How to Calculate Gratuity in UAE (2026) - Step-by-Step Guide
Calculate UAE gratuity correctly using the official MOHRE formula. Step-by-step examples for 3, 8, and 12 years of service. Covers limited contracts, unlimited contract reductions, the 2-year cap, and what to do if your employer doesn't pay within 14 days.
Correctly including calculating your UAE gratuity correctly can mean the difference between receiving your full legal entitlement and walking away thousands of dirhams short. This guide covers the exact MOHRE formula, three worked examples at different salary levels, and every edge case that affects your final number—including what happens with old unlimited contracts, unpaid leave, and what to do if your employer refuses to pay.
What is UAE Gratuity?
UAE gratuity—officially called End-of-Service Benefits (EOSB)—is a mandatory lump-sum payment governed by Article 51 of Federal Decree-Law No. 33 of 2021. Every private sector employee who completes at least one year of continuous service is legally entitled to it, regardless of whether they resign, are terminated, or reach the end of a fixed-term contract.
Gratuity is calculated on your basic salary only. Housing allowance, transport allowance, food allowance, medical cover, commissions, and any other benefits are excluded from the calculation base.
The Official MOHRE Formula
UAE gratuity uses a two-tier system based on total years of service:
Tier 1—First 5 years of service:
Daily Wage = Basic Monthly Salary ÷ 30
Gratuity = Daily Wage × 21 × Years Served
Tier 2—Beyond 5 years of service:
Gratuity (years 1–5) = Daily Wage × 21 × 5
Gratuity (years 5+) = Daily Wage × 30 × (Total Years − 5)
Total EOSB = Tier 1 + Tier 2
Maximum cap: Total gratuity cannot exceed 2 years of your basic annual salary (24 months of basic pay), regardless of total service length.
Step-by-Step Worked Examples
Example 1 — 3 Years of Service (AED 8,000 Basic Salary)
An employee earning AED 8,000/month who leaves after 3 years.
| Step | Calculation | Result |
|---|---|---|
| Daily wage | 8,000 ÷ 30 | AED 266.67 |
| Gratuity | 266.67 × 21 × 3 | AED 16,800 |
Under a limited (fixed-term) contract signed after February 2022, this is the full entitlement regardless of the reason for leaving.
Example 2 — 8 Years of Service (AED 15,000 Basic Salary)
A senior employee earning AED 15,000/month is leaving after 8 years.
| Step | Calculation | Result |
|---|---|---|
| Daily wage | 15,000 ÷ 30 | AED 500 |
| Tier 1 (first 5 years) | 500 × 21 × 5 | AED 52,500 |
| Tier 2 (remaining 3 years) | 500 × 30 × 3 | AED 45,000 |
| Total EOSB | 52,500 + 45,000 = 97,500 | AED 97,500 |
| Cap check | 15,000 × 24 = AED 360,000 | Not exceeded ✓ |
Example 3 — 12 Years of Service (AED 25,000 Basic Salary)
A long-serving employee is where the cap comes into play.
| Step | Calculation | Result |
|---|---|---|
| Daily wage | 25,000 ÷ 30 | AED 833.33 |
| Tier 1 (first 5 years) | 833.33 × 21 × 5 | AED 87,500 |
| Tier 2 (remaining 7 years) | 833.33 × 30 × 7 | AED 175,000 |
| Raw total | 87,500 + 175,000 = 262,500 | AED 262,500 |
| Cap | 25,000 × 24 | AED 600,000 |
| Final EOSB | Under cap | AED 262,500 |
Limited vs Unlimited Contracts — What Still Matters in 2026
Since February 2, 2022, all new UAE employment contracts must be limited (fixed-term). However, unlimited contracts signed before that date remain valid until they expire or are converted.
For limited contracts (all contracts from Feb 2022 onwards): Resignation and termination are treated equally. You receive full gratuity after completing 1 year of service, regardless of why you left.
For old unlimited contracts (signed before Feb 2, 2022): The resignation reduction rules from the previous labor law still apply:
| Service Length | Resignation Entitlement |
|---|---|
| Less than 1 year | No gratuity |
| 1–3 years | 1/3 of calculated gratuity |
| 3–5 years | 2/3 of calculated gratuity |
| 5+ years | Full gratuity |
This is the most misunderstood rule in UAE gratuity. If you are still on an old unlimited contract and you resign, your actual payout is significantly less than the headline calculation — unless you have 5+ years of service.
Termination by the employer under an old unlimited contract always entitles the employee to full gratuity.
What Reduces or Cancels Your Gratuity
Your employer can legally reduce or withhold gratuity in specific circumstances.
Lawful deductions:
- Outstanding loans or salary advances provided by the employer (Article 135)
- Unpaid leave days are excluded from the total service period calculation
- Damages caused to the employer's property where proven and documented
Full forfeiture (Article 120): Gratuity can be withheld entirely only if an employee is dismissed for gross misconduct—specifically theft, fraud, physical assault on colleagues or management, or serious breach of workplace policy that caused demonstrable financial loss.
Simply being fired for poor performance does not cancel your gratuity entitlement.
The 14-Day Payment Rule
Under Article 53 of the UAE Labour Law, your employer must settle all end-of-service dues—including gratuity—within 14 days of your final working day.
If your employer fails to pay within 14 days, they are in breach of UAE labor law and liable for penalties including administrative fines, trade license suspension, and restrictions on hiring new staff.
What to do if your employer doesn't pay:
- Send a written demand (WhatsApp or email is sufficient evidence)
- File a complaint at MOHRE via the Tasheel centres or the MOHRE app
- MOHRE mediates within 14 days—most cases resolve at this stage
- If unresolved, the case is referred to the labor court automatically
Do not resign and leave without receiving your gratuity in writing—verbal promises are not enforceable.
Frequently Asked Questions
Is gratuity calculated on basic salary or total salary in the UAE? Basic salary only. Housing allowance, transport allowance, food allowance, and all other benefits are excluded. Open your employment contract and find the line marked "Basic Salary"—that is the number that enters the formula.
What if I have worked for exactly 1 year? You are eligible. One full calendar year of continuous service is the minimum threshold. If you leave before completing 12 months, no gratuity is owed regardless of the reason.
Does unpaid leave affect my gratuity? Yes. Days of unpaid leave are deducted from your total service period before the gratuity calculation runs. If you took 30 days of unpaid leave over 5 years, your effective service is reduced by 30 days.
How is gratuity calculated if I worked for a fraction of a year beyond a full year? Partial years count. If you served 3 years and 7 months, the 7 months are included proportionally. The formula uses your exact number of days served divided by 365.25 to get the decimal years figure.
What happens to gratuity if an employee dies during service? The full calculated gratuity is paid to the employee's legal heirs under Article 51, regardless of how long they worked—even if they had not yet completed one full year.
Can I receive gratuity if I am on a probation period and am let go? No. Employees who are dismissed during their probation period are not entitled to gratuity, as they have not completed one year of continuous service.
Is UAE gratuity taxable? No. UAE gratuity is completely tax-free for all expatriate employees. There is no income tax in the UAE.
What if my basic salary changed during my employment? The gratuity formula uses your last drawn basic salary — the salary at the time you leave, not an average across your employment period. If you received a raise in your final year, your entire gratuity is calculated at the higher rate.