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Gratuity is an important aspect of employee compensation in Dubai, especially for expatriates working in the UAE. Understanding how to calculate gratuity in UAE can help employees plan their financial future and ensure they receive the benefits they are entitled to. In this article, we will break down the process of calculating gratuity in Dubai in simple and easy-to-understand steps. We'll also answer some frequently asked questions to help clarify any doubts you might have.

What is Gratuity?

Gratuity is a lump sum payment given to employees when they leave their job, provided they have completed at least one year of service. It is a statutory benefit mandated by the UAE Labour Law to reward employees for their service to the company.

Eligibility for Gratuity in Dubai

Before diving into the calculations, it's important to understand who is eligible for gratuity. Employees in Dubai are eligible for gratuity if they meet the following criteria:

1. Completion of One Year of Service: The employee must have completed at least one year of continuous service with the employer.
2. Not Terminated for Misconduct: The employee should not have been terminated for reasons related to misconduct.
3. Employment Under a UAE Labour Contract: The employee must be working under a UAE labour contract, whether limited or unlimited.

How to Calculate Gratuity in Dubai

Gratuity Calculation for Unlimited Contracts

For employees under unlimited contracts, the calculation of gratuity is as follows:

Less than 1 Year of Service

• Employees are not entitled to any gratuity pay if they resign or are terminated before completing one year of service.

Between 1 and 5 Years of Service

• Gratuity is calculated based on 21 days of basic salary for each year of service.

  Formula:

  Gratuity=(21 days of basic salary365)×number of years of servicetext{Gratuity} = left( frac{21 text{ days of basic salary}}{365} right) times text{number of years of service}Gratuity=(36521 days of basic salary​)×number of years of service

More than 5 Years of Service

• For the first five years, gratuity is calculated at 21 days of basic salary per year.

• For each additional year beyond the first five years, gratuity is calculated at 30 days of basic salary per year.

  Formula:

  Gratuity=(21 days of basic salary365)×5+(30 days of basic salary365)×additional years of servicetext{Gratuity} = left( frac{21 text{ days of basic salary}}{365} right) times 5 + left( frac{30 text{ days of basic salary}}{365} right) times text{additional years of service}Gratuity=(36521 days of basic salary​)×5+(36530 days of basic salary​)×additional years of service

Gratuity Calculation for Limited Contracts

For employees under limited contracts, the calculation of gratuity is slightly different:

Less than 1 Year of Service

• Employees are not entitled to any gratuity pay if they resign or are terminated before completing one year of service.

Between 1 and 5 Years of Service

• Gratuity is calculated based on 21 days of basic salary for each year of service, similar to unlimited contracts.

  Formula:

  Gratuity=(21 days of basic salary365)×number of years of servicetext{Gratuity} = left( frac{21 text{ days of basic salary}}{365} right) times text{number of years of service}Gratuity=(36521 days of basic salary​)×number of years of service

More than 5 Years of Service

• For the first five years, gratuity is calculated at 21 days of basic salary per year.

• For each additional year beyond the first five years, gratuity is calculated at 30 days of basic salary per year.

  Formula:

  Gratuity=(21 days of basic salary365)×5+(30 days of basic salary365)×additional years of servicetext{Gratuity} = left( frac{21 text{ days of basic salary}}{365} right) times 5 + left( frac{30 text{ days of basic salary}}{365} right) times text{additional years of service}Gratuity=(36521 days of basic salary​)×5+(36530 days of basic salary​)×additional years of service

Example Calculation

Let's consider an example to illustrate the calculation:

• Basic Salary: AED 10,000
• Years of Service: 7 years
• Contract Type: Unlimited

Calculation:

1. First 5 years:

   Gratuity for first 5 years=(21 days×10,000 AED365)×5=28,767.12 AEDtext{Gratuity for first 5 years} = left( frac{21 text{ days} times 10,000 text{ AED}}{365} right) times 5 = 28,767.12 text{ AED}Gratuity for first 5 years=(36521 days×10,000 AED​)×5=28,767.12 AED

2. Additional 2 years:

   Gratuity for additional 2 years=(30 days×10,000 AED365)×2=16,438.36 AEDtext{Gratuity for additional 2 years} = left( frac{30 text{ days} times 10,000 text{ AED}}{365} right) times 2 = 16,438.36 text{ AED}Gratuity for additional 2 years=(36530 days×10,000 AED​)×2=16,438.36 AED

3. Total Gratuity:

   Total Gratuity=28,767.12 AED+16,438.36 AED=45,205.48 AEDtext{Total Gratuity} = 28,767.12 text{ AED} + 16,438.36 text{ AED} = 45,205.48 text{ AED}Total Gratuity=28,767.12 AED+16,438.36 AED=45,205.48 AED

Factors Affecting Gratuity Calculation

Several factors can influence the final gratuity calculation:

1. Basic Salary: Gratuity is calculated based on the employee's basic salary, excluding allowances and bonuses.
2. Length of Service: The total years of service play a crucial role in determining the gratuity amount.
3. Type of Contract: Whether the employee is under a limited or unlimited contract affects the calculation method.
4. Reason for Termination: Termination due to misconduct can disqualify an employee from receiving gratuity.

Frequently Asked Questions (FAQs)

What is the difference between limited and unlimited contracts?

A limited contract has a specified start and end date, while an unlimited contract continues indefinitely until terminated by either party.

Can I receive gratuity if I resign before completing one year?

No, employees are not entitled to gratuity if they resign or are terminated before completing one year of service.

Are allowances included in the gratuity calculation?

No, gratuity is calculated based on the basic salary only, excluding any allowances or bonuses.

What happens if I am terminated for misconduct?

If an employee is terminated for misconduct, they are not entitled to receive any gratuity.

How is the basic salary defined for gratuity calculation?

The basic salary is the fixed amount agreed upon in the employment contract, excluding any allowances, bonuses, or other benefits.

Can gratuity be more than two years' salary?

No, the gratuity amount cannot exceed the equivalent of two years' salary.

Conclusion

Understanding how to calculate gratuity in Dubai is essential for both employees and employers. It ensures that employees receive their rightful benefits and helps them plan their financial future. By following the guidelines and formulas provided, you can accurately determine the gratuity amount based on your years of service and basic salary. If you have any doubts or specific situations, it's always a good idea to consult with HR or legal experts to ensure compliance with the UAE Labour Law.

Calculating gratuity in Dubai doesn't have to be complicated. With the right information and tools, you can easily navigate the process and secure the benefits you deserve for your hard work and dedication.