Under the UAE Labour Law of 2021 (Federal Decree-Law No. 33 of 2021), private-sector contracts are fixed-term and the old distinction between limited and unlimited contracts no longer drives the gratuity calculation. Gratuity is based on the last basic wage and length of service: 21 days per year for the first five years and 30 days per year after that, with a cap of two years of wages.
What changed
Before the 2021 law, gratuity differed for limited and unlimited contracts, and resignation could reduce it. Law-firm summaries of the new law say that contracts are now fixed-term, with a maximum of three years and no limit on renewals, that existing unlimited contracts were to be converted, and that the former resignation reductions were removed. Sources differ on the conversion deadline, so check MOHRE if it matters to you.
The formula
| Service | Gratuity |
|---|---|
| Under one year | None |
| One to five years | 21 days of basic wage for each year |
| More than five years | 30 days of basic wage for each year after the fifth |
| Cap | Two years of wages |
Summaries describe the cap as 24 months of basic wage. One source describes it as two years of total remuneration, so confirm the basis with MOHRE. Allowances are generally left out of the calculation. Use the gratuity calculator to test your numbers.
Worked example
An employee with a basic wage of AED 8,000 a month leaves after seven years. The daily wage for gratuity is AED 8,000 divided by 30, about AED 266.67.
- First five years: 21 days x 5 = 105 days x AED 266.67 = AED 28,000.
- Years six and seven: 30 days x 2 = 60 days x AED 266.67 = AED 16,000.
- Total: AED 44,000, which is below the two-year cap of AED 192,000.
Service periods that are not whole years are normally prorated. Confirm the method in your contract and MOHRE guidance.
Resignation
The summaries we reviewed say that an employee who resigns with at least one year of service is entitled to the same gratuity as someone who is terminated, without the reduction that applied under the previous law. Notice periods and other terms still apply. See UAE labour law for employers.
Termination
On termination by the employer, gratuity is paid in the same way unless the employment ends for reasons for which the law allows dismissal without gratuity. Employers should take legal advice before withholding it. Disputes are a legal matter and we do not give legal advice.
Limited vs unlimited, in practice
- If an older contract still says unlimited, it should have been converted. The calculation is the same formula either way.
- Fixed-term contracts that end and are not renewed do not by themselves reduce gratuity.
- Free zone employees may fall under free zone rules. Confirm with the authority; DIFC and ADGM have their own employment laws.
The final settlement
Gratuity sits in the final settlement with unused leave and other dues. See final settlement calculator.
What employers should book
Gratuity builds up over the employment. The business records a provision each year. See gratuity provision and IAS 19.
Common mistakes
- Applying a resignation reduction from the old law.
- Calculating on total pay instead of basic wage.
- Ignoring service periods under a year when a contract is renewed.
- Paying late and ignoring the settlement deadline in the law.
Next step
If you run payroll in-house, check your gratuity ledger against the formula once a year. Our payroll and WPS services can prepare the accrual and settlement figures.
Leaving the job: what is paid
| Item | Notes |
|---|---|
| Gratuity | Based on basic wage and years of service |
| Unused annual leave | Usually paid in the final settlement |
| Notice pay | If notice is not worked and the contract allows payment in lieu |
| Salary due | Up to the last day |
| Other amounts | Commission, bonuses or reimbursements in the contract |
Part years of service
Where service includes part of a year, the gratuity is usually calculated pro rata. For example, 3 years and 6 months at 21 days per year is 21 x 3.5 = 73.5 days. Confirm with MOHRE guidance whether your case calls for any different treatment.
When gratuity may not be due
The labour law lists limited situations in which dismissal can be without notice or end-of-service benefits. These are serious matters, such as certain acts of misconduct, and the employer carries the burden of proof. Do not withhold gratuity without legal advice.
Free zones and special jurisdictions
Employees of companies in DIFC and ADGM are under those jurisdictions' own employment regimes, which may use savings-scheme arrangements. If you operate there, check the local rules instead of this federal summary.
Frequently asked questions
Not for the calculation under the 2021 Labour Law. Contracts are fixed-term and the same formula applies.
21 days of basic wage per year for the first five years and 30 days per year after that, capped at two years of wages, based on the last basic wage.
Summaries of the 2021 law say the old reductions were removed, so an employee who resigns with at least a year of service receives the standard amount.
No. The summaries say no gratuity is due for service under one year.
Generally no. The calculation uses the last basic wage.