How UAE gratuity is calculated
UAE Federal Decree-Law No. 33 of 2021, in force from 2 February 2022, sets the formula used in every private-sector end-of-service payout. Article 51 of the law is the relevant section. The base is your basic monthly salary, divided by 30 to give a daily basic. For each of the first five years of service you earn 21 daily-basic units. From year six onward, every additional year earns 30 daily-basic units. The total is capped at 24 months of basic salary, which is the equivalent of two full years of pay. The cap is reached around year 17 of unbroken service.
The 2022 law also removed the older reductions that used to apply to resignations under five years of service. Today, an employee who resigns after one year with the required notice receives the same daily-basic accrual as an employee who is terminated by the company. Only specific gross misconduct dismissals, listed in Article 44 of the law, can lead to forfeiture of gratuity. Partial years are calculated on a pro-rata basis: a tenure of 3 years and 6 months earns 3.5 times 21 daily-basic units. For the full walkthrough of work permits, contract types and the wider labour-law framework, see the MOHRE labour card and contract check guide.
The basic vs gross salary trap
The single biggest variable in any UAE gratuity calculation is the split between basic salary and allowances. Only the basic salary line on your MOHRE contract counts. Housing allowance, transport allowance, education allowance, telephone allowance, commission, bonuses and one-off payments are all excluded by law. A worker on AED 25,000 total compensation with a basic of AED 10,000 will receive less than half the gratuity of a worker on the same total with a basic of AED 22,000.
UAE employer practice varies. Some firms set basic at 50% to 60% of total pay; others go as low as 30%. The lower the basic, the lower the gratuity. Negotiating the basic up at hiring or at renewal is the most direct way to grow the eventual payout. Always check the basic figure on your MOHRE contract before you accept any company gratuity quote; the WPS payslip is the legal record and the only source the labour court will accept in a dispute.
Worked examples
Example 1: Seven years, AED 10,000 basic. Daily basic is AED 10,000 divided by 30, or AED 333.33. The first 5 years earn 5 times 21 days, that is 105 daily-basic units, worth AED 35,000. Years 6 and 7 earn 2 times 30 days, or 60 daily-basic units, worth AED 20,000. Total gratuity is AED 55,000. The cap kicks in only above roughly 17 years of service on this salary, so the cap is irrelevant here.
Example 2: 3 years 6 months, AED 6,000 basic. Daily basic is AED 200. Pro-rata 3.5 years times 21 days is 73.5 daily-basic units, worth AED 14,700. Both resignation and termination give this figure under the 2022 law.
| Year of service | Daily-basic units earned | Cumulative units |
|---|---|---|
| Year 1 | 21 | 21 |
| Year 2 | 21 | 42 |
| Year 3 | 21 | 63 |
| Year 4 | 21 | 84 |
| Year 5 | 21 | 105 |
| Year 6 | 30 | 135 |
| Year 10 | 30 | 255 |
| Year 17 | 30 | 465 |
| Year 18+ | Capped | 720 (24 months) |
Example 3: 20 years, AED 12,000 basic. Daily basic AED 400. Raw formula would be 5 times 21 plus 15 times 30, that is 555 daily-basic units, worth AED 222,000. The 24-month cap is 24 times AED 12,000, that is AED 288,000. The calculated figure is below the cap, so the payout is AED 222,000. On a higher basic of AED 20,000 the same 20 years yields 555 times AED 666.67, that is AED 370,000 raw, but the 24-month cap (AED 480,000) is higher still, so AED 370,000 is paid.
Edge cases and old-law myths
Resignation under five years
The old rule cutting gratuity to one-third for resignations of 1 to 3 years and two-thirds for resignations of 3 to 5 years no longer applies on or after 2 February 2022. Any HR quote that still reduces a resignation payout on this basis is wrong for any service period that ended after that date. Demand the full Article 51 figure.
Unpaid leave
Unpaid leave periods are excluded from service for gratuity purposes by default. Six months of unpaid leave inside a seven-year tenure reduces the service counted for gratuity to six and a half years. Paid annual leave, statutory sick leave and maternity leave all still count.
Article 44 misconduct
Only specific gross-misconduct dismissals under Article 44 (fraud, false identity, physical assault, repeated unjustified absence, breach of confidentiality and similar) can lead to forfeiture of gratuity. The employer must follow due process and document the case; a bare allegation is not enough. Disputes go to MOHRE first and then the labour court.
Free zones
Most free zones (DMCC, JAFZA, ADGM as employer-of-record) follow the federal Article 51 formula. DIFC employees fall under the separate DIFC Employment Law which uses a very similar 21/30 formula plus a workplace savings scheme. Always confirm the governing law on the contract before relying on the federal calculator.
Limited vs unlimited contracts
The limited / unlimited distinction was abolished by the 2022 law. All private-sector contracts now follow a single fixed-term model. Any old HR template still talking about limited or unlimited contracts is outdated and should not affect your gratuity calculation.
The 24-month cap in practice
The Article 51 cap is 24 months of basic salary. The raw 21/30 formula crosses that ceiling at roughly year 17 of unbroken service. After year 17, additional years accrue 30 daily-basic units on paper but the payout stops growing. Tenures above 17 years still qualify for notice pay, unpaid leave conversion, accrued annual leave balances and any contractual extras, but the gratuity figure itself plateaus at the cap.
How to claim and what to do next
The employer must settle gratuity plus any unpaid wages, leave balances and notice-period dues within 14 days of the last working day. The payment runs through WPS or by cheque, alongside the cancellation of the labour card. If the deadline slips, follow the step-by-step unpaid-gratuity MOHRE complaint guide to open the case on the MOHRE app or by calling 600 590000; a labour officer is assigned within a few working days. Keep the MOHRE contract, the WPS payslips for the final six months and the resignation or termination letter ready: those are the documents the officer will ask for.
Gratuity is only one line in the final settlement. Accrued but untaken annual leave is paid out separately, and notice-period dues can add weeks of pay; the UAE leave salary and notice calculator works out both on the same basic figure used here. If the company stalls on the visa side after you resign, the guide to an employer who will not cancel your visa covers the MOHRE absconding-defence and cancellation routes, and if a labour ban is wrongly placed the labour-ban removal grievance guide explains the appeal. To budget the wider cost of clearing paperwork across the Gulf, compare the GCC paperwork cost index.
If you are leaving the country after the settlement, pair the gratuity with the UAE overstay fine calculator to make sure the residence cancellation grace is timed against the exit flight. If you are moving to Saudi Arabia for a new role, the Saudi dependent fee calculator shows the SADAD bill on the family side. For the full picture of the UAE labour card, contract type and dispute routes, see the MOHRE labour card guide and the Golden Visa requirements if you plan to stay on after employment ends.