UAE End-of-Service Benefits: Gratuity & Investment Options

 Understanding UAE gratuity calculations involves navigating key aspects of the UAE Labour Law, particularly Federal Decree-Law No. 33 of 2021, and subsequent ministerial resolutions. Here's a breakdown of the essential points:

Key Points:

• Basis of Calculation:
• Gratuity is calculated based on the employee's basic salary, excluding allowances like housing, transportation, or other benefits.
• Eligibility:
• Generally, an employee must complete at least one year of continuous service to be eligible for gratuity.
• Service Duration and Calculation:
• The calculation varies based on the length of service. Key considerations include:
• For service between 1 and 5 years: 21 days' basic salary for each year of service.
• For service exceeding 5 years: 30 days' basic salary for each additional year of service beyond the initial five.
• There is a maximum gratuity amount, that cannot exceed two years worth of the employees basic salary.

• Calculation Formula:

  • For service of 1 to 5 years: Gratuity = (Basic Salary × 21 days × Years of Service) ÷ 30
  • For service exceeding 5 years: Gratuity = (Basic Salary × 30 days × Years of Service) ÷ 30
• Contract Types:
• While distinctions between limited and unlimited contracts existed, the new labour law has streamlined contracts, but the manner in which resignations affect the calculation can still vary.
• Resignation vs. Termination:
• How the employment relationship ends (resignation or termination) can affect the gratuity amount, particularly in cases of resignation with shorter service periods.
• The Savings Scheme:
• It is important to note that there is now an alternative end-of-service benefits system, called the savings scheme. This is an optional alternative. Where employers can subscribe to investment funds for their employee's end-of-service benefits. This is a new development within the UAE labor law.
• Relevant Legislation:
• Federal Decree-Law No. 33 of 2021 Regarding the Regulation of Labour Relations.
• Cabinet Resolution No. 96 of 2023 Regarding an Alternative End of Service Benefits System.
• Cabinet Resolution No. 1 of 2022 on the Implementation of the Regulation of Federal Decree-Law No. 33 of 2021 Regarding the Regulation of Labour Relations.  

Important Considerations:

• It's crucial to refer to the latest official sources for the most accurate and up-to-date information, as labor laws can be subject to change.
• Consulting with legal professionals or HR experts in the UAE is recommended for specific cases or complex calculations.

I hope this information is helpful.

new gratuvity payment system in dubai

It's important to understand that while the core principles of UAE gratuity remain, there's a significant development with the introduction of an alternative end-of-service benefits system, often referred to as the "savings scheme." Here's a breakdown:

Traditional Gratuity:

• This system, based on the UAE Labour Law, calculates gratuity based on an employee's basic salary and years of service.
• It involves lump-sum payments upon the end of an employee's service.
• This system is still in place.

The New Savings Scheme:

• This is an alternative end-of-service benefits system. It's not a complete replacement of the traditional gratuity, but an optional alternative.
• It involves employers contributing to investment funds on behalf of their employees.
• The employee's end-of-service benefits then depend on the performance of these investments.
• Key aspects of this scheme include:
• Employers make monthly contributions to investment funds.
• Employees can also make voluntary contributions.
• The final payout to the employee includes the employer's contributions and any investment returns.
• This is regulated by Cabinet Resolution No. 96 of 2023.
• This system is designed to provide greater financial security for employees.

Key Considerations:

• The savings scheme is an optional alternative for employers.
• The traditional gratuity system remains in place.
• It is important to understand the details of each system to make informed decisions.
• It is always best to refer to the official sources from the UAE government, such as the Ministry of Human Resources and Emiratisation (MoHRE), for the most accurate and up-to-date information.

In essence, Dubai, and the wider UAE, have introduced a new, investment-based option for end-of-service benefits, giving employers and employees more flexibility.

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