End-of-service gratuity is one of the largest payroll costs a UAE employer has to plan for, and one of the most common sources of disputes when an employee leaves. Here is how it is calculated for private-sector employees under the UAE Labour Law.
Who is entitled
Employees who complete at least one year of continuous service are entitled to gratuity when their employment ends, whether they resign, are terminated or the contract ends. Some groups, such as UAE nationals covered by the pension system and employees in certain special schemes, follow different rules.
The formula
- Daily wage = basic monthly salary ÷ 30
- Years 1 to 5: 21 days' basic salary for each year of service
- Year 6 onwards: 30 days' basic salary for each year
- Partial years are paid in proportion to the time worked
- Cap: total gratuity cannot exceed two years' wage
Gratuity is based on basic salary only. Housing, transport and other allowances, overtime, bonuses and commission are usually excluded, so the split between basic and allowances in the employment contract matters.
Worked example
| Basic salary | AED 12,000 per month |
| Service | 8 years |
| Daily wage (12,000 ÷ 30) | AED 400 |
| First 5 years (21 × 400 × 5) | AED 42,000 |
| Next 3 years (30 × 400 × 3) | AED 36,000 |
| Total gratuity | AED 78,000 |
The two-year cap for this employee is AED 288,000, so the full amount is payable.
Unpaid leave and deductions
Days of unpaid leave are generally excluded from the service period. Amounts the employee legally owes the employer can be deducted from the final settlement. Final dues, including gratuity, should be paid within 14 days of the end of employment.
Why gratuity should be in your monthly accounts
Under IFRS, gratuity is an employee benefit that builds up every month, not an expense that appears only when someone leaves. Accruing it monthly:
- shows the true cost of each employee,
- avoids a large surprise expense in the month someone resigns,
- gives banks and investors an accurate balance sheet, and
- is checked by auditors when your financial statements are audited.
How NAMAA can help
Our payroll service calculates monthly salaries, prepares your WPS salary file, accrues gratuity and leave in your books, and prepares final settlements when an employee leaves. Payroll and WPS processing is included in our Enterprise package and available as an add-on to the others.
Frequently asked questions
How is gratuity calculated in the UAE?
Basic monthly salary divided by 30 gives the daily wage. Employees receive 21 days' wage for each of the first five years and 30 days' wage for each year after that, capped at two years' pay.
Is gratuity calculated on basic or gross salary?
On basic salary only. Allowances such as housing and transport, overtime and bonuses are generally excluded.
Do employees who resign get gratuity?
Yes, if they have completed at least one year of continuous service, gratuity is payable under the standard formula.
See our Payroll & WPS service or book a consultation.
Sources
Checked 22 October 2026. This guide is general information, not advice for your specific situation.