How to Calculate Gratuity in the UAE: Worked Examples for 2025

The gratuity formula in the UAE, in plain terms

End-of-service gratuity is the lump sum an employer owes you when your job ends, and the formula is set by federal law, not by your contract. Under UAE Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations, which came into force on 2 February 2022, the calculation runs like this:

• 21 days' basic salary for each of the first five years of service
• 30 days' basic salary for each year after the fifth
• The total is capped at two years' pay

You need at least one full year of continuous service to qualify. Below a year, there is no gratuity. Above a year, part-years are counted on a pro-rata basis, so a partial year still adds to the number.

The word that trips people up is one you have already read four times: basic. Gratuity is worked out on your basic salary alone, and that single fact is why so many people expect a figure that never arrives.

Why gratuity is calculated on basic salary, not your total package

Your monthly salary in the UAE is usually split. There is a basic salary, then allowances stacked on top: housing, transport, sometimes a general or "other" allowance. On your payslip these add up to your gross package, and that gross number is what most people plug into a gratuity calculation.

The law does not. It uses basic salary only. Allowances are excluded.

For a lot of UAE contracts, basic is deliberately set at 50 or 60 per cent of the total package, with the rest paid as allowances. If your basic is half your salary, your real gratuity is roughly half what you would get if the whole package counted. That is the 40 to 50 per cent gap that catches people out, and it is entirely legal.

So before you calculate anything, find your basic salary on your contract or payslip. Not your gross. The basic figure is the only one that matters here.

Worked example: how to calculate gratuity in the UAE for 4 years' service

Take an employee on a total package of AED 12,000 a month, where the contract sets basic salary at AED 7,000 and the remaining AED 5,000 is housing and transport allowance. They have completed exactly four years and are leaving with the full amount due.

Step by step:

1. 1Daily basic wage: AED 7,000 divided by 30 = AED 233.33 per day
2. 2Gratuity days for the first five years: 21 days per year
3. 3Years completed: 4
4. 4Total days owed: 21 × 4 = 84 days
5. 5Gratuity: 84 × AED 233.33 = AED 19,600

Now look at what happens if you had used the full AED 12,000 package instead. Daily rate becomes AED 400, and 84 days gives AED 33,600. That is AED 14,000 more than the law actually provides. The employee who budgeted on their gross package is short by almost half.

Worked example: more than five years' service

The 30-day rate only kicks in for years beyond the fifth. Take the same employee, same AED 7,000 basic, but now with eight completed years of service.

• First five years at 21 days each: 5 × 21 = 105 days
• Years six, seven and eight at 30 days each: 3 × 30 = 90 days
• Total days: 105 + 90 = 195 days
• Daily basic wage: AED 233.33
• Gratuity: 195 × AED 233.33 = AED 45,500

The two-years'-pay cap is worth knowing here. Two years of basic salary would be AED 7,000 × 24 = AED 168,000. This payout sits well under that, so the cap does not bite. It only becomes relevant for very long service or very high basic salaries.

How resignation changes your gratuity calculation

Under the old law, resigning early on an unlimited contract could slash your gratuity to a third or two-thirds of the full amount depending on how long you had served. Under Federal Decree-Law No. 33 of 2021, that sliding penalty for resignation was removed for the standard fixed-term contract model that now applies to everyone.

The current position is that gratuity accrues at the same 21-days and 30-days rate whether you resign or your employer ends the contract, provided you have completed at least one year and you have not been dismissed for one of the specific gross-misconduct reasons the law sets out. What still needs checking in any individual case is whether notice was served correctly and whether any deductions apply, so confirm the exact treatment against your own contract before you rely on a figure.

Limited vs unlimited contracts under the current law

This is where a lot of online information is now out of date. The old system split contracts into limited (fixed-term) and unlimited (open-ended), and the two were treated very differently for gratuity and early-exit penalties.

Federal Decree-Law No. 33 of 2021 removed unlimited contracts. All employment contracts in the private sector are now fixed-term. Existing unlimited contracts had to be converted to the new fixed-term format during a transition period that has since closed.

So if you are reading a guide that talks about "unlimited contract gratuity" as a separate calculation, it is describing a regime that no longer applies. Under the current law there is one gratuity formula: 21 days per year for the first five, 30 days after that, on basic salary, capped at two years' pay.

Using an end of service calculator (and why the number can still surprise you)

An online gratuity calculator is a fine sanity check. Feed it your basic salary, your start and end dates, and it will apply the 21-and-30-day formula for you.

The reason people still get surprised is input, not arithmetic. The two mistakes we see most often:

• Entering the gross package instead of the basic salary. This inflates the result by whatever proportion your allowances make up, often 40 to 50 per cent.
• Ignoring part-years. The formula is pro-rata, so four years and seven months earns more than a flat four years, and a decent calculator handles the extra months.

Get the basic salary right and the part-year right, and the calculator and the law will agree. Get either wrong and the payslip will not match your expectation on the day.

What this means for employers: the liability sitting in your books

If you are the one paying the gratuity, this stops being a formula and becomes a number on your balance sheet.

Every month an employee works, their gratuity entitlement grows. That accrued amount is a real liability the business owes, even though no cash has moved yet. If you structured salaries as a low basic with fat allowances to keep monthly cost down, you did reduce the eventual payout, but the payout still exists, and it is still accruing on the basic figure.

The problem is that this liability is very often not recorded anywhere. It grows quietly, and it only becomes visible when someone leaves and the cash has to be found, or when an auditor, a bank, or a potential buyer asks to see it. An unrecorded end-of-service provision is exactly the kind of gap that turns a routine review into an awkward conversation.

Recording it properly is not complicated, but it does need doing every period rather than at the last minute. This is standard work in our accounting and bookkeeping service: we calculate the accrued gratuity liability across your staff and carry it in your accounts so the figure a bank or auditor asks for is already there. If you want the detail on how that provision should actually appear in your books, read what your accounts must show for end-of-service liability next.

There is also a tax angle worth flagging. UAE corporate tax applies at 9 per cent on taxable profit above AED 375,000 for financial years starting on or after 1 June 2023, per the Federal Tax Authority. How a gratuity provision is treated for corporate tax purposes should be confirmed with your accountant for your specific accounts rather than assumed, since the treatment depends on how and when the liability is recognised.

If you are not sure whether your books are carrying this liability at all, that is worth sorting before it surfaces on someone else's terms. Get your exact price and the fastest route to clean, provision-ready accounts in one free call, no obligation. → Get my quote

Frequently asked questions

How many days of gratuity do you get per year in the UAE?

21 days' basic salary for each of the first five years of service, then 30 days' basic salary for each year after that, under Federal Decree-Law No. 33 of 2021.

Is gratuity calculated on basic salary or total salary?

Basic salary only. Housing, transport and other allowances are excluded, which is why the payout is often 40 to 50 per cent lower than people expect from their gross package.

Do I lose my gratuity if I resign before completing a year?

Yes. You need at least one full year of continuous service to qualify for any gratuity. Below a year, none is due.

Is there a cap on how much gratuity I can receive?

Yes. The total gratuity is capped at two years' pay, under Federal Decree-Law No. 33 of 2021.

How is gratuity calculated for less than five years of service?

At 21 days' basic salary for each completed year, pro-rated for any part-year. So four years earns 84 days of basic salary, plus a proportion for any additional months.

Do I get gratuity if I'm on an unlimited contract?

Unlimited contracts no longer exist under the current law. All private-sector contracts are now fixed-term, and the same gratuity formula applies to everyone.

Are allowances like housing and transport included in gratuity?

No. Gratuity is calculated on basic salary alone. Allowances of any kind are not counted.

How is end of service pay calculated for part of a year?

On a pro-rata basis. The days-per-year rate is applied proportionally to the number of months worked in the partial year, so more service always means a larger payout, even for a fraction of a year.