The UAE End of Service Gratuity is a lump sum payment that an employee becomes eligible for at the conclusion of their tenure, granted that they have completed more than one year of service. This gratuity payment represents a financial obligation for the employer, which accumulates as the employee’s years of service advance.
In this article, we explore the essential aspects of Article 51 in the UAE Labor Law and simplify the calculations for end-of-service gratuity, enabling employers to meet their obligations more smoothly.
Article 51 – The Basics:
As per Article 51 of the UAE Labour Law, the end of service benefits for foreign workers in the private sector include the following:
- Gratuity for Served Fraction of a Year: An employee is entitled to a gratuity for each served fraction of a year, but only if they have completed one year of continuous service with the employer.
- Calculation Based on Basic Salary: The end of service gratuity is calculated based on the last wage to which the employee was entitled. This typically includes the basic salary, excluding allowances like housing, conveyance, utilities, and furniture.
- Offsetting Debts: If the employee owes any money to the employer, the employer has the right to deduct the owed amount from the employee’s gratuity.
- Payment Timeline: All end of service entitlements, including gratuity, must be settled within 14 days from the contract’s end date.
Calculating Gratuity Pay:
The calculation of end of service gratuity is crucial for both employers and employees. Here’s a breakdown of how it works:
- Less than 1 Year of Service: If the worker has served for less than one year, they are not entitled to any gratuity pay.
- 1 to 5 Years of Service: If the worker has served for more than one year but less than five years, they are entitled to full gratuity pay based on 21 days’ salary for each year of work.
For example, if an employee has a basic salary of Dh10,000:
- Daily wage = Dh10,000 ÷ 30 = Dh333.33
- End-of-service entitlement for one year of service = Dh333.33 x 21 = Dh7,000
- More than 5 Years of Service: For workers with more than five years of service, they are entitled to full gratuity pay, which amounts to 30 days’ salary for each year of work beyond the initial five years.
Using the same basic salary of Dh10,000:
End-of-service entitlement for one year of service after five years = Dh333.33 x 30 = Dh10,000
- Maximum Gratuity: In all cases, it’s important to note that the total gratuity shall not exceed the wage of two years.
Understanding and adhering to these guidelines is essential for employers in the UAE. Compliance not only ensures that your employees receive their end of service benefits as per the law but also helps in maintaining a harmonious and legally sound employer-employee relationship. It is advisable for employers to seek legal counsel or consult with labour experts to ensure they are fulfilling their obligations correctly and fairly.
Disclaimer Regarding the Information
Note: Futurezone Corporate Services Provider LLC will make reasonable efforts to include accurate and up-to-date information in this article. However, by accessing the article, you assume that the article and the materials it contains, or may contain in the future, may be incomplete, inaccurate, out of date, or may not meet your needs and requirements. We do not assume any obligation to update the information. We strongly encourage you to consult with your HR personnel or contact the Ministry of Human Resources and Emiratisation (MOHRE) for specific guidance.
