How to Calculate Gratuity In UAE 2025 – Step-by-Step Guide to End-of-Service Benefits

Understanding financial rights as an employee and how to calculate gratuity in UAE  is essential, for both employees and employers because it is a legal right under UAE gratuity law. Any worker who completes at least one year of service is entitled to gratuity, which is worked out using their basic salary and total years of service. The amount may change depending on the contract type and reason for leaving. A gratuity calculator UAE can give a quick estimate, and this guide will help you understand the rules and steps for accurate calculations.

What are End-of-service benefits in UAE for Labors? (Gratuity)

Gratuity pay is a legal right for private-sector employees who have worked for at least one year without a break. It is an end-of-service benefit given when a work contract finishes, and the amount depends on how long the employee has worked, the type of contract, and why it ended. This payment is not optional; it is a guaranteed right under UAE labor law gratuity rules.

Eligibility for gratuity in UAE

To ensure fair compensation and gratuity calculation, it is vital to understand how an employee is eligible for gratuity. The following are the eligibility criteria for gratuity:

• Minimum work duration: At least one year.

• Continuous Service: Employment tenure must be uninterrupted, with certain leave exceptions.

• Contract Type: Rules are different for limited and unlimited contracts

How to calculate gratuity in UAE 2025 

The method for calculating gratuity in the UAE depends on several factors, such as the duration of employment and whether the employee has worked under a limited-term or unlimited-term contract.

1. Determine the salary base

Use the employee’s last drawn basic salary, excluding housing allowance, transportation, bonuses, commissions, and other allowances.

2. Identify the contract type

Unlimited-term contracts: Gratuity is worked out in steps, with a bigger amount given after five years of service.

Limited-term contracts: The calculation is done yearly in the same way, but if the contract ends early, the employee’s gratuity may be reduced or affected.  

3. Apply the duration rules.

For unlimited-term contracts:

• First 5 years: 21 days’ basic salary per year of service.

• After 5 years: 30 days’ basic salary for each additional year.

• For limited-term contracts: The same per-year days apply, but rights to gratuity may depend on whether the contract ends early or completes its term.

4. Compute the total gratuity.

• Multiply the annual per-year days by the number of full years of service, using the basic salary base.

• If the contract ends mid-term or due to early termination, prorations may apply according to the termination scenario (employee resignation vs. employer termination).

• Consider termination scenarios and their impact.

5. Consider termination scenarios and their impact

Resignation:

• 1–3 years of service: up to 1/3 of the full gratuity

• 3–5 years: up to 2/3 of the full gratuity

• More than 5 years: up to the full gratuity

• Termination by the employer (without cause): Full gratuity is typically payable.

• Gross misconduct or dismissal for serious violations: Gratuity may be forfeited.

Essential considerations for gratuity calculation

• Salary basis: Gratuity is calculated only on the basic salary, not on allowances or bonuse.

• End-of-service cases: Contract ends through resignation or employer termination can change the final gratuity amount.

• Fixed-term contracts: If the employer ends the contract early, the employee still gets gratuity for the time they have worked, based on the rules.

How to Calculate Gratuity by Calculator in UAE

The UAE gratuity calculation formula varies based on service tenure and contract type.

Formulae:

• Less than 1 Year of Service: Not eligible for gratuity.
• 1 to 5 Years of service: Gratuity = (Basic Salary/30) x 21 x Years of Service
• More than 5 Years of service: Gratuity = (21 x 5 x Daily wage) + (30 x (Years of service – 5) x Daily wage)

For example, Ahmed has worked for a company for 6 years under a limited contract with a basic salary of AED 12,000

1. Daily Wage: Basic Salary/30 = 12,000/30 = AED 400
2. Gratuity for the first 5 years: 400 x 21 x 5 = AED 42,000
3. Gratuity for the sixth year: 400 x 30 = AED 12,000
4. Total Gratuity = 42,000 + 12,000 = AED 54,000

Role of a Gratuity Calculator UAE

Using a gratuity calculator eases the process. It eliminates the potential risks and errors and provides accurate gratuity figures based on the inputs.

How to Use a Gratuity calculator:

1. Enter the last basic salary.
2. Specify the contract type.
3. Input no. of service years.
4. Get the estimate of gratuity entitlement.

Tools like a gratuity calculator ensure that employees receive fair compensation for their gratuity and make informed financial decisions.

The role of professionals in gratuity matters

Gratuity disputes in the UAE can be tricky, so consulting a labor law lawyer can help ensure fairness and resolve issues smoothly.

End-of-service benefits UAE recap.

• Gratuity is a statutory end-of-service benefit for private-sector employees.

• Eligibility starts after one year of continuous service.

• Calculations are based on the basic salary and contract type, with different rules for resignation vs. employer termination.

• The amount increases after the fifth year of service for unlimited-term contracts.

• Misconduct and not meeting the minimum service threshold can bar gratuity payments.

Understanding how to calculate gratuity in UAE and knowing what are the end-of-service benefits UAE is valuable for both employees and employers. It’s a good idea to take advice from a gratuity law expert to get accurate calculations and prevent disputes.