How to Calculate Gratuity in the UAE: The End-of-Service Formula, Worked

How to calculate gratuity in the UAE: gratuity calculation uses basic salary only. Divide the last basic monthly wage by 30 to get a daily rate, then pay 21 days per year for the first five years of service and 30 days per year after that, capped at two years’ wage. One year of continuous service qualifies.

Knowing how to compute gratuity in the UAE matters because it is one of those numbers every employer knows they owe and very few get right on the first try. It looks simple — a fixed number of days per year of service — but the detail lives in which salary you calculate it on, how resignation affects it, where the cap bites, and which free zones follow different rules entirely. Getting it wrong is expensive in both directions: over-provision and you tie up cash and distort your accounts, under-provision and you face a disputed final settlement the day an employee walks out. This guide sets out exactly how to calculate gratuity in the UAE, with the governing law, the formula, two worked examples, and the traps we see most often when we help employers provision for it.

What gratuity actually is

Gratuity — the end-of-service benefit, sometimes called the end-of-service gratuity or EOSB — is a lump sum an employer must pay an employee when their employment ends, provided the employee has completed at least one year of continuous service. It is not a bonus, not discretionary, and not something an employer can waive in the contract. It is a statutory entitlement that accrues from the first day of employment but only becomes payable once the one-year threshold is crossed.

The gratuity figure is not the last number an employer works out. What goes with it — notice pay, leave encashment, permitted deductions and the fourteen-day payment window — is covered in probation, notice periods and final settlement in the UAE.

When people ask what gratuity means in a UAE salary, they usually want to know whether it forms part of the monthly pay. It does not. Nothing is deducted from the payslip to fund it, and it appears exactly once — in the final settlement. That is also why the gratuity rules in the UAE feel invisible until an employee resigns, at which point both sides discover whether the employer has been provisioning honestly.

The governing law is Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations, together with its Executive Regulations, which came into effect in February 2022. This law rewrote the UAE’s employment framework, and the single most important change for gratuity is that it abolished the old distinction between limited and unlimited contracts — every private-sector employment contract is now fixed-term. That one change quietly fixed the most confusing part of the old gratuity rules, and we will come back to it.

1 year

Minimum continuous service an employee must complete before any end-of-service gratuity becomes payable under UAE Labour Law

Gratuity calculation rules at a glance

Every figure in the table below was checked against the official source shown on 4 August 2026. UAE labour rules change, so re-check the source column before you rely on any of it in a settlement.

Rule	Position	Primary source
Minimum qualifying service	1 year of continuous service; under 1 year earns no gratuity	u.ae — End of service benefits, private sector
Rate, years 1–5	21 calendar days’ basic salary for each year	u.ae — Calculations for gratuity pay
Rate, beyond year 5	30 calendar days’ basic salary for each additional year	u.ae — Calculations for gratuity pay
Salary basis	Last basic wage only — excludes housing, transport, utilities, furniture and other allowances	u.ae — End of service benefits, private sector
Overall cap	Total gratuity shall not exceed the wage of 2 years	u.ae — Calculations for gratuity pay
Unpaid absence	Days of absence without pay are not counted in the service period	u.ae — Calculations for gratuity pay
Payment deadline	All wages, entitlements and gratuity due within 14 days of contract termination	u.ae — End of service benefits, private sector
Governing law	Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations, in force 2 February 2022	uaelegislation.gov.ae — Federal Decree-Law 33 of 2021
Part-time pro-rata	Contract hours ÷ full-time hours × 100 = percentage applied to full-time gratuity	Cabinet Resolution No. 1 of 2022, Article 30 (MoHRE)
Voluntary alternative	Savings Scheme: monthly employer subscription instead of accrued gratuity	Cabinet Resolution No. 96 of 2023 (MoHRE)

How to compute gratuity in the UAE, step by step

Six steps, in this order. Each one maps to a specific clause of Article 51 of Federal Decree-Law No. 33 of 2021, so if a settlement is ever challenged you can point at the provision behind every line rather than at a spreadsheet.

Step 1 — Check the one-year threshold. Article 51(2) gives the entitlement to a full-time foreign worker “who completed a year or more in continuous service”. Below twelve months there is no gratuity at all, not even a pro-rated slice. This is a cliff, not a slope.

Step 2 — Take the last basic wage from the contract. Article 51(5) calculates the benefit “according to the last basic wage the worker was entitled to”. Strip out housing, transport, utilities, furniture, phone, education and every other allowance. If the basic changed during employment, the figure in force at termination is the one that counts — not an average, and not the joining salary.

Step 3 — Convert the monthly basic into a daily wage. Divide by 30. Article 67 of the same Decree-Law states that, for the purposes of the law, “the Gregorian year … shall include (365) three hundred and sixty-five days, while the month represents (30) thirty days”. That is the statutory definition the divisor rests on.

Step 4 — Count the service period, then take out unpaid absence. Article 51(4) is explicit that “the unpaid days of absence from work shall not be included in the calculation of the service term”. Count from the joining date to the last working day, then deduct unpaid leave and unauthorised absence. A long unpaid sabbatical genuinely moves the anniversary.

Step 5 — Apply 21 days, then 30 days. Article 51(2) sets “a wage of (21) twenty-one days for each year of the first five years of service” and “a wage of (30) thirty days for each year exceeding such period”. Article 51(3) adds that a worker is entitled to a benefit “for parts of the year in proportion to the period spent at work”, so a part-year after the first is pro-rated rather than rounded away.

Step 6 — Test against the cap, then pay inside 14 days. Article 51(6) requires that the benefit “in its entirety does not exceed two years’ wage” — compute the raw figure first, then carry the lower of the two. Article 53 then gives the employer 14 days from the end date of the contract to pay wages and all other entitlements.

A seventh step applies only sometimes. Article 51(7) lets an employer deduct amounts “payable under the law or a judgment”, and Article 29 of Cabinet Resolution No. 1 of 2022 lists exactly what qualifies: loan repayments or sums paid in excess of entitlement, pension and insurance contributions, fines under an approved workplace penalties regulation, court-ordered debts, and the cost of repairing damage the worker caused through fault or breach of instructions.

The gratuity formula

Here is the whole thing in one place. The end-of-service benefit is calculated on the employee’s basic wage only — not the total package — at these rates:

• 21 days’ basic wage for each of the first five years of service.
• 30 days’ basic wage for each year of service beyond five years.
• The total gratuity is capped at two years’ wage.

Everything else is just applying those three lines correctly. The first step is always to convert the monthly basic salary into a daily wage, because the entitlement is expressed in days.

Deriving the daily wage

The daily wage is the basic monthly salary divided by 30:

Daily wage = Basic monthly salary ÷ 30

From there, 21 days of gratuity is simply the daily wage multiplied by 21, or put another way:

21 days' gratuity = (Basic monthly salary ÷ 30) × 21

That expression — basic divided by 30, times 21 — is the engine of the whole calculation. A useful shortcut: 21 divided by 30 is 0.7, so 21 days of basic wage is exactly 70% of one month’s basic salary per year of service for the first five years. For years beyond five, 30 days is one full month’s basic salary per year.

If you would rather not compute gratuity by hand, our MoHRE gratuity calculator applies exactly this formula — put in the basic monthly salary and the years of service and it returns the entitlement. Treat it, and every other end of service calculator you find, as a check on your own working rather than a replacement for it. “MoHRE gratuity calculator” is one of the most-searched phrases in UAE payroll, and the reason is obvious: employers want a number they can defend.

Worth knowing that MoHRE itself does not publish a general end-of-service calculator for private-sector staff, so every tool under that name is a third-party one applying the Article 51 rates. The number you can defend is the one the formula in the law produces from the correct basic wage. Almost no gratuity calculator asks whether the salary you typed is basic or gross, and that is the only question that really decides the answer.

Which divisor: basic ÷ 30, or basic × 12 ÷ 365?

This is the one genuinely contested step in UAE gratuity calculation, and it is worth being straight about. Article 51 and the official u.ae guidance both express the entitlement in days — “21 calendar days’ basic salary for each year” — without stating how you convert a monthly salary into a daily one. Two conventions circulate. Dividing the monthly basic by 30 treats a month as 30 days. Multiplying by 12 and dividing by 365 treats the year as 365 days.

They do not produce the same answer. On a basic of AED 10,000, the ÷30 route gives a daily wage of AED 333.33 and a first-five-years entitlement of AED 7,000 per year. The ×12÷365 route gives AED 328.77 a day and AED 6,904 per year — about 1.4% lower, every year, compounding across a long tenure.

We use ÷30, and the reason is arithmetic published by the regulators themselves rather than a preference. Under the Savings Scheme created by Cabinet Resolution No. 96 of 2023, MoHRE sets the employer’s monthly subscription at 5.83% of monthly basic salary before five years of service and 8.33% after. Multiply 5.83% by twelve months and you get 69.96% of a month’s basic per year — which is 21÷30, or 70%, to rounding. Multiply 8.33% by twelve and you get 99.96%, which is 30÷30, a full month. The DIFC’s DEWS scheme uses the same two percentages. In other words, when the regulators had to express the 21-day and 30-day entitlements as a monthly accrual rate, they built them on a 30-day month.

Why it must be basic salary, not gross

This is the error we correct more than any other. Gratuity is calculated on the basic wage, and every allowance is excluded — housing, transport, phone, education, cost-of-living, anything that sits on top of basic in the contract. If an employee’s total monthly package is AED 15,000 made up of AED 9,000 basic plus AED 6,000 in allowances, the gratuity is worked out on the AED 9,000, not the AED 15,000.

This matters enormously for provisioning. An employer who accrues gratuity against the gross package rather than the basic wage overstates the liability by the full allowance proportion — often 40% or more. It inflates the balance-sheet provision, distorts the monthly management accounts, and sets an expectation with the employee that will not match their actual final settlement. Provisioning gratuity correctly is part of a properly run monthly accounting and bookkeeping cycle, where the accrual is calculated against each employee’s contractual basic and reconciled at every close.

Worked example one: five years or fewer

Take a hypothetical employee — the numbers here are illustrative, not a real client — on a basic monthly salary of AED 10,000 who resigns after completing exactly 4 years of continuous service on a current fixed-term contract.

Step one, the daily wage: AED 10,000 ÷ 30 = AED 333.33 per day.

Step two, the per-year entitlement: AED 333.33 × 21 days = AED 7,000 per year (which is the 70%-of-basic shortcut in action).

Step three, multiply by years of service: AED 7,000 × 4 years = AED 28,000.

So this employee’s end-of-service gratuity is AED 28,000. Because their whole tenure sits within the first five years, only the 21-day rate applies, and the two-year cap is nowhere near being reached.

Worked example two: beyond five years

Now take a hypothetical employee on the same AED 10,000 basic who leaves after 8 years of continuous service. This one crosses the five-year line, so it uses both rates.

The daily wage is still AED 10,000 ÷ 30 = AED 333.33.

For the first five years, the rate is 21 days per year: AED 333.33 × 21 × 5 = AED 35,000.

For the remaining three years (years six, seven and eight), the rate rises to 30 days per year. Thirty days of basic wage is one full month’s basic, so that is AED 10,000 × 3 = AED 30,000.

Add the two portions: AED 35,000 + AED 30,000 = AED 65,000.

The total gratuity is AED 65,000. As a sanity check against the cap: two years’ wage would be well above this figure on any reasonable package, so the cap does not bite here. It only becomes a live constraint for very long-tenure employees, where the accumulated 30-days-per-year entitlement eventually brushes up against two years’ wage.

The two-year cap

Whatever the formula produces, the total end-of-service gratuity cannot exceed two years’ wage. For most employees this is invisible — you would have to accumulate a very long tenure at the 30-day rate before the running total reaches two years of pay. But for genuinely long-serving staff it is a real ceiling, and any accrual model that ignores it will over-provision for your most tenured people. When we build gratuity provisions for employers, the cap check is a standard line in the model: calculate the raw entitlement, then cap it at two years’ wage, and carry the lower figure.

How resignation used to cut gratuity — and why it no longer does

This is the part that causes the most confusion, because the rules genuinely changed. Under the old system, before February 2022, contracts were either “limited” (fixed-term) or “unlimited” (open-ended), and gratuity on resignation depended on which you had. An employee who resigned from an unlimited contract before completing five years could see their gratuity reduced — to one-third of the entitlement for one-to-three years of service, two-thirds for three-to-five years, and the full amount only after five years. Resignation was, in effect, penalised.

Federal Decree-Law No. 33 of 2021 removed that entire mechanism. Because all contracts are now fixed-term, the limited/unlimited distinction is gone, and with it the resignation penalty. An employee who completes at least one year of continuous service on a current fixed-term contract and serves their notice period receives the full 21-days-per-year gratuity whether they resign or their employment is terminated. The reason for leaving no longer scales the entitlement down.

The practical upshot for employers: any accrual model or HR spreadsheet still applying the old one-third and two-thirds resignation fractions is now wrong, and will understate what you owe a resigning employee. If your gratuity template predates 2022, it needs checking.

Worked comparison: resignation against termination

The fastest way to see the change is to compute the same employee twice. Take the hypothetical AED 10,000 basic again — daily wage AED 333.33, so 21 days is AED 7,000 a year — and run them once as a resignation and once as an employer termination, at two different tenures.

Scenario	Service	How it is computed	Gratuity
Employee resigns	4 years	4 × 21 days × AED 333.33	AED 28,000
Employer terminates	4 years	4 × 21 days × AED 333.33	AED 28,000
Employee resigns	4 years 6 months	4 × 21 days + half-year pro rata	AED 31,500
Employer terminates	4 years 6 months	4 × 21 days + half-year pro rata	AED 31,500

The columns are identical by design, and that is the entire point. Read Article 51 clause by clause and there is no provision anywhere in it that scales the entitlement by who ended the employment or why. The reason for leaving simply is not an input to the calculation. Anyone still asking whether they get “full gratuity” on resignation is asking a question the 2021 Decree-Law deleted.

Two footnotes on that table. The half-year row pro-rates under Article 51(3), and pro-rating on calendar days against the 365-day year in Article 67 rather than in whole months moves the figure by only a few dirhams — AED 31,500 against roughly AED 31,510 on a 183-day half year. And where an employment ends in disputed or disciplinary circumstances, Article 51 as published still sets out no forfeiture, but the surrounding termination provisions are genuinely contested territory: that is a question for a licensed legal professional, not for a formula.

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The 2022 law did not just tidy up the contract types — it changed the number you owe. Gratuity accrual models built before February 2022 that still apply resignation penalties are systematically under-provisioning for staff who resign. Rebuild the model on the fixed-term basis and the balance sheet finally tells the truth.

Service period, unpaid days and the payment deadline

Two more details decide the final figure. First, the service period counts continuous employment, but unpaid days and periods of unauthorised absence are excluded. A stretch of unpaid leave does not accrue toward gratuity, so it can push an employee’s qualifying anniversary later than the calendar would suggest. When you calculate service years, you count paid, authorised service — not simply the gap between the joining date and the leaving date.

Second, the timing. Gratuity, along with the rest of the final settlement, is payable within 14 days of the contract ending. That is a tight window, and it is one of the reasons we push employers to accrue gratuity monthly rather than scrambling to calculate it at exit — when the settlement is already provisioned and reconciled, paying it inside 14 days is administrative rather than a fire drill.

Part-time and flexible contracts: pro-rata gratuity calculation

The 21-day and 30-day rates assume a full-time contract. For part-time, temporary, flexible and job-share arrangements, Article 30 of Cabinet Resolution No. 1 of 2022 sets a pro-rata method built on hours rather than days:

Percentage = (annual working hours in the contract ÷ annual working hours of the full-time contract) × 100

You then apply that percentage to the gratuity a full-time employee on the same terms would have received.

A worked example. Suppose your standard full-time contract runs to 2,080 working hours a year, and a part-time employee is contracted for 1,040 hours a year on a basic of AED 6,000 a month, leaving after 3 completed years.

Step one, the percentage: 1,040 ÷ 2,080 × 100 = 50%.

Step two, the full-time equivalent: AED 6,000 ÷ 30 = AED 200 a day, × 21 days = AED 4,200 a year, × 3 years = AED 12,600.

Step three, apply the percentage: AED 12,600 × 50% = AED 6,300.

The detail employers most often get wrong here is the salary input. The basic wage in the calculation is the part-time contractual basic — the AED 6,000 actually agreed — not a grossed-up full-time equivalent. Use a notional full-time basic and you double-count the reduction. Note also that the comparator is your own full-time contract’s annual hours, so record that figure somewhere durable; reconstructing it years later from memory is how these calculations end up disputed.

The Savings Scheme: when gratuity calculation stops applying

Since Cabinet Resolution No. 96 of 2023, private-sector employers have had a voluntary alternative to accruing gratuity at all. Under the Alternative End-of-Service Benefits System, better known as the Savings Scheme, an employer subscribes to an investment fund approved by the Securities and Commodities Authority and pays a monthly contribution for each enrolled employee, instead of building a lump-sum liability to be settled at exit.

MoHRE publishes the employer contribution rates as 5.83% of the employee’s monthly basic salary where the employee has not completed five years of service, and 8.33% where they have served more than five years. Subscriptions must reach the fund within 15 days of the start of each calendar month. Employers can enrol everyone, or only specific groups or professional categories.

Three points matter for the calculation:

• It is optional. No employer is obliged to join, and the standard Article 51 formula continues to apply to everyone not enrolled.
• Accrued entitlement is preserved. MoHRE requires that whatever an employee had already earned under the Labour Law before subscribing is protected — joining the scheme does not reset the clock to zero.
• The statutory accrual stops for enrolled staff. Once an employee is in the scheme, you are funding contributions rather than accruing a gratuity provision, so running both at once overstates the liability.

The accounting consequence is the one employers underestimate. A traditional gratuity is a provision that grows on the balance sheet; a Savings Scheme contribution is a monthly expense that leaves the business as cash. Switching mid-year means your accounts carry a frozen legacy provision for the pre-subscription period alongside a new monthly cost line, and both have to be presented correctly at close.

DIFC, ADGM and the DEWS exception

Everything above applies to onshore (mainland) UAE and to most free zones. The important exceptions are the two financial free zones, DIFC and ADGM, which run under their own employment laws.

DIFC replaced the traditional end-of-service lump sum with the DEWS scheme — the DIFC Employee Workplace Savings plan. Instead of accruing a gratuity to be paid at exit, DIFC employers make a defined monthly contribution into a funded, professionally invested savings account for each employee. The employee’s end-of-service pot is therefore built up and invested over time rather than calculated as a lump sum against basic salary at the end. ADGM likewise operates under its own regulations. So if your workforce sits inside DIFC, the 21-day and 30-day formula in this guide does not apply to them — you are running monthly DEWS contributions instead, and your accounting treatment is a monthly expense, not an accruing lump-sum liability.

Employers hunting for a JAFZA gratuity calculator or a DMCC gratuity calculator are almost always looking for the standard federal formula rather than something bespoke. A DIFC gratuity calculator is the one search that genuinely needs a different tool, because DEWS is a contribution scheme and not a days-per-year sum at all. Before you rely on that assumption, check with your own free zone authority whether it applies its own employment rules, because DIFC and ADGM demonstrably do. The same point answers a question we get from every emirate: the UAE Labour Law gratuity entitlement is federal, so a Dubai gratuity calculator, an Abu Dhabi one and a Sharjah one all produce the same figure from the same inputs. There is no emirate-level variation in the formula to find.

For employers with a mix of onshore and DIFC staff, this means two parallel systems: standard accrued gratuity for the onshore team, and monthly funded contributions for the DIFC team. Getting the two treatments right in the same set of accounts is exactly the kind of thing worth checking before a year-end close.

Where gratuity fits in the wider payroll picture

Gratuity does not sit on its own. It is one of several accruals that a properly run UAE payroll function tracks month by month, alongside the salary run itself, leave-balance accruals, and the WPS submission that pays wages lawfully each cycle. A clean payroll and WPS process keeps the master data — basic wage, joining date, contract type, free-zone status — accurate, and that same master data is what feeds an honest gratuity accrual. When the payroll master is right, the gratuity provision is right; when it drifts, the provision drifts with it.

If you want to run the numbers yourself, our deeper gratuity calculator and formula guide walks through the calculation step by step, and covers the cases this page does not: UAE and GCC nationals, who accrue pension entitlement through the GPSSA rather than gratuity; part-time, flexible and job-share arrangements, which are calculated pro rata on the part-time basic wage; and the voluntary alternative end-of-service savings scheme. And for the monthly provisioning that keeps the liability accurate on your balance sheet, that belongs in your accounting and bookkeeping cycle rather than in a spreadsheet nobody owns.

The short version

To calculate end-of-service gratuity in the UAE: confirm the employee has completed at least one year of continuous service, take their basic monthly salary, divide by 30 for the daily wage, apply 21 days per year for the first five years and 30 days per year thereafter, cap the total at two years’ wage, exclude unpaid days from the service period, and pay it within 14 days of the contract ending. Remember that under the 2022 law resignation no longer cuts the entitlement, and that DIFC staff sit under DEWS instead. Get the basic-versus-gross distinction right and most of the difficulty disappears.

If what you actually need is the legal position rather than the arithmetic — which article says what, why there is no emirate-level statute, and where DIFC breaks away — our companion guide to Dubai gratuity law reads Article 51 clause by clause against the published text.

Velmont Crest is a DED-licensed UAE accounting firm providing advisory, preparation and provisioning support across the full payroll cycle — gratuity accrual, end-of-service settlement calculation, WPS processing and monthly bookkeeping — for mainland and free zone businesses. Read more on our insights hub or get in touch via our contact page.

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Disclaimer: Velmont Crest is a DED-licensed accounting firm providing advisory, preparation and compliance support services. We are not a law firm, a labour lawyer or a government body, and this guide is general information, not legal advice. UAE Labour Law and its Executive Regulations change, and the treatment of individual cases turns on the specific employment contract and circumstances — verify current rates and rules against the official law and consult a licensed legal professional for advice specific to your situation before acting.

References — all links checked 4 August 2026.

• Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations — uaelegislation.gov.ae
• u.ae — End of service benefits for workers in the private sector
• u.ae — Calculations for gratuity pay
• MoHRE — Alternative End-of-Service Benefits System (Cabinet Resolution No. 96 of 2023)
• MoHRE — Cabinet Resolution No. 1 of 2022 (Executive Regulations, part-time gratuity at Article 30)
• DIFC — Employee Workplace Savings (DEWS) scheme
• MoHRE — full text of Federal Decree-Law No. 33 of 2021 and its amendments (PDF; Article 51 at clauses 1–8, Article 53 payment deadline, Article 67 day/month/year definitions)
• DIFC Courts — FAQs on the DIFC Employment Law (DIFC Law No. 2 of 2019; DEWS core contributions of 5.83% and 8.33% of monthly basic wage from 1 February 2020)