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How to Calculate Gratuity in UAE

How to Calculate Gratuity in the UAE

The gratuity law UAE states that an employee with one year or more of continuous service or more must receive a gratuity at the end of service. Simply put, the bonus calculation is 21 days of salary for each of the first five years. In addition, 30 days of salary must be paid for each additional year, as long as the total bonus does not exceed two years’ salary. If you work for five years, you get 21 days of basic salary.

In this article, we will provide you with information about the gratuity law UAE. Specifically, on how to calculate gratuity in the UAE. You will learn about the different methods for calculating gratification. That is, how to calculate bonuses for different types of contracts and how labor law applies in the UAE. We will also provide you with information about the conditions to qualify for the bonus and how you can request it. Read on to discover everything you need to know about gratuity law UAE.

What is Gratuity in UAE?

Gratuity in UAE is a benefit that an employee receives at the end of service. Additionally, this is after completing a minimum period of 1 year in employment. With this, when explaining what is gratuity, we can say that it is a unique monetary benefit that the employee receives as gratitude for their services.

Also, you can use this amount if you want to invest in the UAE. On the other hand, the amount received as a tip depends on certain factors. For this reason, you should know about the gratuity law UAE and avoid any type of future problems.

Gratuity Rules and Regulations in UAE

When you talk about gratuity rules in UAE, you must take certain factors into account. For this reason, below you will see what factors you should take into account for the Gratuity calculation in UAE:

Type of contract: There are two types of employment contracts in UAE. The first of these is the limited contract and the second is the unlimited contract. In this way, depending on which contract the employee has, the rules for calculating the bonus will be different.

Last basic salary: When calculating the bonus amount in the UAE, only the last basic salary received by the employee will be taken into account. Additionally, bonuses and allowances, such as transfers, overtime, housing, etc., are not included in the bonus calculation. Thus, it is important to know the minimum wage regulations in the UAE.

Duration of employment: Employees are only having access to the bonus if they have completed at least one year of employment. Additionally, you should keep in mind that the tip calculator assumes ongoing service. All this between the period of the first and last business day. In other words, this 1-year period should not include time that an employee was absent and unpaid during the period of service.

UAE Labor Law Gratuity Provisions

It is important to know about the UAE labor law gratuity provisions. In this way, the national employee will have the right to end-of-service benefits at the end of the service. Furthermore, the legislation is responsible for regulating State pensions and social security.

On the other hand, the full-time foreign employee, who completed one or more years of continuous service; will have end-of-service benefits when this ends. In addition, the calculation of these is in accordance with the base salary as follows: a salary of 21 days for each year of the first 5 years of service. A salary of 30 days for each year that exceeds the period.

The foreign employee must receive a benefit in parts of the year. All this, in proportion to the time that has elapsed on the job, as long as they complete one year of continuous service. However, unpaid days of absence from work will not be included in the calculation of the length of service.

End of Service Gratuity in UAE

All employees who worked in the company between 1 and 3 years in the UAE have to receive the end-of-service gratuity UAE. According to the UAE gratuity law, the full gratuity is 21 days of salary per year. In addition, people who worked more than 3 years or between 3 and 5 years have access to two-thirds of their base salary. To calculate the bonus, you have to multiply the daily salary by 21 (or 30 if you have been working for more than 5 years.

You should know that, in the United Arab Emirates, the calculation of end-of-service benefits is through the employee’s last salary.  It is essential to know that the most recent base salary is taken into account, excluding supplements or bonuses.

According to the new labor law of the UAE, there are new terms and conditions for employment contracts. For instance, contracts are now limited and have a duration of five years. Additionally, there is an exception and that is if an employee’s period of service exceeds five years, the bonus is calculated on the basis of 30 days of his or her basic salary. This is for each year after five years.

On the other hand, an end-of-service bonus is a form of benefit for workers. Which is for employees as a reward for length of service. However, it is not part of the regular monthly salary.

According to gratuity law UAE, if an employee resigns before completing a full year of service, they will not be eligible to receive the gratuity. If the worker has outstanding debts with the employer, the employer can deduct the amount of the bonus.

Final Settlement Process

The final settlement of UAE labor law is a process that both employers and employees must understand. For this reason, it is important to take into account the different methods of calculating gratuity in the UAE. In addition, knowledge of labor laws that are related to this reward will be very helpful.

Thus, employees must ensure that they meet all established criteria to be eligible for their bonus. As is completing a minimum of 1 year of continuous service with your employer. For this reason, if the employee resigns before completing his year of service, he will not be able to count on his bonus.

It is also important to know that the length of service, labor regulations, and the type of contract are what determine the exact requirements for a person to be eligible. Additional you must keep calculation accurate. Also, you must have a consistent employee salary structure from the employer to have accurate calculations.

These types of processes may be difficult for you to understand. However, you can rely on legal advice to help you calculate your gratuity or other UAE legal issues.

The Importance of End-of-Service Benefits

Labor law in the UAE entitles workers to a specific set of end-of-service benefits. For instance, tips. These benefits are a sign of gratitude for the employee’s work effort and dedication to the company. Employees have access to End of Service Benefits UAE (EoSB) after termination of employment.

End-of-service benefits are a legal monetary entitlement that workers must receive at the end of their employment contract. Of course, people have to be eligible to receive them.

Upon termination of an employment contract in the UAE, the employee has access to the following gratuity benefits. Below you will see the main provisions towards the end-of-service benefits for private sector employees.

  • Any unpaid wages or overtime payments are ideal.
  • Charge for unused sheets.
  • Any repatriation expenses applicable under labor law or employment contract for end-of-service benefits.
  • End of service tip.

On the other hand, employees facing unfair dismissal can turn to legal authorities.

  • Eligible workers can receive compensation of up to three months of salary. Of course, it has to meet the necessary criteria.
  • In the case of unlimited contracts, the amount of compensation cannot exceed the total remuneration of three months. Failing that, you may not exceed the appropriate amount for the remaining contractual period, whichever is shorter.

Step-by-Step Guide to Calculate Gratuity in UAE

gratuity law uae

According to the UAE gratuity law, in both types of contracts, the calculation of your gratuity is at various levels, depending on whether it is a dismissal or whether you resign.

For employees with limited contracts, the calculation of the bonus is also based on the nature of the dismissal and the length of service. There are the following payment levels:

  • Termination of employment contract with less than 5 years of service.
  • Have more than 5 years of service.

In the case of the dismissal of employees under a limited contract, the levels are different:

  • Have between 1 and 5 years of service.
  • The employee with 5 or more years of service.

On the other hand, for employees with unlimited contracts, the bonus is a little different. This will depend on the nature of the dismissal; that is, resignation or dismissal for poor performance or misconduct. As in the previous case, the levels are according to the duration of the service.

  • Have a minimum of 1 year or a maximum of 3 years of service.
  • From 3 to 5 years of service.
  • Have more than 5 years or more years of service.

However, only two levels apply, if the employee is terminated. As a result, the bonus calculation rules change depending on whether the employee moves from one level to another. The levels are as follows.

  • Have between 1 and 5 years of service.
  • Have 5 or more years of service.

It is important to note that, depending on whether you are making a resignation or termination, there are additional conditions. One recommendation is to learn how to make a good resignation letter.

Gratuity Formula Explained

In this section, we will show you how to calculate gratuity depending on the type of contract.

Steps to calculate gratuity for limited contracts: Suppose the employee’s basic salary is 15,000 AED. In addition, he has 4 years of service in the company.

  1. Determine your daily salary: To do this, you have to divide your basic monthly salary by 30. That is the approximate number of days in a month. The daily salary of this employee is 500AED.
  2. Subsequently, you have to multiply this figure by 21. This is because the total years of service in the company is less than 5 years.

If you have more than 5 years of service, you have to multiply the daily salary by 30. In other words, a 21-day salary is 10,500AED, while a 30-day salary is 15,000AED.

  1. Finally, they have to multiply that figure by 4, that is, the total number of years of service in that company. The total tip for the end of service according to the UAE gratuity law will be 42,000 dirhams.

Steps to calculate gratuity for unlimited contracts: For instance, your basic salary is AED 15,000 and your years of service are 4.

  1. You have to calculate the daily salary i.e. AED 500 per day.
  2. Subsequently, you multiply the daily salary by 21, so the total work period is less than 5 years.
  3. You have to obtain the 2/3 third figure of the result. This is because work experience is between 3 and 5 years.
  4. Finally, you have to multiply that figure by the years of service in the company, in this case, by 4. Therefore, the total gratuity payable for an employee with an unlimited contract and 4 years of service is AED 28,000.

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