Glossary
Gratuity, Explained for UAE Employers and Employees
What gratuity means under UAE Labour Law, the 21/30-day formula, and how to calculate it — with a worked example.
what is gratuity uae
Gratuity means the end-of-service lump sum UAE employers must pay full-time employees who complete at least one year of continuous service. It accrues at 21 days' basic wage for each of the first five years and 30 days' basic wage for each additional year, capped at two years' total wages. It is the single largest payroll liability most UAE businesses carry, and it must be calculated on basic salary — not total pay — under Federal Decree-Law No. 33 of 2021.
Basis: MOHRE
- Eligibility
- Full-time employees completing 1+ years of continuous service are entitled to gratuity.
- Federal Decree-Law No. 33 of 2021, Art. 52 (as of Oct 2026)
- 21/30-day formula
- 21 days' basic wage per year for the first 5 years; 30 days per year thereafter.
- Federal Decree-Law No. 33 of 2021, Art. 52 (as of Oct 2026)
- Overall cap
- Total gratuity cannot exceed 2 years' wages.
- Federal Decree-Law No. 33 of 2021, Art. 52 (as of Oct 2026)
- Basic salary base
- Calculated on basic wage, excluding allowances — the most common computation error.
- Federal Decree-Law No. 33 of 2021, Art. 52 (as of Oct 2026)
- Pro-rata
- Fractions of a year are counted pro-rata; days of absence without pay are excluded.
- Federal Decree-Law No. 33 of 2021, Art. 52 (as of Oct 2026)
# What gratuity means
Gratuity is the UAE's statutory farewell payment: a lump sum every full-time employee earns by the month and collects at the end of service. Article 52 of Federal Decree-Law No. 33 of 2021 sets the formula with unusual clarity — 21 days' basic wage for each year of the first five years, 30 days' basic wage for each subsequent year, pro-rated for part-years, capped at two years' total wages, with unpaid absence days excluded.
It applies after one year of continuous service. The daily rate is the basic wage divided by 30. Allowances — housing, transport, school fees — are excluded from the base, which is why the contract's basic-salary figure is the most financially significant number in the employment contract after the total.
Economically, gratuity is deferred compensation: the employer consumes the employee's service now and pays part of its price later. That is why accountants accrue it monthly as a provision and why finance directors watch it — for a 50-person company it is typically the largest single liability after trade creditors.
# How gratuity works
The accrual mechanics are simple: each month, the provision grows by one-twelfth of the annual entitlement. For an employee in year three on AED 12,000 basic, the annual accrual is 21 × (12,000 ÷ 30) = AED 8,400, or AED 700 per month. In year six, the rate steps up to 30 days: AED 12,000 per year, AED 1,000 per month. Salary increases apply prospectively — the higher basic raises future accruals, not past ones.
On termination, the computation uses the last basic wage and total continuous service. Fractions of a year are pro-rated by days; periods of unpaid leave are stripped out of the service count. The cap is applied last: if the formula yields more than 24 months' wages, it is cut to 24.
The current law simplified the old regime's resignation discounts — entitlement no longer depends on who ended the contract. But service spanning the 2 February 2022 commencement of the new law needs care: MOHRE guidance treats the pre-2022 period under transitional principles, and long-serving employees' calculations should be verified against current guidance rather than assumed.
# Gratuity in the UAE: rules and context
MOHRE enforces gratuity through its inspection and dispute-resolution machinery: unpaid or miscalculated gratuity is among the most common employee complaints, and the Ministry's calculators apply the Article 52 formula strictly on basic wage. Employers who calculated on total salary, or who 'forgot' the 30-day step-up after year five, lose these disputes routinely — with the shortfall plus the reputational cost.
Free zone employers note: mainland Article 52 applies to MOHRE-jurisdiction staff, but DIFC and ADGM have their own employment regimes with different gratuity mechanics (including DIFC's DEWS savings plan for many expatriates). Apply the right regime to the right workforce — a DIFC employee's entitlement is not computed under Article 52.
For the books, gratuity is a monthly provision under IAS 19/IAS 37, usually non-current, split for amounts expected to be paid within twelve months. For Corporate Tax, the provision is generally not deductible until paid — so the monthly AED 700 accrual creates a deferred-tax-style timing difference to track. And because WPS records verify service periods and wage levels, gratuity disputes are increasingly settled by data, not argument.
# Worked example
Mariam joins Coral Trading LLC on 1 March 2019 on a basic salary of AED 10,000 (total package AED 15,000). She resigns effective 28 February 2026 — just under 7 years of service, with no unpaid leave. Her basic at exit is AED 11,000 after annual increments.
Service: 6 full years plus 364 days — the computation pro-rates precisely, but for illustration take 7 years. Entitlement: first 5 years at 21 days = 105 days; next 2 years at 30 days = 60 days; total 165 days. Daily rate: 11,000 ÷ 30 = AED 366.67. Gratuity: 165 × 366.67 = AED 60,500.
Had payroll mistakenly used her AED 16,500 total salary, the figure would be AED 90,750 — a AED 30,250 overpayment on one employee. Across 40 staff, systematic use of total salary instead of basic would overstate the provision by roughly 50%, distorting the balance sheet and the Corporate Tax timing differences. The finance manager's monthly checklist now starts with one line: basic salary, per the contract, verified against WPS.
# Common mistakes
Mistake one is the total-salary base: computing on AED 15,000 instead of AED 10,000 basic. It is the most common error and the most expensive, and it usually comes from contracts that bury the basic figure. State basic salary prominently in every contract.
Mistake two is missing the year-five step-up. Accrual systems set up at 21 days and never adjusted under-provide from year six onward — a slow-growing understatement that surfaces as a shock at termination.
Mistake three is ignoring the cap and the pro-rata rules: accruing beyond 24 years' wages, or counting unpaid leave in service. Both overstate the liability.
Finally, the transitional blind spot: applying the current formula to pre-February-2022 service without checking MOHRE's transitional guidance. For employees hired before 2022, verify the computation method it — rather than assuming one clean formula covers the whole tenure.
Sources and legal basis
Legislation and decisions1
- Federal Decree-Law No. 33 of 2021
Terms used3
- MOHRE
- UAE Labour Law
- IAS 19
- Ministry of Human Resources and EmiratisationMOHRE
- UAE Legislation portalUAE Government
Rates, thresholds and deadlines change. Every figure above is linked to the authority that publishes it — if the two ever disagree, the authority is right and this page is out of date. Tell us and we will fix it.
Frequently asked questions
How is UAE gratuity calculated?
Take the basic wage, divide by 30 to get the daily rate, and multiply: 21 days for each of the first five years of service, 30 days for each year after. For 7 years on AED 10,000 basic: (21 × 5 + 30 × 2) = 165 days × (10,000 ÷ 30) = AED 55,000. Fractions of a year are pro-rated, unpaid leave days are excluded, and the total can never exceed two years' wages.
Is gratuity paid on basic salary or total salary?
Basic salary only — excluding housing, transport and other allowances. This is the most common and most expensive error: calculating on the AED 15,000 total instead of the AED 10,000 basic overstates gratuity by 50%. The labour law is explicit, and MOHRE calculators use basic wage. Keep the contract's basic-salary figure unambiguous, because every gratuity computation flows from it.
Do employees get gratuity if they resign?
Yes, under the current law. Federal Decree-Law No. 33 of 2021 removed the old-law reductions that penalised resigning employees — anyone completing one year of continuous full-time service is entitled to the full formula calculation, whether they resign or are terminated. (Service straddling the February 2022 law change may need period-by-period treatment transitional calculations with MOHRE guidance.)
What is the two-year gratuity cap?
No employee's total gratuity can exceed two years of their wages, however long they serve. At 30 days per year, the cap binds after 24 years of service (24 × 30 = 720 days = 2 years). For most employees the cap is theoretical, but for decades-long service it is the ceiling — and payroll provisions should reflect it rather than accruing indefinitely.
Are part-time employees entitled to gratuity?
Yes, on a pro-rata basis. Part-time, temporary and job-sharing arrangements accrue gratuity proportionate to hours worked relative to full-time, under the executive regulations' formulas the current part-time computation method. Employers with flexible workforce models must track contractual hours carefully; the pro-rata math is a frequent inspection finding.
When must gratuity be paid?
Within the statutory window after the employment ends — prompt payment is required, and delays expose the employer to MOHRE complaints and penalties. Best practice is to settle the full end-of-service package (gratuity, unused leave, notice pay, ticket where due) within days of the last working day, with a signed acknowledgement. the exact current payment deadline in the latest executive regulations.
Is gratuity taxable in the UAE?
No UAE tax applies — there is no personal income tax, and the employer's gratuity payments are a business expense. For the employer, the Corporate Tax timing matters: gratuity is generally deductible when paid rather than when provided for, creating a book-to-tax difference on the monthly provision. Employees receiving gratuity and leaving the UAE should check their home country's tax treatment of foreign termination payments.