Understanding Gratuity Law in the UAE - A Comprehensive Guide

Estimated reading time: 10 minutes

Introduction to Gratuity Law in the UAE

Gratuity, also known as end-of-service benefit, is a statutory entitlement for employees in the UAE upon completion of their service. It serves as a financial reward for their dedication and contribution to the company.

This guide provides a detailed overview of the gratuity law in the UAE, covering eligibility criteria, calculation methods, recent updates, and the rights and obligations of both employers and employees.

Legal Framework Governing Gratuity

The gratuity law in the UAE is primarily governed by the Federal Decree Law No. 33 of 2021, also known as the UAE Labour Law. This law outlines the provisions related to end-of-service benefits, including eligibility, calculation, and payment procedures.

Key articles within the law address various aspects of gratuity, such as the conditions under which an employee is entitled to gratuity, the method of calculating the gratuity amount, and the circumstances in which an employee may forfeit their right to gratuity.

Eligibility Criteria for Gratuity

To be eligible for gratuity in the UAE, an employee must have completed at least one year of continuous service with the same employer. Both full-time and part-time employees are entitled to gratuity, provided they meet this minimum service requirement.

However, certain categories of employees, such as those on probation or those terminated for gross misconduct, may not be eligible for gratuity.

Gratuity Calculation Method

The method of calculating gratuity in the UAE depends on the type of employment contract (limited or unlimited) and the length of service.

Limited Contracts

For employees with limited contracts (fixed-term contracts), the gratuity is calculated as follows:

• 21 days' basic salary for each year of service for the first five years.
• 30 days' basic salary for each additional year of service beyond five years.

Unlimited Contracts

For employees with unlimited contracts, the gratuity is calculated differently based on the length of service:

• Less than 1 year: No gratuity.
• 1-3 years: 1/3 of 21 days' basic salary for each year of service.
• 3-5 years: 2/3 of 21 days' basic salary for each year of service.
• More than 5 years: 21 days' basic salary for each year of service for the first five years, and 30 days' basic salary for each additional year of service beyond five years.

Important Considerations

Only the basic salary is considered for gratuity calculation. Allowances and other benefits are not included.

The gratuity amount is capped at two years' salary.

Forfeiture of Gratuity

Under certain circumstances, an employee may forfeit their right to gratuity. These circumstances typically involve gross misconduct or violation of company policies.

Article 120 of the UAE Labour Law specifies the conditions under which an employer may terminate an employee without gratuity. These conditions include acts of violence, theft, disclosure of confidential information, and other serious offenses.

Recent Updates to Gratuity Laws

The UAE Labour Law is subject to periodic updates and amendments to keep pace with evolving labor practices and economic conditions.

Federal Decree Law No. 33 of 2021 introduced several changes to the gratuity law, including clarifications on eligibility criteria, calculation methods, and payment procedures.

Staying informed about these updates is crucial for both employers and employees to ensure compliance and fair practices.

Practical Examples

Example 1: Limited Contract

An employee with a limited contract has completed 6 years of service with a basic salary of AED 10,000 per month.

Gratuity Calculation:

• (5 years x 21 days x AED 10,000) / 30 = AED 35,000
• (1 year x 30 days x AED 10,000) / 30 = AED 10,000
• Total Gratuity = AED 35,000 + AED 10,000 = AED 45,000

Example 2: Unlimited Contract

An employee with an unlimited contract has completed 4 years of service with a basic salary of AED 8,000 per month.

Gratuity Calculation:

• (4 years x 21 days x AED 8,000) / 30 x (2/3) = AED 14,933.33

Employer Obligations

Employers in the UAE have several obligations related to gratuity, including:

• Calculating and paying gratuity to eligible employees upon termination of service.
• Maintaining accurate records of employee service and salary.
• Complying with all provisions of the UAE Labour Law related to gratuity.

Failure to meet these obligations may result in legal penalties and financial liabilities.

Employee Rights

Employees in the UAE have several rights related to gratuity, including:

• The right to receive gratuity upon completion of at least one year of service.
• The right to have their gratuity calculated accurately and in accordance with the law.
• The right to dispute any discrepancies in the gratuity amount.

Employees should be aware of their rights and seek legal advice if they believe their rights have been violated.

Dispute Resolution

In case of disputes related to gratuity, both employers and employees have recourse to legal channels for resolution.

The UAE Labour Law provides mechanisms for resolving labor disputes, including mediation, conciliation, and litigation.

Employees can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) if they believe their gratuity rights have been violated.

Conclusion

Understanding the gratuity law in the UAE is essential for both employers and employees to ensure compliance and fair practices.

By adhering to the provisions of the UAE Labour Law and staying informed about recent updates, both parties can foster a positive and equitable working environment.

Frequently Asked Questions

1. What is gratuity?

Gratuity, also known as end-of-service benefit, is a statutory entitlement for employees in the UAE upon completion of their service.

2. Who is eligible for gratuity?

Employees who have completed at least one year of continuous service with the same employer are eligible for gratuity.

3. How is gratuity calculated?

The method of calculating gratuity depends on the type of employment contract (limited or unlimited) and the length of service.

4. Can an employee forfeit their right to gratuity?

Under certain circumstances, such as gross misconduct or violation of company policies, an employee may forfeit their right to gratuity.

5. What should an employee do in case of a gratuity dispute?

Employees can file a complaint with the Ministry of Human Resources and Emiratisation (MOHRE) if they believe their gratuity rights have been violated.