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A brief guide to end-of-service employee benefits in Dubai

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Being a private-sector UAE employee comes with benefits that set the UAE apart from other top expat countries. However, while benefits come and go over the years, perhaps the one to stay after a multi-decade career is the gratuity payment, also known as the end-of-service employee benefits.

Companies registered at Jafza are advised to account for end-of-service benefits for every employee. All businesses registered in the free zone must comply with the laws set forth by the relevant departments of the government of the UAE, including end-of-service benefits.

As an employee, you may have a very well thought-out future plan or you could still be waiting to see what the future holds for you after a well-earned retirement. In either case, learning what benefits you enjoy, especially your end-of-service benefits, is one thing you should not overlook.

As a business owner, it’s advised to include the breakdown of your employees’ gratuities and end-of-service benefits as part of your business plan before starting your business.

The following is an overview of what you need to know about the UAE’s gratuity payment.

Overview

Whether an employee’s contract is limited or unlimited, there are still a number of facts to know about gratuity payments, such as the eligibility, or the lack thereof, among other things.

  1. The employee is entitled to a gratuity as long as they don’t resign and serve the notice period mentioned in their contract. They must also complete a minimum of one year of uninterrupted service to qualify.
  2. The employer calculates an employee’s gratuity based on the employee’s last basic salary, excluding allowances.
  3. The employer has the right to deduct from the employee’s gratuity any amount of money that the employee may owe the employer.

Limited contract employees

  • An employee under a limited contract has the right to a gratuity payment if their employer terminates their contract after a minimum of one year of continuous service.
  • An employee with a continuous employment period of one to five years has the right to full gratuity pay, to be calculated according to a twenty-one-day salary for each year.

For example, if your basic salary is AED 6000, you calculate how much you earn per day by multiplying your monthly salary by twelve and dividing it by the number of days in a year.

(6000 ྾ 12) ÷ 365.25 = 197.12

Gratuity for one year, in this case, would be 197.12 ྾ 21 (days) = AED 4,139.

  • An employee with a continuous employment period of more than five years has the right to full gratuity pay, to be calculated according to a thirty-day salary for every day in the first five years.
  • Any unpaid leaves are deducted from the total period of employment.
  • The gratuity cannot, in all circumstances, exceed two years’ salaries in total.

Calculations can also be made on a pro-rata basis, considering the months of service. It is advisable to use our gratuity calculator on our service channel, Dubai Trade for an accurate calculation of the total amount.

Unlimited contract employees

  • An employee under an unlimited contract has the right to a gratuity if their employer terminates their contract after a minimum of one year of continuous service.
  • An employee with a continuous employment period of one to less than five years has the right to full gratuity pay, to be calculated according to a twenty-one-day salary for each of their first five years of employment.
  • An employee with a continuous employment period of more than five years has the right to full gratuity pay, to be calculated according to a thirty-day salary for each of their first five years of employment. The gratuity, however, cannot exceed a two-year salary in total.
  • An employee is entitled to one-third of a twenty-one-day salary as gratuity if they resign after serving for a continuous period of one to three years.
  • An employee who resigns is entitled to two-thirds of a twenty-one-day salary as gratuity if they resign after serving for a continuous period of three to five years.
  • An employee who resigns is entitled to a full twenty-one-day basic salary as gratuity if they resign after serving for a continuous period of more than five years.

Our gratuity calculator, by Dubai Trade, is an accurate representation of how to calculate the amount of gratuity needed to be paid to an employee by their employer.

Jafza companies are obliged to comply with the Ministry of Labour (MoL) in the United Arab Emirates when it comes to end-of-service benefits. Planning, after all, is the most important step in starting and executing a business successfully.

If you wish to start your business with Jafza, you can always ask our experts for advice on end-of-service benefit calculations.

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