By The UAE Ministry of Human Resources and Emiratisation has issued an awareness post restating end-of-service gratuity rules for private sector employees, clarifying eligibility, calculation and payment timelines. The restatement confirms that expatriate employees who complete at least one continuous year of service qualify for gratuity, calculated on the last basic salary rather than allowances or gross pay, according to ET HRMEA.
The ministry reiterated that employers must clear all end-of-service entitlements, including outstanding wages, within 14 days of the contract ending. It also highlighted the voluntary Savings Scheme, which allows employers to channel end-of-service benefits into approved investment funds instead of holding the amount until departure or settlement. The ministry said the arrangement is intended to help employees build financial security and give employers a more structured way to manage long-term obligations.
What the restated calculation actually means
The formula remains unchanged from the framework established under Federal Decree-Law No. 33 of 2021. For the first five years of service, an employee accrues 21 days of basic salary for each completed year. After five years, the accrual rises to 30 days of basic salary for every additional year worked. Partial years count proportionately once the employee has completed at least one full year of continuous service.
The total gratuity cannot exceed the equivalent of two years’ wages. Basic salary excludes housing, conveyance, utilities and furniture allowances. Unpaid leave days are excluded from the calculation, a point MoHRE clarified in 2023.
A worked example helps. An employee with a basic salary of AED 10,000 who is terminated without cause after seven years would receive: 21 days x AED 10,000 x 5 years, plus 30 days x AED 10,000 x 2 years. That works out to AED 105,000 for the first five years and AED 60,000 for the next two, totalling AED 165,000. The two-year cap of AED 240,000 would not apply here.
Resignation versus termination: the reduction rules many pages omit
The distinction between resignation and termination matters more than the restatement alone suggests. Under UAE Labour Law, an employee who resigns before completing five years may receive a reduced gratuity. Resignation after one year but before three years entitles the employee to one-third of the 21-day calculation. Resignation after three years but before five years entitles the employee to two-thirds. Resignation after five years brings the full 21-day calculation for the first five years plus 30 days for each additional year.
Termination without cause carries no reduction. Termination for cause under Article 44 of the Labour Law can result in forfeiture of gratuity entirely. HR teams should document the reason for separation carefully, because the distinction determines whether a departing employee receives full, reduced or no gratuity.
The 14-day deadline and what happens when it is missed
The ministry’s restatement confirms that all end-of-service entitlements, including gratuity and outstanding wages, must be paid within 14 days of the contract ending. This deadline applies to private sector employees across the UAE. When an employer misses it, the employee can file a complaint with MoHRE, which may investigate and impose penalties. The Labour Court can also hear claims for unpaid gratuity.
Payroll teams should treat the 14-day window as a hard deadline, not a target. The calculation should be prepared before the final working day so that payment can be released immediately after the contract ends. Any dispute over deductions or the reason for separation should be resolved before the deadline, because late payment can trigger a complaint even if the underlying calculation was correct.
Mandatory gratuity versus the voluntary savings scheme
The restatement draws attention to the voluntary Savings Scheme, but it is important to separate the two arrangements. The mandatory gratuity under the Labour Law remains the default obligation for every private sector employer. The Savings Scheme is an alternative mechanism for funding that obligation, not a replacement for it. Employers who register for the scheme can direct contributions into approved investment funds regulated by MoHRE and the Securities and Commodities Authority.
For HR and finance leads, the practical question is whether the scheme changes the amount owed. It does not. The calculation formula, the two-year cap and the 14-day payment deadline all remain the same. What changes is where the money sits before settlement. Employers considering the scheme should confirm the current registration requirements and fund options with MoHRE, because the scheme’s operational details have evolved since its introduction.
Contract types and service continuity
One point that causes confusion is the status of unlimited term contracts. Under the 2022 Labour Law, unlimited term contracts were largely abolished for private sector employees. Employers were required to convert existing unlimited contracts to fixed-term contracts within one year. Fixed-term contracts now have a maximum duration of three years and are renewable.
For gratuity purposes, service is continuous across renewals and across moves between entities in the same corporate group, provided there is no break in employment. HR teams managing secondments or internal transfers should track service dates carefully, because the gratuity calculation depends on total continuous service with the employer group, not on the most recent contract.
Gratuity is currently not subject to income tax in the UAE. Employees who die in service have their gratuity paid to their beneficiaries. The unemployment insurance scheme is separate and does not affect the calculation or payment of end-of-service benefits.
Sources: ET HREMEA
Photo: Elektrostal. Worker's payroll book. Plant EZTM. img 02 by Scanning Dmitry Makeev, scan date - 2020 year., Public domain
