Gratuity Calculator UAE | Accurate End-of-Service Benefit

Gratuity Calculator:

A Gratuity Calculator is an online tool or software designed to help employees and employers calculate the end-of-service gratuity payment based on the applicable labor laws of a specific country. In the UAE, for example, a gratuity calculator simplifies the process of determining how much an employee is entitled to receive upon completing their contract or resigning, according to UAE Federal Law.

Key Inputs in a Gratuity Calculator:

Basic Salary: The employee’s last drawn basic salary (excluding allowances).
Years of Service: The total number of years (and months) the employee has worked.
Contract Type: Whether the employee is on a limited or unlimited contract.
Reason for Leaving: Whether the employee is resigning or being terminated.

Purpose:

For Employees: To estimate the end-of-service benefits they will receive.
For Employers: To calculate the exact gratuity owed based on the employment details.

Gratuity calculators make it easier to comply with legal obligations and ensure accurate payout calculations.

In the United Arab Emirates (UAE), gratuity is a legal entitlement provided to employees at the end of their employment contract, serving as a form of compensation for their service. The calculation of gratuity varies based on the type of contract—limited or unlimited—and the duration of employment. For employees under an unlimited contract, calculating gratuity involves several factors such as years of service and basic salary.

In this article, we will provide a detailed explanation of how gratuity is calculated for employees under an unlimited contract in the UAE. We’ll explore the legal provisions, step-by-step methods of calculation, important considerations, and other related information.

1. Understanding Gratuity in the UAE

Gratuity is a statutory payment granted to employees who complete at least one year of continuous service. It is governed by UAE Federal Law No. 33 of 2021, which sets the rules for labor relations in the private sector. The gratuity serves as a reward for an employee’s tenure and is calculated based on the last drawn basic salary—excluding allowances such as housing, transportation, and bonuses.

There are two fundamental sorts of business contracts in the UAE:

Limited contract (fixed-term employment).
Unlimited contract (open-ended employment).

This article focuses on calculating gratuity for unlimited contracts, where the employee or employer can terminate the contract with notice.

2. Basic Requirements to Qualify for Gratuity

Before discussing how to calculate gratuity, it’s important to understand the conditions under which employees are eligible. The following are the basic requirements:

The worker probably finished somewhere around 1 year of ceaseless service
Gratuity is not applicable if an employee is terminated due to gross misconduct or other serious violations as defined by UAE law.
Employees who resign or are terminated before completing one year of service are not entitled to gratuity.

how to calculate gratuity in uae for unlimited contract

3. Factors Affecting Gratuity Calculation

To calculate gratuity for an unlimited contract, several factors must be considered:

Basic Salary: The last basic salary of the employee, excluding other allowances, is the basis for calculating gratuity.
Years of Service: The total number of years an employee has worked in the company determines the gratuity amount.It is partitioned into two principal sections:
1. As long as 5 years of administration.
2. Over 5 years of administration.
Reason for Termination: Whether the employee resigned or was terminated can affect the gratuity amount, especially if the resignation occurs after a certain period of service.

4. Gratuity Calculation for Unlimited Contracts

4.1. Less than 1 Year of Service

Employees who have served less than one year are not entitled to any gratuity, regardless of the reason for termination or resignation. Gratuity starts accruing only after the completion of the first year.

4.2. 1 to 5 Years of Service

For employees who have completed between 1 to 5 years of service, the gratuity is calculated as follows:

The employee is entitled to 21 days’ basic salary for each year of service.

Formula:

Gratuity=(Basic Salary30)×21×Years of Service\text{Gratuity} = \left( \frac{\text{Basic Salary}}{30} \right) \times 21 \times \text{Years of Service}Gratuity=(30Basic Salary)×21×Years of Service

Example:

Let’s assume an employee has a basic salary of AED 10,000 and has completed 3 years of service.

Gratuity = (10,00030)×21×3\left( \frac{10,000}{30} \right) \times 21 \times 3(3010,000)×21×3
Gratuity = AED 7,000 per year of service.
Total Gratuity for 3 years = AED 21,000.

4.3. More than 5 Years of Service

For employees who have worked for more than 5 years, the calculation is slightly different. The Gratuity is separated into two sections::

First 5 years: Gratuity is calculated at 21 days’ basic salary for each of the first 5 years.
After 5 years: For every additional year beyond the first 5 years, the employee is entitled to 30 days’ basic salary per year of service.

Formula:

Gratuity=(Basic Salary30)×[(21×5)+(30×Years after 5)]\text{Gratuity} = \left( \frac{\text{Basic Salary}}{30} \right) \times \left[ (21 \times 5) + (30 \times \text{Years after 5}) \right]Gratuity=(30Basic Salary)×[(21×5)+(30×Years after 5)]

Example:

Let’s assume an employee has a basic salary of AED 10,000 and has completed 8 years of service.

Gratuity for the first 5 years = (10,00030)×21×5\left( \frac{10,000}{30} \right) \times 21 \times 5(3010,000)×21×5
Gratuity for the first 5 years = AED 35,000.
Gratuity for the next 3 years = (10,00030)×30×3\left( \frac{10,000}{30} \right) \times 30 \times 3(3010,000)×30×3
Gratuity for the next 3 years = AED 30,000.
Total Gratuity = AED 35,000 + AED 30,000 = AED 65,000.

4.4. Maximum Limit on Gratuity

The gratuity amount cannot exceed the equivalent of two years’ salary. If the calculated gratuity exceeds this limit, the employee will only be entitled to two years’ worth of their basic salary.

Formula:

Maximum Gratuity=2×Basic Annual Salary\text{Maximum Gratuity} = 2 \times \text{Basic Annual Salary}

Maximum Gratuity= 2×Basic Annual Salary

5. Gratuity for Resignation Under an Unlimited Contract

The calculation of gratuity may differ if an employee resigns rather than being terminated. Here’s how it is calculated based on the years of service:

5.1. Resignation After 1 to 3 Years

The employee is entitled to two-thirds (2/3) of the full gratuity amount.

Formula:

Gratuity= 32×((30Basic Salary)×21×Years of Service)

Example:

If an employee resigns after 3 years of service with a basic salary of AED 10,000, their gratuity would be:

Full gratuity = AED 21,000.
Gratuity payable after resignation = 23×21,000=AED14,000\frac{2}{3} \times 21,000 = AED 14,00032×21,000=AED14,000.

5.2. Resignation After 3 to 5 Years

The employee is entitled to one-third (1/3) of the full gratuity amount.

Formula:

Gratuity= 31×((30Basic Salary)×21×Years of Service)

5.3. Resignation After 5 Years

The employee is entitled to the full gratuity as if they were terminated.

6. Important Considerations When Calculating Gratuity

Basic Salary vs. Total Salary: Gratuity is calculated only on the basic salary and does not include other benefits such as housing, transportation, or allowances.
Partial Years of Service: If an employee has served a partial year, the gratuity is calculated on a pro-rata basis. For example, if an employee worked for 6 months after completing 5 years, gratuity for that half-year will be calculated based on the corresponding portion of 30 days.
Gross Misconduct: If an employee is terminated for gross misconduct as outlined in Article 120 of the UAE Labour Law, they forfeit their gratuity.

7. Conclusion

Understanding how to calculate gratuity in the UAE for an unlimited contract is essential for both employers and employees. The calculation depends on several factors, including the duration of employment and the employee’s basic salary. Employees should always be aware of their rights and ensure that gratuity is calculated fairly according to the UAE Labor Law.

For those leaving an organization, it is advisable to consult the company’s HR department or legal advisors to ensure accurate gratuity calculation, especially when dealing with resignations or long-term service. By following the legal guidelines outlined in this article, you can ensure that your end-of-service benefits are calculated and distributed correctly. We can calculate end of service benefits by Gratuity Calculate Abu Dhabi by follows above process

How to calculate gratuity in uae for unlimited contract:End of Service Calculation UAE