End of service benefits in the UAE are a legal entitlement, providing financial compensation to employees upon termination of their employment. These benefits, which include gratuity, are calculated based on the employee’s basic salary and total period of service.
Expat workers in the private sector are eligible for these benefits after one year of continuous service. Learning about the eligibility, calculation methods, and recent updates is essential to safeguard your rights. Scroll down to know everything about the end-of-service benefits.
- Understanding End-of-Service Benefits in the UAE
- Eligibility
- What’s Included in the End of Service Benefits
- End of Service Benefits Entitlements for Different Scenarios
- End of Service Benefits in the UAE Calculator
- Filing Dispute in Cases Where Employer Refuses to Pay End-of-Service Benefits
- A Brief on the Alternative End of Service Benefits Scheme (Savings Scheme)
- Key Takeaways
- FAQs
Understanding End-of-Service Benefits in the UAE
End of service benefits in the UAE are a financial entitlement granted to employees upon the termination of their employment. Gratuity is a significant element of these benefits, introduced to recognise service and provide financial support during the transition period.
These benefits apply to both UAE nationals and expat employees who meet the eligibility conditions. Under Federal Decree Law No. 33 of 2021, all full-time employees in the mainland UAE and certain free zones qualify for gratuity.
As per the UAE Labour Law, an employee must have completed at least one year of continuous service to be eligible for gratuity. Once employment ends, employers must settle the payment within fourteen days of contract termination.
Eligibility
Employees, including UAE nationals, GCC nationals and expats, qualify for end-of-service benefits. UAE and GCC nationals are covered under mandatory pension schemes via the General Pensions and Social Security Authority (GPSSA).
On the other hand, expats on a UAE work visa receive these benefits as a lump sum gratuity at the end of their employment. Here is the eligibility criteria for expats working in a private sector organisation:
- Must have completed at least one year of continuous service.
- Both full-time and part-time employees can hold this position.
- Excludes those dismissed for serious misconduct, such as theft, fraud, violence or job abandonment.
What’s Included in the End of Service Benefits
Let’s first take a look at what end-of-service benefits include:
- Any unpaid wages or overtime payments that are due upon termination of employment.
- Payment for unused annual leave is calculated as per the final basic salary.
- Repatriation expenses are stated in the employment contract.
- The lump-sum end-of-service gratuity.
End of Service Benefits Entitlements for Different Scenarios
Under Federal Decree-Law No. 33 of 2021, expats receive gratuity based on their basic wage. Here are the different scenarios that can affect end-of-service benefits calculation:
1. Full-Time Workers
For foreign employees on limited contracts in the UAE, gratuity applies after completing at least one continuous year of service. Any period of unpaid absence is excluded from the service term used for calculation.
2. Other Types of Employment
Part-time, temporary and flexible contract workers are eligible for end-of-service benefits, although the calculation differs from full-time arrangements. The payment is calculated proportionally, considering their actual working hours compared to a standard full-time schedule.
3. Termination Scenarios
Employment can end in various ways, and each scenario affects the end-of-service benefits in the UAE differently. Let’s take a look at these scenarios:
Resignation
Employees who resign are generally entitled to gratuity for the completed period of service. However, resignations before one year of continuous service may not qualify for gratuity.
Termination by the Employer
When the employer terminates the contract, benefits are contingent upon the reason. If termination is without cause or considered arbitrary, employees may receive full gratuity in addition to other due payments.
Mutual Termination
In mutual terminations, both parties agree on ending the employment. The settlement should clearly outline gratuity amounts and any other outstanding dues.
End of Service Benefits in the UAE Calculator
Gratuity pay is the most significant component of end-of-service benefits in the UAE. Before recent amendments, end-of-service benefits were calculated based on whether the contract was limited or unlimited.
Following recent amendments, all employment contracts are now limited, with a maximum term of three years. Since the 2023 updates, the gratuity entitlement is based on an employee’s basic monthly salary and total service duration.
Let’s look at example calculations for both full-time employees and alternative work arrangements:
Calculation for Full-Time Expat Employees
Gratuity calculation for full-time workers is based on the last drawn monthly basic salary and the number of completed years of service. The standard gratuity calculator uses the following rates:
- 21 days’ salary for each of the first five years
- 30 days’ salary for each year after that
- Partial years are calculated on a pro-rata basis. The total settlement cannot exceed two years’ salary.
Example
Suppose an employee has a final monthly basic salary of AED 9,000 and has a total of eight years of service. Here’s how the calculation goes:
First Five Years of Service
- Daily salary = AED 9,000 ÷ 30 = AED 300
- Gratuity for first five years = AED 300 × 21 × 5 = AED 31,500
Remaining Three Years of Service
- Gratuity for remaining three years = AED 300 × 30 × 3 = AED 27,000
Total Gratuity: AED 31,500 + AED 27,000 = AED 58,500
Calculation for Alternative Work Arrangements
The gratuity amount for employees on alternative work arrangements is calculated based on actual hours worked. These actual hours are compared against the yearly hours for a full-time employee. Here’s how the calculation goes:
- First, determine the annual working hours for a part-time role.
- Next, divide the part-time working hours per year by the total working hours for a full-time role per year. The benchmark for full-time hours is eight hours per day, five days a week, totalling 2,080 hours per year.
- Obtain a percentage,
- Finally, multiply the percentage by the gratuity amount of a full-time employee with the same salary and service length.
Example
Suppose an employee works five hours per day for four days a week. Here’s how to calculate gratuity:
- Part-time hours: 5 hours per day × 4 days per week × 52 weeks = 1,040 hours per year
- Percentage = (1,040 ÷ 2,080) × 100 = 50%
- Using the full-time gratuity example above (AED 58,500): 50% of AED 58,500 = AED 29,250
Filing Dispute in Cases Where Employer Refuses to Pay End-of-Service Benefits
Under UAE labour law, employees have the right to receive end-of-service benefits in the UAE immediately after termination. If an employer refuses to settle the gratuity, the employee can file a dispute through the Ministry of Human Resources and Emiratisation (MoHRE). Below are the key points to know:
- Employers cannot terminate an employee without paying the due end-of-service benefits.
- If an employee passes away, the employer must pay the end-of-service benefits to their family after deducting repatriation costs, where applicable.
- Employers cannot reduce or deduct gratuity unless specifically authorised by law.
- If the employer refuses to pay, the employee should immediately file a complaint at the Labour Office. In such cases, ensure you thoroughly read your MoHRE labour contract.
- Following the complaint, legal proceedings can be pursued in the Labour Court if necessary.
- Employees should seek assistance from a qualified advocate.
A Brief on the Alternative End of Service Benefits Scheme (Savings Scheme)
In September 2023, the UAE introduced a voluntary option for new end-of-service benefits. The Ministry of Human Resources and Emiratisation (MoHRE), in collaboration with the Securities and Commodities Authority (SCA), introduced this scheme.
This system allows both employers and employees to participate if they choose. Under the scheme, employers invest end-of-service funds in approved investment portfolios managed by licensed entities. The aim is to safeguard employees’ savings and potentially grow them through returns.
Key Features of the Scheme
Here are the features of this scheme:
- Participation is entirely voluntary for employers and employees.
- No minimum salary requirement for joining.
- The employer manages the application and payment process.
- Contributions are based on a percentage of the employee’s basic salary.
- Employees can choose to add voluntary contributions.
- At the end of the service, savings and any investment returns are paid out.
Investment Options
Employees can choose from three broad categories:
- Risk-Free Portfolio: It is risk-free, often suitable for unskilled workers.
- Risk-Based Portfolio: It allows for high, medium or low risk, depending on the desired return potential.
- Sharia-Compliant Portfolio: It meets Islamic investment principles.
Enrollment Process
Here is how to enrol in this savings scheme:
- The employer applies through MoHRE to participate.
- First, select an approved investment fund licensed by SCA.
- Next, decide which employees qualify for the scheme.
Contribution Rates
Employers also contribute to the investment fund for full-time employees. Here are the contribution rates based on the service length:
- 5.83% of the monthly basic salary for employees with less than five years of service.
- 8.33% for those with more than five years of service.
Employers must transfer payments to the investment fund within 15 days of the start of each month.
Employee Entitlements
Upon termination, the employee receives:
- All fundamental contributions made by the employer during the subscription period.
- Any investment profits earned.
- Employees have the option to continue investing even after leaving the company.
Key Takeaways
Understanding end-of-service benefits in the UAE is essential for both employers and employees. To calculate gratuity for full-time or part-time workers, consider the basic salary and length of service.
Furthermore, employees should be aware of the labour laws to protect their rights. Lastly, employees can choose to participate in the alternative savings scheme, further safeguarding their rights.
FAQs
The end-of-service benefit, as per UAE Labour Law, is a lump sum that employers pay at the end of employment. For the first five years, it equals 21 days of basic salary for each year worked. After five years, it rises to 30 days per year.
The calculation uses only the final basic monthly salary, excluding allowances and increments. It is 21 days per year for the first five years, then 30 days for each additional year.
Eligibility begins after completing 12 consecutive months of service with an employer. Unpaid absences are excluded when calculating the service period.
Employers pay 5.83% of the basic salary for employees with under five years of service. Similarly, employers contribute 8.33% for employees with over five years of service.
That’s a wrap on our guide to end-of-service benefits in the UAE. Both employers and employees must know their responsibilities and rights to ensure legal compliance. Now that you know how to calculate gratuity, you can safeguard your rights in the event of employment termination.
Planning to work in the UAE? Ensure you have a valid UAE work permit to avoid legal penalties.
