The economy of the United Arab Emirates has taken a massive twist in the last few decades. The constant industrial development has triggered the revolution and made this country the dreamland for job seekers. But, when the UAE is accepting thousands of skilled workers and offering them high-paid jobs, there are also cases of employees resigning from their current job roles for better opportunities. Some employees resign from their work because they start their own businesses and start providing services to others. Some small businesses also get connected with top-notch businesses to achieve more success. In this blog, we have brought up the topic of UAE labor gratuity for employees who are planning to shift from their current job to higher positions.
What Is Gratuity in UAE?
Gratuity is a right that workers can claim while leaving a job. It is a token of appreciation paid by employers to employees for their service to the company. It is also one of the factors used for making up the gross salary of the employees. Needless to say, gratuity is important for every employee who deserves the respect and appreciation that he/she deserves for working dedicatedly for years.
But, when an employee expects gratuity, it is necessary to have an in-depth knowledge of the eligibility for it and an idea of how to calculate gratuity according to the UAE gratuity law. Do you want to learn further? Continue reading!
How Do You Know If You Are Eligible For Gratuity?
Gratuity is not for any employees working for an organization. Only the employees who have served a company for a certain period of time will be eligible for such appreciation. If you are eager to know whether you meet the criteria for employee gratuity in the UAE, go through the points and decide for yourself.
According to the UAE Labor Law, if an employee has served for more than 1 year but less than 5 years, a full gratuity pay will be applicable based on 21 days’ salary for each year of work. If an employee has worked for a company for more than 5 years, he will receive a full gratuity of 30 days’ salary for each year of work following the first five years.
The UAE law entitles all workers who have sincerely served their company for a minimum period of one year to receive end-of-service benefits. In the case of a work period that is less than one year, you will not be qualified for the gratuity.
In case of disability or death, the employee will be eligible for the gratuity and the money will be provided to the beneficiaries.
The employees who have completed their contract period will be eligible for full gratitude and they will get other end-of-service benefits committed by the company during the joining.
Some Factors That Are Important For End of Service Calculation:
Type of Contract– The gratuity can depend on the type of contract- limited or unlimited, the period of service, and whether the employer or employee has terminated the contract through resignation by employees or termination by employers.
Work Period of the Employee– It is necessary to have at least one year of employment that should be completed to be entitled to gratuity.
Last Basic salary– The last basic salary is the salary that is needed as a basis for calculating gratuity. The other benefits, bonuses, or allowances will not be included in the gratuity calculations.
How gratuity is calculated in UAE
Calculating Gratuity For Unlimited Contract
In Case of Resignation:
If the employee resigns from his employment, the given rules will be applied for gratuity calculation:
Resignation before 1 year of service- The employee is not entitled to any gratuity.
Resignation between 1 and 3 years of service- The employee is entitled to one-third of 21 days’ basic salary for each year as gratuity for the period of employment.
Resignation between 3 and 5 years of service- The employee is entitled to two-thirds of 21 days’ basic salary for each year as gratuity for the period of employment.
Resignation after 5 years of service- The employee is entitled to 21 days’ basic salary for the first 5 years of employment and 30 days’ basic salary for each additional year.
However, according to the new amendment in the UAE labor law, all employee contracts must now be limited in 2023.
In Case Of Termination:
If the employee’s employment is terminated by the employer, the given rules will be applied for gratuity calculation:
Termination before 1 year of service- The employee is not entitled to any gratuity.
Termination between more than 1 year but less than 5 years of service- The employee will be entitled to 21 days’ basic salary for each year of service.
Termination after more than 5 years of service- gratuity calculation to be done as 30 days’ basic salary for each year of service after the first 5 years and 21 days’ basic salary for the first five years. Total gratuity must not exceed two-year basic salaries.
Calculating Gratuity For Limited Contract:
An employee with a limited contract will be qualified for gratuity based on the following rules:
Period of employment less than 1 year- The employee is not entitled to any gratuity.
Period of employment between 1 year to 5 years The employee is entitled to gratuity based on 21 days’ salary for each year of work.
Period of service more than 5 years- The employee is entitled to a gratuity of 30 days’ salary for each year of work after the first 5 years plus 21 days’ basic salary for each year for the first 5 years.
Total gratuity must not exceed two-year of the basic salary.
How Can You Get Further Assistance For Gratuity Calculation?
Calculating gratuity based on your service period, salary, and other factors can be complicated. Moreover, you can fail to get the most out of your end-of-service benefits without having a clue or idea about the UAE gratuity law. So, it is wise to consult with professional accountants who can guide you better and help in calculating your gratuity. ebs is a one-stop solution for all your gratuity-related issues.
We recognize that employees are often confused by their computation of gratuity. Gratuity is one of the several components that make up gross salaries for employees in the UAE. It is one of the best ways to calculate your end-of-service benefits with the help of some gratuity calculators in Dubai. We have also taken care of this for your convenience.
Now calculate your gratuity and know your full gratuity amount.
We provide completely reliable and innovative solutions to all your requirements regarding accounting & bookkeeping, audit, and tax. With more than 10 years of industry experience in the UAE, we have gained impeccable expertise in the use of technology that is used for serving UAE-based businesses and international clients.
If you want to reach out to our accountants for a meaningful discussion on gratuity calculation, call +971 (04) 241 2929.