Employees in the UAE must legally receive full payment at the end of their employment service. To do this, you must have worked for the company for at least one year continuously. In this sense, companies have created different types of software that is basically a gratuity calculator UAE.
In this article, you will learn how an employee should plan their financial future when receiving payment for the end of their employment services. As well as other legal aspects that may impact the calculation of this payment. For its part, you will also learn about the existence of the gratuity calculator Dubai.
What is gratuity in UAE?
Gratuity in UAE is a compulsory payment that employers must pay to their employees upon termination of employment. This payment is based on the length of service of the employee and the employee’s last basic salary.
The UAE Labour Law requires employers to pay their employees 21 days of basic salary for each of the first five years of service and 30 days for each year of service thereafter. The gratuity payment is calculated as 21 days multiplied by the employee’s last basic salary. To determine an estimate of this payment, most people use a gratuity calculator UAE.
What are the Legal Aspects and Documentation for Gratuity?
Gratuity is a severance payment that the employer must pay to an employee. In UAE this payment is calculated if the employer has been working for the company for at least one year.
In this sense, one aspect to consider is the condition with which the employee works in the company. For example, if the employee is a citizen of the United Arab Emirates these benefits for such employees in the private sector will follow the laws governing pensions and social security in the country.
In the case of foreign employees, the employer must pay a bonus at the end of service known as gratuity. This end-of service gratuity will be paid in a lump sum. These are the rules to follow for the payment of gratuity for foreign employees:
- A salary of twenty-one days for each year within the first five years of the employment relationship
- A salary of thirty days for each year after the previous period.
- The foreign worker has the right to calculate this prorated benefit in fractions as long as a minimum of one year of continuous service has elapsed.
- Unpaid absence days are not included in the calculation of service time with the gratuity calculator Dubai.
Required Documentation for Gratuity claims
Regarding the documentation necessary to demand payment of the end-of-service gratification, the initial employment contract indicates the start date and the resignation or dismissal of the employee will indicate the end date of the employment relationship in order to be able to do the respective calculation.
Role of MOHRE
Among the main functions of the Ministry of Human Resources and Emiratization, is resolving labor conflicts. A conflict in the payment of gratuity may occur between the employer and the employee.
In this sense, we must remember that this ministry is a mediating and conciliating body that will seek to facilitate communication between the parties to reach a fair agreement. This is obviously much less costly and exhausting than going directly to the labor courts and filing a lawsuit. This is why it is important in these cases of disagreement in the end-of-service pay to resort to this conciliatory route in the first instance.
On the other hand, the Ministry of Human Resources and Emiratization also plays an advisory role. Therefore, if one of the parties has doubts, this body will be able to provide the corresponding guidance. Also, they have UAE gratuity calculator MOHRE to make this easier.
Registering gratuity agreements with the Ministry
The UAE MOHRE plays a key role in registering and resolving disputes related to end-of-service gratuity and gratuity calculator UAE. In general terms, this ministry is the government authority in charge of regulating and supervising labor relations in the country.
Therefore when a dispute arises regarding end-of-service gratuity, the employee must file a complaint with the MOHRE. This can be done through the ministry’s designated channels, such as its local offices or its online platform.
Likewise, when filing a complaint, the employee must provide complete and accurate details about the dispute. This include information about the employer, the employment contract, the terms of the end-of-service gratuity agreement that he or she deems relevant, and in general any relevant evidence to support his claim.
Generally speaking, registration of end-of-service gratuity agreements with the UAE Ministry of Human Resources and Emiratization provides an effective mechanism to resolve disputes and protect employee rights. In this order of ideas, by filing a complaint with the ministry, employees can seek a fair and equitable resolution.
What are the factors impacting your gratuity amount?
There are several factors that affect the calculation of the end-of-service gratuity among which are the following:
The type of employment contract
In UAE there are two types of employment contracts, those of limited duration and those of unlimited duration. Likewise, the rules for determining this payment with a gratuity calculator UAE are different according to each one.
In both types of contracts, the calculation is divided into several levels in case the employee resigns or is fired. For the case of employees under limited-term contracts, the calculation is based on the duration of the employment relationship and the nature of the dismissal. In these cases, there are two divisions of payment levels, which are:
- Completion of the employment relationship in less than 5 years.
- Or more than 5 years of employment relationship.
For cases of employees dismissed under the protection of a limited contract, the assumptions change as follows:
- Between 1 and 5 years of employment relationship.
- Five or more years of employment relationship.
On the other hand, employees who fulfill their employment contract for at least 5 years have the right to receive an end-of-service gratuity of 21 days of basic salary for each year of service.
Likewise, employees who work for 5 years or more have UAE gratuity entitlement of 21 days of basic salary. After these 5 years have elapsed, they will be eligible for a gratuity of 30 additional days of salary for each year after the first 5 years of employment relationship.
In cases of termination, the following rules apply:
- Employees between 1 and 5 years of service will receive 21 days of basic salary.
- Employees with more than 5 years of service will receive a 30-day gratuity starting in the fifth year.
How to calculate gratuity in UAE for limited contract?
In the United Arab Emirates, gratuity for limited contract employees is calculated according to the following formula:
- Last Drawn Basic Salary x 21 days x number of years of service.
For example, if an employee’s last drawn basic salary is AED 5,000 and has worked for 2 years, the gratuity amount would be:
- AED 5,000 x 21 days x 2 years = AED 210,000
Last Basic Salary
When calculating the payment of this gratuity, only the employee’s last base salary before the termination of their contract is taken into account.
Another point to take into consideration is that the basic salary does not include any additional benefits that the self-employed employer was offering. For example, if an employee receives a salary package of AED 5,000. Plus payment for transportation, employee accommodation, and overtime expenses, only AED 5,000 is the basic salary. On the other hand, any type of deduction is not part of the basic salary.
Duration in the job
The worker will have the right to receive this benefit if he/she works for one year uninterruptedly in the company. In this sense, to calculate the length of time in the job, the actual number of days worked must be taken into account. This does not include licenses of any kind or public holidays. One of the main reasons is that the UAE gratuity calculator is designed to calculate continuous service between the first and last days of the employment relationship.
In fact, the Ministry of Human Resources and Emiratization (MoHRE) establishes that a one-year employment period should not include days in which the employee did not actually work. Such as breaks, unpaid vacations, and leaves, among others.
Leave without pay and its effects on Gratuity
Leave without pay is a situation in which an employee takes a period of time during which they do not receive their regular salary or additional benefits. The granting of this leave is through a request by the employee or by a decision of the employer, taking into account various circumstances, such as personal needs, economic difficulties, or business restructuring.
Legally, when an employee enjoys leave without pay, his employment contract is suspended during the leave period. This means that no contribution is made to the end-of-service gratuity during the time of this leave, as the gratuity payments are calculated based on the basic salary.
In this order of ideas, the calculation of this gratuity is based on the actual days worked. Therefore, leave without pay can have a direct impact on the final amount of this gratuity. For example, if an employee spends a substantial portion of their employment time on leave without pay, the end-of-service gratuity amount will be reduced accordingly.
Leave without pay management regulations and policies may vary depending on the specific employment contract.
Early gratuity withdrawal considerations
Early withdrawal of end-of-service gratuity payment generally involves the employee requesting to receive some or the entire gratuity before the end of their employment contract. This option may be available in exceptional situations, such as financial difficulties or urgent personal needs.
It is important to note that the Labor Law does not indicate anything regarding the payment of gratuity to the employee while he is still working in the company.
If the employee manages to obtain payment of the gratuity in advance, his employer may also accept an undertaking signed by the employee, confirming that he has already withdrawn a certain amount.
On the other hand, the process and requirements for early withdrawal of gratuity payment at the end of service may vary depending on the employer and the company’s internal policies. Some employers may have policies that allow early retirement under certain conditions, while others may not offer this option. For example, if your company is in Dubai is important that you have a gratuity calculator in Dubai.
In summary, early withdrawal of end-of-service gratuity payment in the UAE may be an option available in exceptional circumstances. The materialization of this figure will depend on the employer’s regulations and policies.
Taxation and penalties on early withdrawals
The Ministry of Human Resources and Emiratization has the responsibility of supervising and regulating labor relations in the UAE. This includes ensuring compliance with labor laws and protecting employee rights.
In UAE, the supervision and sanctions for early withdrawals of gratuity payment at the end of service are subject to the regulations established by the MOHRE. As well as the labor laws in force in the country.
In addition, UAE labor laws may make specific provisions regarding early withdrawals of end-of-service gratuity payments. These provisions may include restrictions on the amount of early withdrawal, the need to obtain prior employer approval, and the submission of documentation or evidence supporting the need for early withdrawal.
In UAE, supervision and penalties for early withdrawal of end-of-service gratuity payments are under the supervision of MOHRE. Therefore, employers and employees who do not comply with the regulations may face sanctions and disciplinary measures.
Frequently asked questions
How to calculate gratuity in UAE?
How to calculate gratuity in UAE?In the United Arab Emirates, gratuity is calculated according to the Labor Law. Under the law, employees who have been working for more than one year receive gratuity payment upon completion of their employment. The calculation of gratuity goes according to the employee’s last basic salary and the number of years that the employee has been working.
The formula for calculating gratuity in the UAE is as follows:
- Gratuity = (Basic Salary x 21 days x Number of Years of Service) / 30
For example, if an employee has been employed for 5 years and their last basic salary was AED 10,000, then their gratuity payment would be calculated as follows:
- Gratuity = (10,000 x 21 x 5) / 30 = AED 35,000
Most people use a gratuity calculator Dubai to know an estimate of how much they will receive.
How to calculate gratuity in UAE for unlimited contract?
In UAE, gratuity for employees with an unlimited contract is calculated as 21 days of basic wage for each year of service. This means that if an employee has worked for three years in a company, the gratuity they are entitled to would be 3 x 21 days of their basic wage. This amount is paid out to the employee at the time of termination of their employment.
Moreover, the employee has a right to a bonus payment of one month’s basic wage for each year of service. This bonus payment is paid out in the month of December.
With a gratuity calculator Dubai, the calculation of gratuity for employees with an unlimited contract is as follows:
- Calculate the basic salary for the employee.
- Calculate the number of years the employee has been employed by the company.
- Multiply the number of years of service by 21 days of basic wage to calculate the gratuity amount.
- Calculate the bonus payment by multiplying the number of years of service by one month of basic wage.
- Add the two amounts together to calculate the total gratuity amount for the employee.
How to calculate leave salary in UAE?
Calculating leave salary in the UAE follows the same basic principles as in any other country.
The first step is to determine the number of days of leave that an employee has earned. This can be done by looking at their contract and reviewing the number of days of leave they have a right to. Plus, any additional days that may have been accrued.
Once the number of days of leave has been determined, the employee’s salary should be calculated for the period of leave. This can be done by taking the employee’s basic salary and multiplying it by the number of days of leave. The resulting figure will be the leave salary amount for the employee in UAE.
For example, if an employee has a basic salary of AED 5,000 and has earned 10 days of leave, the leave salary amount would be AED 50,000.
In addition to the leave salary, the employee may also have a right to other benefits. Such as payment for transportation and accommodation during the period of leave. These can be calculated separately and added to the leave salary amount with a gratuity calculator Dubai.
How much gratuity will I get after 5 years of service?
The amount of gratuity you will receive after 5 years of service will depend on the company’s policy. Generally, companies provide 15 days of salary for each year of service. However, this may vary from company to company, so it is best to check with your employer.
The exact amount of gratuity you will receive after 5 years of service in the UAE will depend on the terms of your contract. Generally, employees have the right to receive a gratuity payment equal to 21 days’ salary for each year of service. This payment is calculated based on your last 12 months’ wages. You can obtain an estimate of your gratuity after 5 years of service in UAE with a gratuity calculator Dubai.
What is the latest gratuity rules in UAE?
The latest gratuity rules in the UAE are outlined in the new UAE Labour Law (Federal Law No. 8 of 1980) and its subsequent amendments.
Under the new law, an employee is entitled to an end of service gratuity when their employment is terminated for any reason. The amount of gratuity payable is determined by the length of service as follows:
- An employee who has completed one or more years of service but less than five years, the gratuity shall be equal to 21 days’ wages for each year of service.
- For an employee who has completed five or more years of service but less than ten years, the gratuity shall be equal to 30 days’ wages for each year of service.
- For an employee who has completed ten or more years of service, the gratuity shall be equal to 45 days’ wages for each year of service.
The wages used to determine the gratuity shall be the basic salary, excluding any allowances or other benefits such as overtime pay, housing allowances, and medical benefits.
What is the maximum gratuity limit in UAE?
The maximum gratuity limit in the UAE is 21 days of basic salary for each year of service. This is capped at a maximum of two years’ salary. This for those who have completed a period of service of more than two years.
Who are not eligible for gratuity in UAE?
In the United Arab Emirates, the following individuals are not eligible for gratuity:
- Employees who have been employed for less than one year
- Employees who are not UAE nationals
- Employees who have been dismissed for disciplinary reasons
- Employees who have resigned without prior notice
- Employees who voluntarily terminate their contract of service
- Employees who are on unpaid leave
- Employees who are employed on a casual basis
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