UAE Gratuity (End of Service Benefits): The Complete Guide for Employers and Employees 2026

1. What Is Gratuity in the UAE and Who Is Entitled

Gratuity (end of service benefit / end of service gratuity / EOSG) is a mandatory lump-sum payment that an employer is legally obligated to make to an employee upon termination of employment. This is not a discretionary bonus — it is a statutory right of every expatriate in the UAE private sector who has completed at least one year of continuous service.

Legal basis: Article 51 of Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations (UAE Labour Law), which came into force on 2 February 2022, replacing Federal Law No. 8 of 1980. Implementation is governed by Cabinet Resolution No. 1 of 2022.

Who is entitled to gratuity:

•       Expatriate (foreign national) employees in the UAE private sector who have completed at least 1 year of continuous service.

•       Part-time employees — on a pro-rata basis (Cabinet Resolution No. 1 of 2022, Article 30).

•       Employees dismissed for misconduct — gratuity rights generally survive (with specific exceptions listed in Article 44).

Who is NOT entitled to gratuity:

•       UAE nationals — covered by mandatory pension and social security schemes (GPSSA or ADRPBF), not gratuity.

•       Temporary employees with less than 1 year of service.

•       Domestic workers — governed by Federal Decree-Law No. 9 of 2022, a separate statute.

•       DIFC and ADGM employees — these jurisdictions operate their own schemes (DEWS and ADGM Savings Scheme respectively).

⚠ From 2 February 2022, the distinction between "limited" (fixed-term) and "unlimited" (open-ended) contracts was abolished. All employment contracts are now fixed-term, and gratuity is calculated under a single formula regardless of the previous contract type.

2. Gratuity Calculation Formula: Step by Step with Examples

2.1. Three fundamental rules

Rule 1. Calculation base — basic salary only. Gratuity is calculated exclusively on the basic (base) salary — the fixed monthly amount specified in the employment contract as basic salary. Excluded: housing allowance, transport allowance, insurance, medical benefits, bonuses, commissions, overtime pay, benefits in kind.

Rule 2. Daily rate = Basic salary ÷ 30. The daily rate is calculated by dividing the monthly basic salary by 30, regardless of the actual number of days in any given month. This is the officially prescribed method per u.ae.

Rule 3. Unpaid leave days are excluded from the service period. Periods of unpaid absence do not count toward the service period for gratuity purposes. Paid leave (annual, sick, maternity) is included in the service period.

2.2. Entitlement schedule

Service period	Entitlement	Daily rate formula	Maximum
Less than 1 year	No gratuity entitlement	—	—
1–5 years	21 working days per year	Basic salary ÷ 30 = daily rate	—
Over 5 years (6th year onwards)	30 working days per year beyond 5	Basic salary ÷ 30 = daily rate	—
Fraction of a year (if service > 1 year)	Proportional to months served	(Daily rate × days) / 365	—
Overall cap	Applies to amount, not service period	—	24 months of basic salary

2.3. Worked examples

Scenario	Basic salary (AED/month)	Service	Calculation	Gratuity total (AED)
Employee A	6,000	3 years	(6,000 ÷ 30) × 21 × 3 = 200 × 63	12,600
Employee B	10,000	5 years	(10,000 ÷ 30) × 21 × 5 = 333.33 × 105	35,000
Employee C	10,000	7 years	5 yrs × 21 = 105 days + 2 yrs × 30 = 60 days → 165 days × 333.33	55,000
Employee D	15,000	12 years	5 × 21 = 105 + 7 × 30 = 210 → 315 × 500	157,500 (below cap 360,000)
Employee E	50,000	10 years	5 × 21 = 105 + 5 × 30 = 150 → 255 × 1,666.67 = 425,000 → CAP applies	Cap: 24 months × 50,000 = 1,200,000 (cap applies)

2.4. Detailed calculation: 7 years of service, basic salary AED 6,000

Daily rate: AED 6,000 ÷ 30 = AED 200

First 5 years: 21 days × 5 years × AED 200 = AED 21,000

Years 6 and 7: 30 days × 2 years × AED 200 = AED 12,000

Total gratuity: AED 21,000 + AED 12,000 = AED 33,000

Cap check: 24 months × AED 6,000 = AED 144,000. AED 33,000 < cap. Cap does not apply.

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3. What Is and Is Not Included in Basic Salary for Gratuity

This is the most frequently disputed point in gratuity settlement cases. Article 51 explicitly states: calculation is based on the "last basic wage" received. In practice:

Included in basic salary

•       The fixed monthly amount stated in the employment contract as "basic salary" or "basic wage".

•       If basic salary changed during employment — the salary at the date of termination applies.

NOT included in basic salary

•       Housing / accommodation allowance.

•       Transport / car allowance.

•       Utility, mobile phone, meal allowances.

•       Bonuses (annual, quarterly, performance-based).

•       Sales commissions and performance supplements.

•       Overtime pay.

•       Medical insurance and benefits in kind.

•       Voluntary contributions under the Savings Scheme — Ministerial Resolution No. 668 of 2023 explicitly excludes these from the calculation base.

⚠ Salary structuring — allocating a significant portion of compensation as allowances to reduce the gratuity calculation base — is a lawful practice. However, MoHRE and UAE courts are increasingly scrutinising the economic substance of such allowances. Where an allowance is substantively a component of core compensation, courts may include it in the calculation base.

4. The 14-Day Rule: Mandatory Payment Deadline and Consequences of Late Payment

Article 51(8) of Federal Decree-Law No. 33 of 2021 states: the employer must settle all amounts due, including gratuity, within 14 days of the termination of the employment contract. This is a binding legal requirement, not a guideline.

Consequences of breach:

•       The employee may file a complaint with MoHRE via the portal or app. MoHRE holds a conciliation session within 14–21 days.

•       If unresolved — the case is referred to the Labour Court. UAE courts consistently rule in favour of employees where payment delay is documented.

•       Beyond the gratuity amount itself, courts may award compensation for late payment, legal costs, and related damages.

•       For the employer: suspension of new work visa issuances for the company until the dispute is resolved.

What is included in the final settlement alongside gratuity: outstanding wages (WPS balance), compensation for unused annual leave, notice period compensation where applicable.

5. Grounds for Forfeiture or Reduction of Gratuity (Article 44)

Article 44 of Federal Decree-Law No. 33 of 2021 sets out an exhaustive list of grounds allowing the employer to terminate without notice and, in some cases, without gratuity. Employers cannot extend this list arbitrarily. Grounds include:

•       Submitting false identity or forged documents at the time of hiring.

•       Deliberately causing material damage to the employer — provided the employer notified the authorities within 24 hours of discovery.

•       Serious health and safety violations resulting in injury or risk thereof.

•       Disclosing confidential information causing financial harm to the employer.

•       Being found on the premises under the influence of alcohol or narcotics.

•       Physical assault on the employer, a manager, or colleagues.

•       Persistent serious breach of contract terms following a formal warning.

⚠ Even where Article 44 grounds exist, the employer is NOT entitled to automatically withhold gratuity. A formal investigation must be initiated, the violation properly documented, and — where appropriate — a court order obtained authorising any withholding. Unilateral withholding without a judicial order exposes the employer to greater legal risk than paying the full amount.

6. The Savings Scheme: Alternative End-of-Service Benefits

In October 2023, MoHRE in coordination with the Securities and Commodities Authority (SCA) introduced a voluntary alternative end-of-service benefits scheme — the Savings Scheme — under Cabinet Resolution No. 96 of 2023 (effective 14 October 2023) and Ministerial Resolution No. 668 of 2023.

The concept: instead of a lump-sum gratuity payment at termination, the employer makes monthly contributions to a licensed investment fund. The funds are held in a separate investment account in the employee's name — off the employer's balance sheet and protected from the employer's creditors in the event of insolvency.

Parameter	Traditional system	Savings Scheme (Cabinet Resolution No. 96/2023)
Legal basis	Article 51, Federal Decree-Law No. 33 of 2021	Cabinet Resolution No. 96 of 2023 + Ministerial Resolution No. 668 of 2023
Mandatory?	Mandatory for all employers	Voluntary for employer (as of May 2026)
When paid	Lump sum on termination	Monthly, into an investment fund
Contribution rate	21/30 days of basic salary formula	5.83% (service < 5 yrs) / 8.33% (service > 5 yrs) of basic salary
Payment deadline	14 days from termination	By the 15th of the following month
Where held	On employer's balance sheet (insolvency risk)	In a regulated investment fund (off employer's balance sheet)
Investment returns	None — fixed formula	Yes — investment returns (several strategies: capital-guaranteed, Sharia-compliant)
Employee voluntary contribution	None	Up to 25% of total salary
Applicability	Mainland + most free zones (excl. DIFC, ADGM)	Mainland + most free zones (excl. DIFC, ADGM)
Pre-scheme accrued gratuity	Applies throughout	Paid out separately as lump sum on enrolment; not transferred to fund

Key features of the Savings Scheme

•       Voluntary for employers (for now): as of May 2026, the Savings Scheme remains voluntary. However, MoHRE's public consultation, which closed in February 2026, strongly signals a likely phased mandatory rollout — probably beginning with larger companies. Employment law advisers recommend proactive preparation.

•       Accrued gratuity is not transferred: gratuity accrued before the date of enrolment in the Savings Scheme is calculated under the Article 51 formula as of the enrolment date and paid out separately on termination — it is not transferred into the investment fund.

•       Approved providers: Lunate and Daman Investments were approved by SCA and MoHRE in July 2024 as the first authorised investment fund providers. The current list of approved providers is published on the MoHRE official portal.

•       DIFC and ADGM excluded: Cabinet Resolution No. 96 of 2023 explicitly excludes DIFC and ADGM — both jurisdictions operate their own mandatory schemes.

⚠ An employer that fails to transfer monthly Savings Scheme contributions on time risks suspension of new work permit issuances and an administrative fine of AED 1,000 per affected employee for each month of delay.

7. Special Regimes: DIFC (DEWS) and ADGM

Parameter	Mainland / most free zones	DIFC	ADGM
Legal basis	Article 51, Federal Decree-Law No. 33 of 2021	DIFC Employment Law, DEWS Scheme	ADGM Employment Regulations 2019 (as amended)
Payment type	Lump sum on termination (or Savings Scheme)	Monthly employer contributions under DEWS	Lump sum on termination + from April 2025 — ADGM Savings Scheme
Mandatory?	Yes (traditional) / voluntary (Savings)	DEWS mandatory from 01.02.2020	Lump sum mandatory; ADGM Savings Scheme from April 2025
Rate	21/30 days of basic salary	5.83% / 8.33% of basic salary	Mainland equivalent — 21/30 days; ADGM Scheme details specified in ADGM Regulations
Excluded from Savings Scheme?	No	Yes (DIFC excluded from Cabinet Resolution 96/2023)	Yes (ADGM excluded from Cabinet Resolution 96/2023)

DIFC — DEWS (DIFC Employee Workplace Savings Plan)

From 1 February 2020, the traditional lump-sum gratuity for expatriates in DIFC was replaced by a mandatory savings scheme — DEWS or a qualifying alternative scheme. Contribution rates mirror the federal Savings Scheme: 5.83% / 8.33% of basic salary. All DIFC employers are required to participate. UAE nationals in DIFC may choose between DEWS and the pension system.

ADGM — ADGM Employment Regulations

ADGM is governed by its own Employment Regulations. From April 2025, ADGM launched its own savings scheme (ADGM Savings Scheme), analogous to DEWS. Details of the structure and mandatory nature are set out in official ADGM publications. Prior to the ADGM Savings Scheme, a lump-sum regime analogous to federal gratuity applied.

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8. Deductions from Gratuity: When and How

An employer may deduct the employee's outstanding debts from the gratuity amount where lawful grounds exist, including:

•       Salary advances paid to and not repaid by the employee.

•       Penalties imposed under the company's official disciplinary policy (provided it has been formally communicated to staff and registered with MoHRE).

•       Sums owed under court judgments and enforcement orders.

•       Liability for company property as established by court decision.

Important limitations:

•       Employers may not arbitrarily withhold gratuity — only documented grounds apply.

•       If the gratuity balance after all lawful deductions is negative, the employer may not pursue the remaining shortfall from the former employee as part of the termination settlement.

•       UAE courts apply a pro-employee interpretation to any disputed deductions where the employer lacks clear documentation.

9. Gratuity Under Different Termination Scenarios

Termination by employer

Gratuity is paid in full under the Article 51 formula. The only exception is dismissal on the grounds listed in Article 44 (above), supported by documented evidence and a formal investigation process.

Resignation by employee

Since 2 February 2022 (Federal Decree-Law No. 33 of 2021), the old "1/3 – 2/3" rule for unlimited contracts has been abolished. Under the current law, an employee who resigns receives full gratuity under the Article 51 formula — provided they have completed at least one year of service. There is no meaningful distinction in the gratuity calculation between termination and resignation for employees on new fixed-term contracts under Federal Decree-Law No. 33 of 2021. Critical caveat: if, at the date of resignation, the employee remains on a legacy unlimited contract that was not converted to fixed-term by 1 February 2023, the transitional scale applies: resignation with 1–3 years of service entitles the employee to 1/3 of the calculated amount; 3–5 years — 2/3; over 5 years — full payment regardless of contract type. Employers who continue applying old-law reductions to employees on new fixed-term contracts are in breach of Federal Decree-Law No. 33 of 2021 and risk MoHRE penalties.

Expiry of a fixed-term contract

When a fixed-term contract expires and is not renewed, gratuity is calculated on the standard formula from the first to the last working day. Service periods under consecutively renewed contracts are aggregated into a continuous service total.

Probation period and mutual agreement

If employment terminates during the probation period — no gratuity is payable (less than 1 year of service). On mutual agreement — gratuity is calculated on standard terms where service exceeds 1 year.

10. Gratuity and UAE Corporate Tax

Since 1 June 2023, the UAE has levied corporate tax (Federal Decree-Law No. 47 of 2022). Accrued but unpaid gratuity obligations are recorded as a liability on the employer's balance sheet and reduce the taxable income base. For companies claiming QFZP status (0% corporate tax), proper accounting treatment of gratuity liabilities is part of the mandatory audit — as audited financial statements are required for all QFZPs from the 2025 financial year.

The Savings Scheme removes the liability from the balance sheet: transitioning to the Savings Scheme allows the employer to fully remove end-of-service benefit liabilities from the balance sheet. Monthly contributions are treated as current operating expenses, simplifying financial planning and improving balance sheet structure.

11. Common Employer Mistakes and How to Avoid Them

•       Including allowances in the calculation base. Some employers inadvertently use total compensation as the gratuity base. The correct base is basic salary only.

•       Applying the 1/3 – 2/3 rule to pre-2022 unlimited contracts. This rule does not apply to new contracts post-2022. However, calculating gratuity for periods served under old unlimited contracts (pre-2022) may require transitional analysis.

•       Missing the 14-day payment deadline. The most common cause of labour disputes. Final settlement preparation should begin immediately upon receipt of a termination notice or signing of a termination agreement.

•       Withholding gratuity without legal grounds. Only documented grounds apply (advances, court orders, registered disciplinary fines). Arbitrary withholding leads to labour complaints and court proceedings.

•       Failing to exclude unpaid leave from service calculations. Days of unpaid leave must be excluded from countable service. Absence of proper records creates the risk of a pro-employee recalculation in any dispute.

•       Delaying Savings Scheme evaluation. Employers deferring the Savings Scheme decision are missing the opportunity to optimise their end-of-service liabilities. If a mandatory rollout is announced, late adopters may face operational disruption.

12. Practical Employer Checklist

•       Ensure employment contracts clearly separate basic salary from allowances — this is the foundation of accurate gratuity calculation.

•       Maintain a register of unpaid leave days — these are excluded from countable service.

•       Prepare the final settlement within 14 days of the contract termination date.

•       Before making any deductions from gratuity, confirm the existence of documentary grounds (advances, court orders, registered disciplinary penalties).

•       Evaluate the Savings Scheme: model current gratuity liabilities vs. monthly contribution amounts, assess cash flow implications.

•       If the company operates in DIFC — verify correct mandatory DEWS contribution compliance.

•       Confirm that FTA financial reporting correctly reflects gratuity provisions.

Sources

• u.ae — Official UAE Government Portal: End-of-service benefits for private sector workers

• Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations (official text, uaelegislation.gov.ae)

• Cabinet Resolution No. 1 of 2022 on the Implementation of Federal Decree-Law No. 33 of 2021 (uaelegislation.gov.ae)

• Cabinet Resolution No. 96 of 2023 on Alternative End of Service Benefits System (PDF, u.ae)

• MoHRE — Official Ministry of Human Resources and Emiratisation (mohre.gov.ae)

• EY Global — UAE introduces voluntary alternative end-of-service benefits scheme (October 2023)

• DLA Piper — UAE Cabinet approves optional alternative scheme for private sector gratuity (November 2023)

• Gulf News — End-of-service benefits UAE (gulfnews.com)

• Khaleej Times — UAE end of service gratuity rules 2026 (khaleejtimes.com)

• Lexology — UAE gives life to new federal employee end-of-service savings scheme (July 2024)

Disclaimer

This article is provided for informational purposes only and does not constitute legal, HR, or professional advice. Information is based on UAE legislation current as of May 2026. UAE employment law may change; before making any workforce or financial decisions, readers are advised to consult a qualified UAE employment law specialist or contact MoHRE directly. UPPERSETUP accepts no liability for actions taken solely in reliance on this materia