Gratuity Calculator in UAE

Under UAE labor law, gratuity refers to the end-of-service gratuity awarded to employees who have been in continuous service with an employer for one year or more. It is a payment in one sum calculated from the basic salary of the employee and period of service, and it is made when the employee resigns or is dismissed. Gratuity is governed by Federal Decree-Law No. 33 of 2021 (as amended), and the calculation differs slightly depending on whether the employee is under a limited contract (fixed-term) or an unlimited contract (open-ended). Employees who are terminated for serious misconduct or who resign within one year of service do not receive gratuity. 

Gratuity Eligibility Criteria in UAE

Before using a gratuity calculator, it is important to first determine eligibility for gratuity:

• The employee must have worked continuously for at least a year.
• Termination must be as a result of the employee’s fault.
• The employee must not have resigned before the completion of one year.
• Partial service years are considered while calculating the gratuity amount in the event of resignations.

After confirming eligibility, one can proceed with the application of a UAE gratuity calculator online or apply the concerned formula manually.

Gratuity Calculation for Limited Contract in UAE

For employees who work on a limited contract, the end-of-service gratuity is calculated on their basic pay, provided the employee completes the contract duration. The system is very straightforward under the law:

• If the employee resigns after less than 1 year of service, no gratuity.
• If the employee resigns or gets terminated after 1 to 5 years: 21 days of basic pay for each year of service.
• If the employee completes beyond 5 years: 30 days of basic salary for each additional year beyond 5 years, plus 21 days for the initial 5 years.

For instance, if an employee is resigning after serving for 6 years under a limited contract, and the estimated basic salary received is AED 10,000. The calculation will be:

Initial 5 years: 21 days * 5 = 105 days

Sixth year: 30 days x 1 = 30 days

Total: 135 days of basic salary

135 / 30 = 4.5 months’ salary = AED 45,000

Gratuity Calculation for Unlimited Contract in UAE

In cases of having an unlimited contract, the calculation is slightly different, depending on the reasons for termination:

Termination by employer:

• 1 to 5 years: 21 days of basic salary per year.
• Above 5 years: 30 days of basic salary per year for the initial five years, along with 21 days for the initial five years.

In case of resignation by the employee:

• 1 to 3 years: One-third (1/3) salary for 21 days per year.
• 3 to 5 years: Two-thirds (2/3) salary for 21 days per year.
• More than 5 years: Full 21 days annually for the first five years and 30 days annually thereafter.

UAE Gratuity Calculation Formula

The formula of calculation used for gratuity in general is:

Gratuity = (Basic Salary ÷ 30) × Days of Gratuity per Year × Years Worked

Where:

• Basic Salary does not include allowances such as housing, transport, or bonuses.
• Days of Gratuity vary by years of service and contract type.

Exclusions and Key Information

In calculator or manual calculation, statutory exclusions and limitations should be considered:

• Housing allowance or travel allowances are excluded from the gratuity base.
• Leaves without pay are not covered under the total years of service.
• An employee who has been terminated for cause shall not be qualified for gratuity.
• End-of-service benefits have ceilings of two salaries under some scenarios.

These exceptions get embedded into very complex gratuity calculator UAE programming, hence it ensures that even while making approximations, legal compliance is attained.

Gratuity Calculation in the New UAE Labour Law

The 2022 Labour Law imposes simplicity in gratuity computation. Some of the major updates are:

• A single code for limited and unlimited contracts substituted the unlimited agreements within a period.
• End-of-service gratuity is computed on a more accurate basic salary, service duration, and deduction terms.
• The employers must pay gratuity within 14 working days from the last working day of the employee.

These are already being taken care of by existing gratuity calculators, so your calculation would become redundant in the context of the existing legal scenario.

Seek the Expert Services of Payroll Middle East

With or without limited or unlimited contracts, effectively utilizing a correct gratuity calculator in UAE is essential. To effectively determine eligibility for availing gratuity in the UAE and to seamlessly use a gratuity calculator in UAE, in compliance with the relevant laws, it is advisable to seek the expert services of Payroll Middle East, a reputable Payroll company in UAE. Contact us today, and we shall be glad to assist you.