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UAE Gratuity 2018 for Limited and Unlimited Contracts

August 19, 2018 / 668 / Category : Uae

Anyone willing to leave their old jobs for new ones or old companies for new ones can simply follow this guide on how to calculate the gratuity as per UAE law for 2018:

Gratuity for UAE Free Zone Companies:

In order to calculate the gratuity online for the free zone companies in Dubai, kindly click on the link given below so that you can visit their official website.

Also, keep in mind that the rules which will be needed to check the gratuity will be as same as the ones mentioned below in your guide.

Judging by the amount of queries and concerns that we have been receiving, it is safe to say that there are certain UAE expats that have no knowledge of gratuity rules in UAE.

The article below is there to guide all those wishing to calculate the gratuity in 2018 just in case they plan to resign or get themselves terminated.

Before we proceed, it is important to remember that the gratuity will be calculated solely on the basis of the basic salary of the employee. Moreover, the calculation also depends upon the type of contract.


Difference between Resignation and Termination:

Resignation stands for the employee’s willful cancelation of the working contract with the company, while a termination is done without the consent of the employee. It’s more or less like sacking.




  • Gratuity for Less than 1 Year:

According to the Labor law in UAE (article 132, section 2), if the employee resigns without completing a year of his work, he or she will not be granted with any gratuity. A gratuity is only applicable if a whole year is completed within the service of the company.

  • Gratuity for more than 1 & Less than 3 Years:

If the employee resigns from the company after working less than three years but more than a year, he or she will be granted 1/3rd of the basic salary of 21 days for each year they had worked.

  • Gratuity for more than 3 & Less than 5 Years:

If an employee resigns before completing the fifth year but more than three years, he or she can take up to 2/3rd of the 21 days for each year they had worked.

  • Gratuity for more than 5 Years:

If an employee has worked in the same company for more than five years, he or she is obligated to take the basic salary of 21 days for each year they had worked and 30 days basic salary for more years to come.


What if Company terminates the Employee? :

If an employee gets terminated within their unlimited contract, the wages that will be paid to them will be more than one year and less than five years of 21 days. If the employee had been in the service of the company for more than five years, he or she will be paid for 30 days of each year they had worked for the company.



The rules of gratuity which are for limited contracts are a bit different from the unlimited ones:

The system of one third and two third is not eligible for a limited contract.

Gratuity without Completing Contract:

The UAE labor law article 138 has been made crystal clear that no gratuity will be granted to those who had not completed their contract period.

It can be explained in a way that if a company has been in contract of two years with the employee but the employee resigned before the completion of two years, he or she will not be paid any gratuity at all.

Gratuity for 1-5 Years of work in UAE:

If an employee has completed their contract in between more than one and less than five years, they will be paid 21 day’s basic salary each year they had worked there.

Gratuity for more than 5 Years of work in UAE:

If an employee has completed their contract of 5 years of working and then resigned, then he or she will be paid 21 days’ salary. If the service is been for more than 5 years, he or she will get paid for 30 days-worth of wage for each year they worked.


What if the company terminates the employee under limited contract? :

If an employee has been terminated by the company for less than one year of their service, he or she will not be granted any gratuity. But if the employee worked for more than a year and less than three years, then he or she will be granted 30 days-worth basic salary for all the years they worked before they got expelled.


Frequently Asked Questions about Gratuity Calculation:

Q: Is the company in control of deducting any payment from the gratuity payment?

A: Yes, the company (employer) may deduct any amount due and payable to the employee (worker) to the employer (company) from his/her gratuity payment and pay for the balance to the employee. If there is any dispute between worker and company for gratuity payment or amount payable to the company, such case should be put to the Labor office (mohre) for investigation.

Q: Shall an employee be entitled to gratuity if he/she died?

A: In the event of a worker’s death, the employer (company) must pay the end-of-service gratuity to employee beneficiaries (heirs).

Q: What is the maximum Gratuity that we can get?

A: As per UAE LABOUR LAW, Article 132, maximum gratuity amount for employee cannot exceed 2 years’ gross salary.

Q: Can I get 3-month salary in case of termination?

A: Yes, if you are terminated for reason other than mentioned in UAE LABOUR LAW Article 120, you are eligible for 3 month’s compensations.

Q: What is the worker entitled to at the termination of his/her contract?

A: The worker (employee) at the termination of his/her employment contract will be entitled for to the following:


1: A notice period, or any amount due in lieu of the notice period, only in case of unlimited contract.

2: Compensation (payment/reward) for the unreasonable dismissal if the contract was terminated by the company (employer) for unreasonable cause, only in-case of unlimited contract.

3: If employee is working under limited contract, compensation equivalent to the period until the end of the contract, or three month's salary whichever is greater.

4: Payments equivalent to the balance of unutilized leave or any part thereof.

5: Payments for overtime or any other pending balance or salary.

6: End of service benefits, gratuity.

Q: What does gratuity mean in terms of compensation?

A: An employee who completes 1 year or more in continuous service shall be entitled to gratuity at the end of his/her service.

The gratuity shall be calculated as follows:

1: 21 day's wages for each year of the first 5 years.

2: 30 day's wages for each additional year on condition that the total of the gratuity shall not exceed the wages of 2 years.

Q: How to calculate gratuity in 2018?

A: Gratuity will be calculated on an annual basis, if the employee (worker) has completed 1 year of employment with the company (employer) or more.

Q: Will absence be calculated in Gratuity?

The day of absence from work without pay shall not be included in calculating the time period of service. However, if the employee (worker) completed 1 year in service he/she will be entitled to a gratuity for the fraction of the year proportional for the part of the year he spent in company if he has completed 1 year in continuous service.

Q: Explain End of Service Benefits (Gratuity) in simple words:

A: 1: If the worker resigns of his or her own free will (resignation) before completing 1 year, then they will not be entitled to any gratuity pay.

2: Worker (employee) is entitled to a gratuity for the served fraction of a year, if he completes 1 year of continuous service.

3: The End of Service Gratuity will calculate on the basis of last salary which the employee (worker) was entitled to, namely the basic salary. But it will not include allowances such as Accommodation, conveyance, utilities, furniture etc.

4: If the employee (worker) owes any money (loan, advance salary) to the company (employer), the company may deduct the amount from the employee's gratuity.


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