recreation, and social services allowance or any other allowances.”

The core part of end-of-service benefits in UAE is the gratuity which is a monetary token of appreciation. This token of appreciation is given to employees by their employers in UAE for completing a certain period of service in the company. It works as gratitude by the company towards the employee to acknowledge the time, efforts, and devotion they put in all years throughout the employment.

Here is all you need to know about the end-of-service benefits calculations in UAE.

There shall no gratuity to be paid if the tenure of service is less than 1 year.

The calculation of gratuity should reflect per 21 days salary per year according to the last basic salary if the tenure of service is more than 1 year or less than 5 years.

The calculation of gratuity should reflect 30 days’ salary per year according to the last basic salary if the tenure of service is more than 5 years.

The New Law says that gratuity at the end of the employment period should be based on the number of working days.

There are two forms of employment contracts under current Law:

  • fixed-term contracts
  • unlimited-term contracts

As stated in this article, all workers will be required to sign fixed-term employment contracts for a maximum of three years under the New Law.

What are free economic zones in Dubai and how many are they?

Free economic zones are special trade zones that are designed with their respective tax concessions and custom duty advantages to investors. The free economic zones have their specific set of rules and regulations for business operations. There are more than 25 free economic zones in Dubai listed below:

  • Dubai Airport Free Zone
  • Dubai Commerce City
  • Dubai Design District
  • Dubai Gold and Diamond Park
  • Dubai Healthcare City
  • Dubai International Academic City
  • Dubai Internet City
  • Dubai International Financial Centre
  • Dubai International Free Zone Authority (IFZA)
  • Dubai Logistic City
  • Dubai Knowledge Park
  • Dubai Maritime City
  • Dubai Media City
  • Dubai Multi Commodities Centre (DMCC)
  • Dubai Production City
  • Dubai Science Park
  • Dubai Silicon Oasis
  • Dubai Studio City
  • Dubai Textile City
  • Dubai World Central (Dubai South)
  • Dubai World Trade Centre
  • International Humanitarian City
  • Jebel Ali Free Zone

What are end of service benefits in JAFZA?

JAFZA or Jebel Ali Free Zone Authority is a free economic sector situated in the Jebel Area of Dubai. Employees working in companies under the JAFZA are entitled to receive mandatory termination benefits according to the laws of free zone. Any employee working under the jurisdiction of JAFZA working for more than a year receives gratuity payment as the end of service benefits in JAFZA. The rate for gratuity payment in JAFZA is calculated as 21 days of the last month’s basic salary for each year if the employment lasted from 1-5 years. However, if the employee exceeds the tenure of 5 years, the rate is calculated as 30 days each year.

What happens if the employer refuses to pay end of service benefits to an employee in UAE?

According to the labor law of UAE, it is mandatory for all employers to pay end of service benefits to their employees unless the employee is terminated on the basis of genuine misconduct. The updated rules in the labor law have secured the rights of employees even more. Here is how:

  • Employees cannot be terminated without being paid end of service gratuity.
  • The end of service benefits must be paid within 14 days of completion of employment.
  • In case of an employee’s death, the end of service benefits must be paid to the kin of the deceased after deductions of body repatriation expenses, if applicable.
  • Unless stated by the law, the employer cannot reduce or deduct the amount of gratuity.

In case of any dispute where an employer refuses to pay end of service benefits to its employee, the employee can immediately report and file a complaint at the Labor Office where legal proceedings can be pursued.

Need guidance with the end of service benefits in JAFZA for your employees in Dubai?

Payroll Middle East is Dubai’s one of the leading payroll services companies. With a large team of business consultants, legal advisors, and tax consultants all over the Middle East, Payroll Middle East invests excellence and efficiency in businesses in the entire UAE.  Our goal is to provide exquisite payroll services to our clients to make their payroll management smoother and more effective.

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