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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Employee Always Late to Work Not eligible for Gratuity - HR Ministry UAE

Employees who are sacked because of their failure to abide by work timings are not entitled for gratuity, according to the Ministry of Human Resources and Emiratization.

The Ministry outlined such a rule in a response to a query by an employer who complained that some of his workers persistently fail to come to office on time despite his repeated warnings that their services could be terminated.

In his letter to the Ministry, the employer said those workers ignored his warnings and continued to violate work timings. He asked the Ministry whether he would be committed to paying them gratuity in case he terminates their services.

“Workers whose service is terminated due to job misbehavior after repeated notices by the employer are not entitled for end-of-service benefits or any compensation for the sacking,” the Ministry said, according to Emarat Al Youm daily.

The paper quoted a Ministry official as saying employers must first take measures to ensure discipline by their employees in line with Article 120 of the UAE Labour Law.

The source said such measures include notices and meetings with the non-punctual workers, adding that employers can gradually cut those workers’ wages.

“In case the worker does not respond to such warnings, the employer can issue an ultimatum to the worker that he would terminate his service…after that ultimatum, he is authorized to sack the worker if he fails to comply.”

UAE Labour Law on gratuity and severance pay of employees

Limited contract:

According to UAE Labour Law, you are entitled to 21 days salary for every year of employment less than 5 years, and 30 days salary for each year of employment over 5 years, up to a maximum of 2 years’ salary. Limited contract holders shorter than 1 year not entitled for gratuity. If the employer dismissed you and revoked the contract without the reasons provided in the article (120),they shall compensate the worker by a pay of (3) months or the period remained from the contract , whichever is shorter … unless otherwise provided by the contract

Unlimited or indefinite contract holders

With  notice period specified in UAE Labour law (usually 30 days) then the amount is according to the following:

Employed for less than 1 year - no gratuity

Employed between 1-3 years - 7 days for each year of employment (1/3 of the limited contract amount)

Employed between 3-5 years - 14 days for each year of employment (2/3 of the limited contract amount)

If you employed longer than 5 years - 21 days for each year up to 5 years, and 30 days for each year after 5 years (same as for limited contract holders). Maximum limit is of 2 years’ worth of salary. 

Unless the employer has not fulfilled their obligations according to the UAE Labour Law, or the employer has assaulted the employee (Article 121 conditions for permission to leave employment without notice). You might have to file a case with the Ministry of Labour in the UAE to claim your gratuity in this case.

Gratuity is calculated on base salary only, any additional allowances are ignored. Employees who are entitled to a gratuity will have it calculated pro-rata for part-years of employment. It is common for employees in the UAE to be on a limited contract which is renewed repeatedly after completion of the fixed term. The gratuity applicable in this case should be that for a limited contract. But check carefully what your contract says.

If a contract specifies a possible notice period for terminating before completion, then it is still a limited contract and you might not be entitled to any gratuity if you do not complete the contract, even if you give the correct notice as specified in the contract. However, such contracts do usually include a clause to detail what gratuity will be paid in those circumstances, and those clauses should have legal validity.

Being required to give a period of notice of renewal or non-renewal of a fixed term contract does not make it an unlimited contract. It is still a limited contract, and the gratuity calculations for a limited contract should still apply. If an employer claims otherwise, contact the Ministry of Labour to at least ask for clarification, and possibly file a complaint.