Gratuity refers to an amount paid by an employer to their employees in return for their services provided in the company. Therefore, this article will help you understand how to calculate gratuity in UAE?
Moreover, employees in UAE who have completed full-term employment contracts must get the gratuity amount and all benefits specified by their employer, as required by the UAE Labor Law and compliances.
What are the Factors on Which Gratuity in UAE Depends?
Therefore, there are several factors on which the gratuity of an employee in UAE depends upon:
1. Type of employment contract
2. Total number of service years in an organization
3. Reason for termination of job
4. Basic salary received by the employee
Let’s understand the different types of contracts in UAE and other GCC countries (Dubai, Abu Dhabi, Sharjah etc).
Types of Employment Contracts
Furthermore, employment contracts can be classified into two types based on the duration of services – limited contract and unlimited contract.
1. Limited Contract
Therefore, this is contract defines the period or number of years an employee will agree to stay with the company. This period can also relate to the duration of the visa of UAE residents.
This method is ideal for organizations that hire employees for a specific purpose or project. Resigning before the specified time and date can result in a labour ban, loss of pay as well as loss of labour rights.
2. Unlimited Contract
In these types of contracts, employers do not specify a date and time for the employee to stay with the organization. However, employees have to serve a notice period of one to three months. These contracts are more flexible as compared to limited-time contracts.
Moreover, organizations use these contracts when they know the intended timeline of a project in advance. Under this contract, employers must specify key details such as the conclusion date, nature of work, workplace, and compensation amount.
How to Calculate Gratuity in UAE for a Limited Contract?
Additionally, the amount of gratuity paid to an employee depends on the number of years served by an employee in an organization under a limited contract. Let’s see how the gratuity amount is based on the number of years served. You can also calculate you gratuity amount in seconds with the gratuity calculator in UAE.
Duration of service:
1. Less than one year service
If an employee leaves the organization before completing one year, the employer does not owe them any gratuity or full and final settlement (FnF) amount. After one year, the employer must give the employee with the gratuity amount.
2. One to five years service
The amount of gratuity paid to an employee will be based on 21 days of salary amount.
3. Five or more years service
Therefore, employers must give employees with a gratuity amount equivalent to 30 days of salary for every working year.
Let’s see how to calculate a gratuity amount under a limited contract with a simple example.
Suppose an employee is receiving a basic salary of 30000 AED
Daily wage of the employee= 30000/30= 1000 AED
Multiply the employee’s daily wage by 21 or 30, depending on the number of years of service. For example, if the daily wage is 1000, then 1000 * 21 = 21,000 will be received for each year of service. For employees who have worked for more than 5 years, they will get a gratuity amount, provided it does not exceed the equivalent of two years’ total salary.
How to Calculate Gratuity in UAE for Unlimited Contracts?
In an unlimited contract also the amount of gratuity paid to an employee depends on the number of service years. So, let’s check how the gratuity amount is based on the number of years served under an unlimited contract.
Duration of Service
1. Less than one year of service
Employees who have served less than 1 year in an organization are not eligible for any gratuity amount.
2. One to three years of service
Employees receive ⅓ of the 21-day gratuity amount.
3. Three to five years of service
Employees gets gratuity amount equal to ⅔ of 21 days of gratuity pay.
4. Five or more years of service
Employees get the full 21 days of gratuity pay.
Let’s understand the gratuity amount paid to an employee who is working under an unlimited contract using a simple example.
Suppose an employee’s basic salary is 30,000 AED.
Calculate the daily wage which is 30000/30=1000 AED
Multiply it by 21 which is 1000×21=21000 AED
Calculate ⅓ (for 1-3 years) or ⅔ (for 3-5 years) of the basic salary figure to determine the total gratuity amount paid to the employee.
For those workers who have completed more than 5 years of service, they are provided a full amount of 21000 AED for each year if they have completed 5 or more years. Use Gratuity Calculator UAE to calculate gratuity amount in seconds.
Calculate Gratuity in UAE
The Gratuity Calculator calculates the gratuity amount paid to an employee by using simple details for example basic salary, date of joining, and date of exit from the organization.
The gratuity calculator will calculate the amount of gratuity in a few seconds.
You can use Gratuity Calculator in UAE to calculate the amount of gratuity in a few seconds for free to stay compliant with the laws.
Gratuity in UAE- When will an Employee not Get it?
Therefore, several circumstances can lead to an employee not receiving gratuity in the UAE:
1. Less than one year service
So, if an employee has not completed one year of service, the organization will not provide any gratuity amount in UAE.
2. Employee is terminated
Furthermore, if the organization terminates an employee, it will calculate the amount as follows:
If you worked more than 1 year but less than 5 years, you receive 21 days of basic salary for each year of service.
So, if an employee worked for five years, they are entitled to 30 days of basic salary for each year.
- Unpaid leaves will not involved.
3. If an employee chooses to resign
If an employee resigns from the organization, the organization will calculate the gratuity amount as follows:
If an employee resigns before completing one year, the organization will not pay any gratuity amount.
So, if an employee worked for 1-3 years, they are entitled to 21 days of basic salary for each year of service.
Employees who have worked between three and five years are entitled to receive 2/3 of 21 days of basic salary as gratuity pay for each year they worked in the organization.
- To stay compliant with recent laws and regulations of Gratuity an employer or organization can use. Therefore, Zimyo Payroll Software to process right amount.
To begin with, Zimyo is an end-to-end HR service provider that manages the entire employee lifecycle from hiring to retiring. It has thousands of customers all over the world and an excellent Payroll Software compliant with UAE laws. Moreover, organizations like Kayfi, Vivandi, Morni, etc., are already using it to manage their entire HR processes including Payroll.
Book a free demo and experience Zimyo in action and how it will transform your HR processes as well.
Frequently Asked Questions (FAQs)
In UAE, gratuity is calculated on the basis of 21 day wage for five years of service and 30 days wage for every additional year.
The formula of calculating gratuity in UAE is (15 * Your last drawn salary * the working tenure) / 30
Most commonly the basic salary is 60% of the basic salary and rest of the amount is in the form of allowances and perks.
The amount of gratuity paid to an employee does not exceed the employee’s two-year salary.
