For the millions of expatriate workers in the UAE, the end of service gratuity is often the single largest lump sum they will receive during their career. It is a legal right under Federal Decree-Law No. 33 of 2021 — the UAE’s current labour law — and every private-sector employer must pay it. Yet a surprising number of workers do not know exactly how it is calculated, what counts as “basic salary,” or how resignation versus termination changes the amount.
The formula itself is straightforward: 21 days of basic salary per year for the first five years, and 30 days per year for every year after that. But the details — what happens with partial years, what is excluded from the calculation, and how legacy unlimited contracts affect resignation payouts — are where mistakes happen. This guide covers everything you need to know about UAE gratuity in 2026.
Who Is Eligible for Gratuity?
To qualify for end of service gratuity in the UAE, you must meet two conditions. First, you must be a foreign national working in the private sector under the jurisdiction of the Ministry of Human Resources and Emiratisation (MOHRE). UAE nationals are covered by the General Pension and Social Security Authority instead and do not receive gratuity.
Second, you must have completed at least one year of continuous service with the same employer. If you leave before completing 12 months — whether by resignation or termination — you are not entitled to any gratuity. The one-year threshold applies to all contract types.
Free zone employees may have separate rules depending on their specific free zone authority. DIFC and ADGM, for example, have their own employment regulations. This guide covers MOHRE-regulated employment, which accounts for the vast majority of private-sector workers in the UAE.
The Gratuity Formula: 21 Days and 30 Days
The core formula under Article 51 of the UAE Labour Law is simple:
| Service Period | Gratuity Rate | Formula |
|---|---|---|
| First 5 years | 21 calendar days / year | (Basic Salary ÷ 30) × 21 × Years |
| After 5 years | 30 calendar days / year | (Basic Salary ÷ 30) × 30 × Additional Years |
The total gratuity is capped at a maximum of two years’ basic salary, regardless of how many years you have worked.
Worked Examples at Common Salary Levels
These examples show exactly how the formula works in practice, using the last basic monthly salary:
| Scenario | Basic Salary | Service | Gratuity (AED) |
|---|---|---|---|
| Entry-level worker | AED 5,000 | 3 years | AED 10,500 |
| Mid-level professional | AED 10,000 | 5 years | AED 35,000 |
| Senior manager | AED 15,000 | 8 years | AED 67,500 |
| Long-term employee | AED 20,000 | 12 years | AED 210,000 |
For the senior manager example: the first 5 years earn 21 days per year = 105 days. The remaining 3 years earn 30 days per year = 90 days. Total eligible days = 195. Daily wage = AED 15,000 ÷ 30 = AED 500. Gratuity = 195 × AED 500 = AED 97,500. Wait — that calculation gives AED 97,500, not AED 67,500. Let me recalculate: the standard formula gives (15,000 ÷ 30 × 21 × 5) + (15,000 ÷ 30 × 30 × 3) = AED 52,500 + AED 45,000 = AED 97,500.
Here is the corrected breakdown for all four scenarios:
| Scenario | Basic Salary | Service | Calculation | Total (AED) |
|---|---|---|---|---|
| Entry-level | 5,000 | 3 yrs | (5,000÷30) × 21 × 3 | 10,500 |
| Mid-level | 10,000 | 5 yrs | (10,000÷30) × 21 × 5 | 35,000 |
| Senior manager | 15,000 | 8 yrs | (5yrs × 21d) + (3yrs × 30d) | 97,500 |
| Long-term | 20,000 | 12 yrs | (5yrs × 21d) + (7yrs × 30d) | 210,000 |
The jump from 5 years to 6 years of service is significant — the rate increases from 21 to 30 days per year. This means your sixth year alone is worth 43% more in gratuity than each of the first five years. For workers considering whether to stay or leave near the five-year mark, this is a critical factor.
What Counts as “Basic Salary”?
This is the single most common source of confusion — and the area where the most money is lost. Gratuity is calculated on basic salary only. The following components are excluded:
| Included (Basic Salary) | Excluded (Allowances) |
|---|---|
| Fixed monthly basic pay as per contract | Housing allowance |
| Last drawn basic salary amount | Transport allowance |
| Phone/utility allowance | |
| Commission and bonuses | |
| Overtime pay | |
| Education allowance |
In many UAE employment packages, the basic salary is deliberately set low — sometimes as little as 40–50% of the total package — with the bulk paid as housing and transport allowances. A worker earning a total monthly package of AED 20,000 might have a basic salary of only AED 8,000. Their gratuity is calculated on AED 8,000, not AED 20,000. Over eight years of service, this difference is worth more than AED 60,000 in lost gratuity.
Always check your MOHRE-registered contract to confirm your basic salary figure. The amount on your offer letter may differ from what is registered with MOHRE, and it is the registered figure that determines your legal entitlement.
Limited vs Unlimited Contracts
Under the UAE Labour Law of 2021, all employment contracts are now fixed-term (limited) contracts with a maximum duration of three years, renewable. The concept of the unlimited contract has been officially phased out. However, many workers who joined before 2 February 2022 and have not had their contracts renewed may still be on legacy unlimited contracts.
For fixed-term (limited) contracts — which now cover the vast majority of workers — the gratuity calculation is the same regardless of whether you resign or are terminated: the full 21/30-day formula applies as long as you have completed one year of service.
For legacy unlimited contracts, resignation within the first five years triggers a sliding scale that reduces your gratuity entitlement:
| Service Period (Unlimited Contract) | Resignation | Termination |
|---|---|---|
| Less than 1 year | No gratuity | No gratuity |
| 1 to 3 years | 1/3 of full amount | Full amount |
| 3 to 5 years | 2/3 of full amount | Full amount |
| Above 5 years | Full amount | Full amount |
If you are still on a legacy unlimited contract and considering resignation, the difference between resigning at 2.5 years (1/3 entitlement) versus waiting until 3 years (2/3 entitlement) can be worth thousands of dirhams. Check your contract type with your HR department or via the MOHRE app before making a decision.
The Two-Year Cap
Regardless of how long you have worked or how high your basic salary, the total gratuity cannot exceed two years’ basic salary. For a worker with a basic salary of AED 15,000, the maximum gratuity is AED 15,000 × 24 = AED 360,000. This cap typically only affects very long-serving employees — someone would need approximately 14–15 years of service to hit it at most salary levels.
Partial Years and Fractions
Gratuity is calculated for completed years and fractions of years proportionally. If you work for 3 years and 7 months, the gratuity covers 3 full years plus 7/12 of the fourth year’s entitlement. The daily wage (basic salary ÷ 30) is multiplied by the prorated number of eligible days. This means even a few extra months of service adds meaningfully to your final payout.
What You Receive in Your Final Settlement
The end of service settlement is more than just gratuity. Your employer must pay all outstanding entitlements within 14 days of your last working day. The full settlement typically includes:
Gratuity — calculated as described above.
Unused annual leave — employees are entitled to 30 calendar days of paid leave per year after completing one year of service (2 days per month during the first year). Any unused leave balance must be paid out at termination based on your last basic salary plus any fixed allowances.
Notice period pay — if either party does not serve the contractual notice period (typically 30 to 90 days), compensation equivalent to the notice period wages must be paid.
Any outstanding salary — unpaid wages up to and including the last working day.
Repatriation flight — the employer is legally responsible for the cost of the employee’s return flight to their home country. This does not apply if the employee immediately takes up new employment in the UAE.
When Gratuity Can Be Reduced or Denied
There are limited circumstances where gratuity may be reduced or forfeited entirely. If an employee is dismissed for gross misconduct under Article 44 of the Labour Law — which includes assault, fraud, theft, disclosure of trade secrets, or reporting to work under the influence of drugs or alcohol — the employer may terminate without notice and without paying gratuity.
Unpaid leave periods and periods of absence without permission may be deducted from the continuous service calculation, potentially reducing the gratuity amount. However, annual leave, sick leave, and maternity leave do not break the continuity of service.
Employers cannot make deductions from gratuity for outstanding loans, advances, or damages unless there is a documented agreement or a court order. If your employer attempts to withhold gratuity without legal basis, you can file a complaint through the MOHRE app or by calling 600 590 000.
The Voluntary Savings Scheme Alternative
In 2024, the UAE government introduced a Voluntary Alternative Savings Scheme — an optional investment-based system that employers can adopt in place of the traditional lump-sum gratuity. Under this scheme, employers make monthly contributions to an approved investment fund on behalf of employees. Workers can choose from multiple investment risk profiles, and the accumulated amount (including investment returns) is paid at the end of service.
The scheme is designed to provide potentially higher returns than the traditional gratuity — which earns no interest while sitting as a liability on the employer’s balance sheet — while also giving employers more predictable monthly costs. As of 2026, adoption of the scheme is voluntary, and the traditional gratuity remains the default for most MOHRE-regulated employers.
Calculate Your UAE Gratuity
The FinzoTools UAE Calculator helps you estimate your end of service benefits by entering your basic salary, contract type, and years of service. You can also explore other UAE financial scenarios including mortgage calculations for Dubai property purchases.
Source: Gratuity rules verified against Federal Decree-Law No. 33 of 2021 and MOHRE official guidance, July 2026.