Gratuity in the United Arab Emirates (UAE) stands as a significant end-of-service benefit, rewarding employees for their dedicated tenure. This benefit is typically granted to employees who have completed a minimum of one year of service.
It is a one-time payment that is awarded as a token of appreciation for the employee’s commitment and contribution to the organisation. The recipient can utilise it for various purposes, including investment opportunities within the UAE.
Calculating gratuity entitlement involves several factors. These factors may include the length of employment, the employee’s final basic salary, and any additional allowances or benefits they may have received during their tenure.
The UAE labour law ensures that expatriate workers are provided with a safety net upon the completion of their contract. This safety net comes in the form of gratuity, offering financial security as they transition out of their current employment.
Understanding how gratuity is calculated is crucial for employees to ensure they receive their rightful entitlement. It allows individuals to navigate the calculation process effectively and comprehend the amount they are owed based on their employment history and relevant factors.
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Law related to Gratuity in UAE
Under Article 51 of the UAE Labor Law, expatriate workers in the private sector are entitled to receive gratuity pay, subject to certain conditions.
One of the key provisions states that employees who have completed at least one year of continuous service are eligible for gratuity pay.
This payment is calculated based on the last wage earned by the worker, specifically focusing on the basic salary and excluding allowances such as transportation and accommodation.
Furthermore, it’s important to note that employers have the right to deduct any legitimate amounts owed by the employee from the gratuity pay. However, it’s crucial for employers to settle all end-of-service entitlements, including gratuity pay, within 14 days from the end date of the employment.
These regulations ensure that expatriate workers in the UAE private sector are fairly compensated for their service and provide a clear framework for calculating gratuity pay. By adhering to these guidelines, both employers and employees can maintain a transparent and equitable working relationship.
What does a Gratuity Calculator do?
The gratuity calculator is a helpful financial tool for employees in the UAE. It is designed to estimate the gratuity amount they will receive upon leaving their job.
This calculator operates based on the standard gratuity calculation method prescribed by UAE labour laws. It considers the type of employment contract: limited or unlimited.
Calculating gratuity in the UAE follows specific guidelines outlined in labour laws. The calculator streamlines this process, ensuring accuracy and transparency in estimating gratuity entitlements.
Employees can input essential details such as employment type and tenure to swiftly obtain an estimate of their gratuity amount. This aids in financial planning for career transitions.
Factors Influencing the Gratuity Calculation in the UAE
Understanding these factors is essential for both employers and employees in the UAE, ensuring fair and accurate gratuity calculations in accordance with the labour laws.
- Type of Contract: In the UAE, employment contracts come in two forms: limited and unlimited. These contracts dictate the rules for calculating gratuity. The type of contract a person has affects how gratuity is calculated upon termination.
- Last Basic Salary: When calculating gratuity in the UAE, only the final basic salary of the employee is considered. This excludes other bonuses and allowances like housing or overtime. The last basic salary drawn by the employee is pivotal in determining the gratuity amount.
- Duration of Employment: For gratuity eligibility, an employee must have completed at least one year of service. Continuous service is key; any periods of unpaid leave during employment may affect gratuity calculations. The one-year period must not include any instances of absence without pay.
Calculation of Gratuity for Limited Contract Employees
In a limited employment contract, employees commit to staying with a company for a specific period, and breaking this commitment can have consequences like labour bans or loss of labour rights.
Understanding how gratuity is calculated under such contracts is crucial for both employers and employees.
Duration-based Gratuity Calculation
- Less than 1 Year of Service: Employees leaving before completing a year are not entitled to gratuity.
- 1 to 5 Years of Service: Employees with a service duration between 1 to 5 years are eligible for gratuity, calculated at 21 days of salary per year worked.
- 5 or More Years of Service: For employees serving 5 or more years, the calculation involves 21 days of salary for each of the first 5 years, plus an additional 30 days of salary for each year beyond 5 years.
Example of Limited Contract Gratuity Calculation
Consider an employee with a basic salary of AED 18,000:
- Per Day Wage Calculation: Per day wage = Basic salary / 30 days
18000/30 = AED 600.
- Gratuity Amount Calculation: For each year of service:
Multiply the per day wage by 21: AED 600 * 21 = AED 12,600.
Limits on Gratuity Amount
It’s important to note that the total gratuity for employees with 5 or more years of service should not exceed the total salary amount for two years.
Calculation of Gratuity for Unlimited Contract Employees
Employees with unlimited contracts become eligible for gratuity pay after completing one year of service with the employer. If an employee leaves before completing a year, they are not entitled to receive gratuity.
Understanding the gratuity calculation helps employees anticipate their entitlements based on their length of service, ensuring fair compensation upon the completion of their employment contract.
Duration-based Gratuity Calculation
- Less Than 1 Year of Service: Employees who have not completed a year of service are not eligible for gratuity.
- Between 1 to 3 Years of Service: For employees with a service period between 1 to 3 years, the total gratuity is calculated as one-third (1/3) of 21 days’ worth of salary. This is computed by multiplying the daily rate (monthly wage divided by 30) by 21 days and then by 1/3.
- Between 3 to 5 Years of Service: Employees who have served between 3 to 5 years are entitled to a higher gratuity payment. In this case, the total gratuity is calculated as two-thirds (2/3) of 21 days’ salary. The formula involves multiplying the daily rate by 21 days and then by 2/3.
- More Than 5 Years of Service: For employees who have completed more than five years of service, the full gratuity pay is based on 21 days salary multiplied by the number of years of work. The formula is simply the daily rate multiplied by 21 days multiplied by the service period.
Example of Unlimited Contract Gratuity Calculation
For instance, if an employee’s monthly wage is AED18,000 and they have worked for 4 years, the gratuity pay calculation would be “(Monthly wage ÷ 30) x 21 days x 2/3”. This results in a gratuity pay of AED 8,400 for each year of service.
UAE Labor Law for No Gratuity Payment
Article 139 of the UAE Labour Law clarifies circumstances where an employee may not receive gratuity payment.
If an employee is dismissed for reasons specified in Article 120 or resigns to avoid dismissal under this article, they forfeit their right to gratuity.
Moreover, if an employee resigns without notice for reasons not covered in Article 121 (such as breach of contract by the employer or assault), they lose entitlement to gratuity under unlimited contracts.
For limited contracts, gratuity is not payable if the employee resigns before completing five years of continuous service. These conditions ensure that gratuity is provided fairly and in accordance with the law.
To Sum Up
Understanding gratuity calculations is crucial for both employers and employees in the UAE to manage expectations and plan for the future. Gratuity serves as a significant end-of-service benefit, rewarding employees for their dedicated tenure. It is typically granted to those who have completed at least one year of service, in line with UAE labour laws.
Gratuity entitlement is determined by various factors, including the type of employment contract—limited or unlimited. The last basic salary drawn by the employee plays a pivotal role in the calculation, excluding other bonuses and allowances.
Additionally, the duration of employment is considered; an employee must have completed at least one year of continuous service to be eligible.
This one-time payment is a token of appreciation for the employee’s commitment and contribution to the organisation. It provides a safety net for expatriate workers upon the completion of their contract, ensuring financial security during the transition period.
Employees can utilise gratuity for various purposes, including investment opportunities within the UAE. Therefore, understanding these factors and their implications is essential for both employers and employees to ensure fair and accurate gratuity calculations according to UAE labour laws.
Last Updated on April 18, 2024 by Safiya K
