How to calculate the end of service gratuity?

13/07/2018

   

Description

How to calculate the end of service gratuity the right way? Here are some legal guidelines and sample calculations.

In general, an employee is entitled to receive an end of service gratuity, if he completed at least one year of service. The end of service gratuity is calculated based on his last basic salary. As stipulated in Article 132 UAE Labor Law, the end of service gratuity shall be calculated with 21 days basic salary for each year of service for the first five years. For any additional year, the gratuity is calculated with 30 days basic salary.

Article 133 UAE Labor Law explains the partial calculation of the end of service gratuity. Provided that the employee completed at least one year of continuous service, served fractions of a year are calculated partially. 

No end of service gratuity entitlement

Article 138 UAE Labor Law clarifies that an employee bound by a limited employment contract who resigns from his employment prior to the expiry of the contract, shall not be entitled to an end of service gratuity.

Article 139 UAE Labor Law states the circumstances under which an employee will forfeit his end of service remuneration. An employee is not entitled to receive his end of service gratuity if he has been dismissed for any of the reasons listed in Article 120 UAE Labor Law or if he left the job at self-will to avoid dismissal.

Reduced end of service gratuity entitlement

Article 137 UAE Labor Law stipulates that an employee who resigns from his unlimited employment contract, only receives a reduced end of service gratuity. An employee who resigns and has completed at least one year of service, but less than three years, receives one third of his end of service gratuity. Two thirds of the end of service remuneration will be paid for three years of service but less than five years. The full end of service gratuity will be paid for five years of service and more.

End of service gratuity calculation

There are several possibilities to calculate the end of service gratuity. Here are some sample calculations:

Case 1

An employee with an unlimited employment contract earns 10,000 AED basic salary. He also receives 5,000 AED housing allowance and 2,000 AED transport allowance. The employment contract is terminated by the employer after 1.5 years. Please calculate the end of service gratuity.

• Unlimited employment contract
• Terminated by employer
• Monthly basic salary: 10,000 AED
• Employment duration: 1.5 years

Monthly basic salary x 12 months x 21 days x employment duration
365

10,000 AED x 12 x 21 x 1.5 = 10,356.16 AED
365

The employee is entitled to receive an end of service gratuity with the amount of 10,356.16 AED.


Case 2

An employee with an unlimited employment contract earns 15,000 AED basic salary and 5,000 housing allowance. He receives a monthly performance bonus with the amount of 4,000 AED. The employee drives a company car worth 60,000 AED and terminates his contract after 2 years of service. Please calculate the end of service gratuity.

• Unlimited employment contract
• Terminated by employee
• Monthly basic salary: 15,000 AED
• Employment duration: 2 years

Monthly basic salary x 12 months x 21 days x employment duration x 1/3
365

15,000 AED x 12 x 21 x 2 x 1/3 = 6,904.11 AED
365

The employee is entitled to receive an end of service gratuity of 6,904.11 AED.

Case 3

An employee with a limited employment contract for 2 years earns 10,000 AED basic salary plus 3,000 AED housing allowance plus 2,000 AED transportation allowance plus 1,000 AED food allowance. He leaves the company after the end of his employment contract. Please calculate the end of service gratuity.

• Limited employment contract
• Contract ends after 2 years
• Monthly basic salary: 10,000 AED

Monthly basic salary x 12 months x 21 days x employment duration 
365

10,000 AED x 12 x 21 x 2 = 13,808.22 AED
365

The employee is entitled to receive an end of service gratuity with the amount of 13,808.22 AED.

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