Gratuity pay is a shared benefit provided to employees in the UAE upon completing their service period with their employer. The calculation of gratuity pay is based on various factors, such as the length of service, basic salary, and other benefits received during the employment period. Here is a step-by-step guide on how to calculate UAE gratuity pay.
The Employee’s Eligibility must be determined. A minimum of one year of continuous employment with the same employer is required before an employee is qualified for gratuity compensation in the UAE. The service period is calculated on the first day of work and ends on the last working day.
Make a basic salary calculation. The amount a worker receives on a basic salary is the sum before any deductions or allowances. It serves as the starting point for figuring out tip money. If a worker’s pay varies during employment, the average income is determined by dividing all previous salaries during the last 12 months by dividing by 12.
Determine the Gratuity Calculation Formula The UAE Labour Law provides two different formulas for calculating gratuity pay based on whether the employee is on a limited or unlimited contract.
For employees on a limited contract, gratuity pay is calculated as follows:
- Employees who leave their job before five years have passed receive 21 days’ basic pay in gratuity for each year of service.
- An employee gets gratuity compensation equal to 30 days’ basic salary for each year of service after five or more years of service.
For employees on an unlimited contract, gratuity pay is calculated as follows:
- When employees leave their job, they are entitled to a gratuity payment equal to 21 days of their basic salary for the first five years of service and 30 days for every further assistance.
- Upon termination, an employee can receive gratuity payments equal to 21 days’ basic compensation for the first five years of service and 30 days’ basic salary for every further year.
Calculate the Gratuity Pay once the basic salary and gratuity calculation formula has been determined. Furthermore, the gratuity pay can be calculated by multiplying the years of service by the applicable daily introductory salary rate.
For example, if an employee on a limited contract has worked for three years and their basic salary is AED 10,000 per month, their gratuity pay would be calculated as follows:
Gratuity pay = (21 days x 3 years) x (AED 10,000/30) = AED 21,000