UAE End-of-Service Gratuity: Employer Guide 2026

End-of-service gratuity is a significant employer liability in the UAE private sector. It should be accrued and documented throughout employment rather than calculated for the first time when an employee leaves.

For a qualifying full-time foreign worker, the traditional gratuity is based on the last basic wage and completed service. The reason for termination, unpaid absence, contract type, part-time status and participation in an alternative savings scheme can affect the final calculation.

Who qualifies under the traditional gratuity system?

A full-time foreign worker who completes at least one year of continuous service is generally entitled to end-of-service benefits when employment ends. UAE nationals are ordinarily covered through the applicable pension and social-security framework rather than this foreign-worker gratuity calculation.

A worker who has completed one year can receive a proportionate amount for an additional part of a year. Unpaid absence is excluded when calculating the service period.

Standard calculation

• 21 days of basic wage for each year of the first five years of service.
• 30 days of basic wage for each year exceeding five years.
• A proportionate benefit for an eligible fraction of a year.
• A total cap of two years' wage.

The calculation uses the employee's last basic wage, not total monthly compensation. Housing, transport and other allowances are normally outside the basic-wage calculation.

Illustrative example

Assume a qualifying full-time employee has a last monthly basic wage of AED 9,000 and completes seven years of continuous service without unpaid absence.

• Daily basic wage: AED 9,000 ÷ 30 = AED 300.
• First five years: 21 days × 5 × AED 300 = AED 31,500.
• Next two years: 30 days × 2 × AED 300 = AED 18,000.
• Illustrative gratuity: AED 49,500.

This is a simplified example. Payroll records, unpaid days, previous settlements, legal deductions, scheme participation and the exact termination date must be reviewed.

What counts as basic wage?

The employment contract and payroll should clearly distinguish basic wage from allowances. Employers create unnecessary disputes when the contract, payroll system, WPS file and payslip use inconsistent salary components.

Commission, bonuses and piece-rate remuneration require careful review. The law and implementing rules contain specific approaches for workers paid under different methods.

Part-time and job-sharing workers

For part-time or job-sharing arrangements, the benefit is generally proportionate to contractual working hours compared with a full-time contract. MoHRE describes the percentage as:

Contract hours per year ÷ full-time contract hours per year × 100

That percentage is applied to the gratuity value calculated for the corresponding full-time employment. Temporary workers with less than one year of service do not qualify for the traditional gratuity.

Unpaid absence

Days of unpaid absence are excluded from the service period used for gratuity. Employers should keep approved leave records, payroll deductions and attendance evidence. Informal spreadsheets prepared at termination are less reliable than contemporaneous HR records.

When should final entitlements be paid?

The UAE Labour Law requires the employer to pay wages and other end-of-contract entitlements within 14 days from the end of the contract. Final settlement planning should therefore begin before the employee's last working day.

The settlement can include unpaid wages, leave balance, gratuity, notice-related amounts, approved expenses, deductions permitted by law and any other contractual entitlement.

Permitted deductions

An employer may deduct amounts legally payable by the worker under the conditions and procedures in the legislation. A broad contractual clause does not justify an unsupported deduction. Keep evidence of the debt, employee acknowledgement or legal basis and show the item clearly in the settlement.

The voluntary alternative Savings Scheme

The UAE introduced a voluntary alternative end-of-service benefits system under Cabinet Resolution No. 96 of 2023. Participating employers pay monthly basic contributions for registered employees into approved investment funds.

Under the alternative system, benefits accrued before registration remain protected under the applicable rules, while amounts after registration are handled through the scheme. Employees can select investment options where eligible and may make voluntary additional contributions under the scheme's conditions.

Employers considering participation should compare contribution timing, administration, employee communication, investment options and treatment of accrued traditional gratuity.

Accounting and cash-flow planning

Gratuity is an accumulating employee-benefit obligation. An employer should maintain an employee-by-employee calculation and reconcile it to the financial statements. Rapid growth, salary increases and long service can create a substantial future cash requirement.

A useful schedule includes:

• Employee joining date and continuous-service date.
• Contract type and work pattern.
• Current basic wage and salary-change history.
• Unpaid absence.
• Accrued service and estimated liability.
• Savings Scheme registration and contribution history, if applicable.
• Prior settlements, transfers or recognised deductions.

Common employer mistakes

• Using total salary instead of basic wage, or the reverse where records are unclear.
• Failing to remove documented unpaid absence from service.
• Ignoring the proportionate fraction after the first completed year.
• Applying a full-time formula to part-time employment.
• Failing to accrue the liability in accounting records.
• Making unsupported deductions from the final settlement.
• Missing the 14-day payment timeline.
• Confusing traditional gratuity with Savings Scheme contributions.
• Failing to align the contract, WPS payroll and payslip.

Employer checklist when employment ends

1. Confirm the final working date and termination documents.
2. Verify continuous service and unpaid absence.
3. Confirm the last basic wage and work pattern.
4. Calculate wages, leave and gratuity separately.
5. Review Savings Scheme participation, if any.
6. Document every lawful deduction.
7. Prepare a clear final-settlement statement.
8. Arrange payment within the applicable deadline.
9. Complete work-permit, visa, insurance and company-property procedures.
10. Retain signed and payment records.

Official references

• MoHRE: Worker rights and end-of-service benefits
• MoHRE: Alternative End-of-Service Benefits Scheme
• Federal Decree-Law No. 33 of 2021 regulating labour relations

Need help aligning payroll, WPS and employee records? Review our accounting services, PRO services and visa support, or contact Al Shamil Zone.

This article provides general information and is not employment, legal or accounting advice. Review each employee's contract and circumstances under the applicable regime.