UAE Gratuity Calculation Formula 2025

Introduction

In the United Arab Emirates, gratuity is one of the most important end-of-service benefits for employees. It is a financial entitlement provided to workers when they resign, retire, or complete their contract in accordance with labor law. Every year thousands of expatriates search for the UAE gratuity calculation formula to understand how much they are legally entitled to receive.

The gratuity calculation in UAE is based on the employee’s basic salary and years of service. The Ministry of Human Resources and Emiratisation (MOHRE) has clearly defined rules for both limited and unlimited contracts, and these rules were further updated under the new labor law. In 2025, knowing the correct formula has become even more essential for employees so they can plan their finances, avoid disputes, and ensure that they receive the right end-of-service settlement.

This guide explains the complete UAE gratuity calculation formula 2025, the rules for eligibility, and examples for both limited and unlimited contracts. Whether you are working in Dubai, Abu Dhabi, Sharjah, or any other emirate, the method of end of service gratuity calculation remains the same and follows UAE labor law.

What is Gratuity in UAE?

Gratuity in the UAE is an end-of-service benefit provided to employees as a token of appreciation for their contribution to the company. It is a lump-sum amount calculated according to the labour law gratuity calculation UAE system and becomes payable once an employee resigns, retires, or completes their contract.

When people ask what is gratuity calculation in UAE, the answer is simple: it is a financial right guaranteed under UAE labor law for employees who have completed at least one year of continuous service. The calculation depends on two factors — basic salary and years of service.

The gratuity UAE formula is designed to ensure fairness and protect employees. It is calculated on the last drawn basic salary, excluding allowances such as housing, transport, or bonuses. The formula also varies depending on whether the employee is under a limited contract or an unlimited contract.

In short, gratuity represents financial security for workers and is one of the most important legal benefits provided to expatriates in the UAE private sector.

According to the end of service gratuity calculation formula UAE, the process is as follows:

1. For the first five years of service

Employee is entitled to 21 days of basic salary for each completed year.

2. For service beyond five years

Employee is entitled to 30 days of basic salary for each additional year after the first five years.

3. Maximum gratuity limit

The total gratuity cannot exceed the equivalent of two years’ wages, regardless of the service period.

4. Eligibility requirement

An employee must complete at least one year of continuous service to qualify for gratuity payment.

Formula for gratuity calculation in UAE:

Gratuity = (Basic Salary ÷ 30) × 21 (for first 5 years)
Gratuity = (Basic Salary ÷ 30) × 30 (for service beyond 5 years)

This formula is the same across all emirates including Dubai, Abu Dhabi, Sharjah, and Ras Al Khaimah. However, it may vary slightly in free zones like JAFZA or DMCC, where separate rules may apply.

In simple terms, the UAE gratuity calculation formula ensures that employees who have served longer are rewarded with higher benefits at the time of contract completion, resignation, or retirement.

Eligibility for Gratuity in UAE

Understanding UAE gratuity eligibility is just as important as knowing the formula. Not every employee automatically qualifies; certain rules under UAE labor law define who can claim gratuity and under what circumstances.

1. Minimum Service Requirement

An employee must complete at least one year of continuous service with the same employer to qualify for gratuity.
If service is less than one year, no gratuity is payable.

2. Resignation Cases

For employees under an unlimited contract, gratuity calculation UAE of resignation depends on the years of service.
Workers who resign before completing one year are not eligible.
After one year, gratuity is payable, but the calculation may differ if resignation happens before five years.

3. Termination Cases

If the employer terminates the employee, full gratuity is paid as per the gratuity calculation UAE termination rules.
Termination for serious misconduct may result in forfeiture of gratuity.

4. End of Contract Completion

Employees who complete their contract term, whether limited or unlimited, are eligible for full gratuity benefits.

5. Special Cases

Employees dismissed under Article 120 (gross misconduct) lose gratuity rights.
For employees in free zones like JAFZA or DMCC, separate gratuity rules may apply.

In short, the gratuity calculation rule in UAE makes gratuity payable to employees who meet the minimum service condition and leave their company legally, whether through resignation, retirement, or termination (except for misconduct).

Gratuity Calculation for Limited Contract

For employees working under a limited contract, the gratuity system follows strict rules defined in the labour law gratuity calculation UAE framework. In a limited contract, both the employer and employee agree on a fixed duration, usually two or three years. If the employee completes this term and resigns or the employer does not renew, gratuity becomes payable.

1. Eligibility

Minimum of one year of service is required.
If an employee leaves before completing the contract period without a valid reason, they may lose their right to gratuity.

2. Gratuity Calculation UAE for Limited Contract

For the first five years of service: 21 days’ basic salary for each completed year.
For more than five years: 30 days’ basic salary for each completed year beyond the first five years.

3. Example of Dubai Gratuity Calculation Formula (Limited Contract)

Suppose an employee earns AED 5,000 as a basic salary and completes three years under a limited contract.
Gratuity = (Basic Salary ÷ 30) × 21 × Years of Service
Gratuity = (5,000 ÷ 30) × 21 × 3 = AED 10,500

4. Key Rule

The maximum gratuity cannot exceed the equivalent of two years’ wages.

In short, the Dubai gratuity calculation formula under a limited contract is straightforward: employees who complete their agreed contract duration are entitled to gratuity as per their years of service and basic salary.

Gratuity Calculation for Unlimited Contract

For employees under an unlimited contract, the rules of gratuity are slightly different compared to a limited one. The gratuity UAE formula still applies, but resignation scenarios are treated differently.

1. Eligibility

Employees must complete at least one year of continuous service.
Gratuity increases with the number of years served, especially after five years.

2. Gratuity Calculation UAE for Unlimited Contract

1 to 5 years of service: 21 days’ basic salary for each completed year.
More than 5 years: 30 days’ basic salary for each completed year beyond five years.
Cap Limit: The gratuity cannot exceed two years’ wages.

3. Formula for Calculating Gratuity in UAE (Unlimited Contract)

Gratuity = (Basic Salary ÷ 30) × 21 × Number of Years (for up to 5 years)
Gratuity = (Basic Salary ÷ 30) × 30 × Number of Years (for years beyond 5)

4. Example

If an employee’s basic salary is AED 6,000 and they have worked for 7 years:
First 5 years: (6,000 ÷ 30) × 21 × 5 = AED 21,000
Next 2 years: (6,000 ÷ 30) × 30 × 2 = AED 12,000
Total Gratuity = AED 33,000

5. Special Case – Resignation

Under unlimited contracts, when an employee resigns, gratuity may be reduced depending on the length of service. However, once five years are completed, the employee is entitled to the full benefit.

The unlimited contract gratuity calculation UAE ensures that employees who serve longer are rewarded with higher payouts, reflecting their extended contribution to the company.

Examples of Gratuity Calculation 2025

To better understand how gratuity is calculated, let us look at practical examples of gratuity calculation formula in UAE. These cases are based on the official labor law and reflect the standard method used in 2025.

Example 1: Employee worked 3 years (Unlimited Contract)

Basic Salary: AED 4,500
Service Period: 3 years
Formula: (4,500 ÷ 30) × 21 × 3
Calculation: 150 × 21 × 3 = AED 9,450
Gratuity Payable = AED 9,450

Example 2: Employee worked 7 years (Unlimited Contract)

Basic Salary: AED 6,000
Service Period: 7 years
First 5 years: (6,000 ÷ 30) × 21 × 5 = AED 21,000
Next 2 years: (6,000 ÷ 30) × 30 × 2 = AED 12,000
Total Gratuity = AED 33,000

Example 3: Employee worked 4 years (Limited Contract)

Basic Salary: AED 5,000
Service Period: 4 years
Formula: (5,000 ÷ 30) × 21 × 4
Calculation: 166.66 × 21 × 4 = AED 14,000 (approx)
Gratuity Payable = AED 14,000
Example 4: Employee worked 10 years (Unlimited Contract)
Basic Salary: AED 7,000
First 5 years: (7,000 ÷ 30) × 21 × 5 = AED 24,500
Next 5 years: (7,000 ÷ 30) × 30 × 5 = AED 35,000
Total Gratuity = AED 59,500

These calculations show how to calculate gratuity in UAE with example. Employees can also use an online tool like the Gratuity Calculator UAE 2025 to instantly estimate their benefits instead of calculating manually.

Documents Required for Gratuity Claim

When applying for end-of-service benefits, employees must provide certain documents to ensure smooth processing of their claim. Submitting complete paperwork helps HR departments verify eligibility as per labour law gratuity calculation UAE rules.

Essential documents required for gratuity include:

1. Personal Identification

Copy of valid passport
Copy of Emirates ID

2. Employment Records

Copy of the gratuity application form UAE or written application letter
Employment contract approved by MOHRE
Labor card or work permit

3. Service Details

Date of joining and last working day (resignation/termination letter)
Salary certificate or last pay slip confirming basic salary

4. Other Supporting Documents

Bank account details for gratuity transfer
Clearance letter (if required by the employer)
Any company-specific HR forms

Employers may request additional documents depending on internal policies. However, these are the standard requirements across most organizations in the UAE.

Providing all necessary documents ensures faster settlement of gratuity and avoids disputes between employee and employer.

Common Mistakes Employees Make in Gratuity Calculation

While the gratuity calculation UAE labour law provides a clear formula, many employees still make errors when estimating their end-of-service benefits. These mistakes can lead to unrealistic expectations or disputes with employers.

1. Confusing Basic Salary with Total Salary

Gratuity is always calculated on the basic salary, not the total package. Many employees wrongly include allowances such as housing, transportation, or bonuses, which results in inflated calculations.

2. Misunderstanding Service Duration

Only completed years of service are considered. For example, working 2 years and 7 months is usually counted as 2 years unless otherwise stated in the contract.

3. Resignation Before Completing One Year

Some workers expect gratuity even if they resign before completing 12 months, but the law clearly states that no benefits are payable in this case. This is a common error in gratuity calculation in UAE for resignation.

4. Ignoring Termination Rules

Employees terminated for serious misconduct may lose gratuity rights completely. Failing to understand this condition under gratuity calculation in UAE for termination often creates disputes.

5. Wrongly Applying Limited vs Unlimited Rules

The calculation method varies between limited and unlimited contracts. Mixing the two leads to inaccurate results.

By avoiding these mistakes and relying on the correct labour law gratuity calculation UAE, employees can ensure their expectations match the actual benefits provided at the end of service.

Tips for Accurate Gratuity Calculation

Employees often struggle with how to calculate UAE gratuity pay correctly because the process involves multiple rules depending on contract type, service duration, and salary. To avoid errors and disputes, workers should follow these practical tips:

1. Always Use Basic Salary Only

Remember that the gratuity calculation formula UAE is based solely on basic salary, excluding allowances, commissions, or bonuses.

2. Confirm Your Contract Type

Check whether you are on a limited contract or unlimited contract, as the calculation differs slightly.

3. Verify Service Period

Count only the completed years of service. If your service includes months beyond the last completed year, confirm with HR whether they are included.

4. Use an Official Calculator

Instead of manual calculations, try using a gratuity calculator UAE online. These tools are updated according to labor law and give instant results.

5. Cross-Check with HR or MOHRE

If you are unsure about the figures, confirm with your company’s HR department or directly check with the Ministry of Human Resources and Emiratisation (MOHRE).

6. Keep All Records Ready

Salary slips, employment contracts, and resignation/termination letters help ensure the calculation matches official records.

By following these tips, employees can calculate their gratuity more confidently and avoid common errors that often lead to underpayment or disputes with employers.

FAQs on UAE Gratuity Formula 2025

Conclusion

The UAE gratuity calculation formula 2025 ensures that every employee receives a fair end-of-service benefit according to their basic salary and years of service. Whether working under a limited or unlimited contract, expatriates are entitled to gratuity if they meet the eligibility requirements defined by the labour law gratuity calculation UAE.

Understanding the rules, avoiding common mistakes, and using examples make it easier for employees to estimate their entitlement. For more accuracy, workers can also use the official gratuity calculator UAE or employer-provided tools to confirm their final settlement.

In today’s professional environment, knowing the correct gratuity calculation is essential for financial planning and protecting employee rights. With the right knowledge, proper documentation, and timely application, every employee in the UAE can secure their end-of-service benefits without confusion or disputes.

Introduction

What is Gratuity in UAE?