Gratuity is the largest single payment most UAE employees ever receive from an employer, and the most commonly miscalculated. The formula itself is simple. The disputes come from what goes into it.
Five minutes with a calculator now means you walk into any exit conversation knowing your number before HR tells you theirs.
The formula
Under Federal Decree-Law 33 of 2021, a full-time private-sector employee who completes at least 1 year of continuous service earns:
- 21 days of basic salary per year for the first 5 years
- 30 days of basic salary per year beyond 5 years
- Capped at a total of 2 years' pay
Two details decide everything:
- It is calculated on your last basic salary only. Housing, transport and other allowances are excluded. This is why a package of AED 20,000 with a basic of AED 8,000 produces a far smaller gratuity than the same package with a 60% basic.
- You get the full amount whether you resign or are terminated. The old rules that reduced gratuity for resigning early were abolished by the 2021 law.
Fractions of a year count pro rata once you pass the first full year. Unpaid absence days can be excluded from the service calculation.
Worked example 1: three years of service
Basic salary: AED 10,000. Service: 3 years.
- Daily basic rate: 10,000 × 12 ÷ 365 = AED 328.77
- Entitlement: 21 days × 3 years = 63 days
- Gratuity: 63 × 328.77 = AED 20,712
About two months of the full basic salary, earned back for those three years.
Worked example 2: seven years of service
Basic salary: AED 10,000. Service: 7 years.
- First 5 years: 21 × 5 = 105 days
- Years 6 and 7: 30 × 2 = 60 days
- Total: 165 days × 328.77 = AED 54,247
Notice the acceleration: the two years after the 5-year mark added almost as much as the middle three years combined. If you are at year 4 and weighing a move, the timing has real money attached; our notice period and job switch guide covers the rest of that decision.
What can reduce or delay your gratuity
- A low basic salary. Legal, common and the single biggest factor. Check the split before signing any contract.
- Less than 1 year of service. No gratuity is due, which also makes exits during probation gratuity-free.
- Deductions for genuine debts to the employer, such as documented loans, can be offset against the settlement.
- Delays. Your full final settlement, gratuity included, is due within 14 days of your end date. Beyond that, file a complaint with MOHRE using the process in our salary dispute guide.
If you were dismissed unfairly, gratuity is paid on top of any arbitrary dismissal compensation, not instead of it.
Key takeaway
Gratuity is 21 days of basic salary per year for your first 5 years and 30 days after, paid in full whether you resign or are terminated, and due within 14 days of leaving. Calculate your figure before your exit meeting, because the basic salary trap and quiet miscalculations cost employees thousands.
FAQ
Do I get gratuity if I resign?
Yes. Since the 2021 law, resignation and termination produce the same gratuity, provided you have completed at least one year of service.
Is gratuity calculated on basic salary or total salary?
Basic salary only, as stated in your contract at the time you leave. Allowances for housing, transport and similar are excluded, and commissions are generally excluded too.
Do free zone employees get gratuity?
Yes, under the same federal rules, except in DIFC and ADGM. DIFC replaced gratuity with a funded workplace savings scheme (DEWS), so check which regime your contract sits under.
Is gratuity taxed?
The UAE has no personal income tax, so your gratuity is paid gross. If you are moving home, check your destination country's rules on foreign termination payments before transferring the money.
