End-of-Service Benefits in the UAE: A Practical Guide

End-of-service gratuity is a statutory employment benefit payable to eligible employees at the end of their employment, subject to the applicable UAE employment legislation and the employee's circumstances.

For eligible full-time foreign workers who have completed one year or more of continuous service, Article 51 of Federal Decree-Law No. 33 of 2021 provides for end-of-service benefits calculated according to the employee's basic wage.

For eligible employees, the statutory calculation is generally:

First five years:21 days' basic wage for each year of service

After five years:30 days' basic wage for each additional year

The legislation also provides for a proportional benefit for a part of a year where the employee has completed at least one year of continuous service.

Eligibility depends on the employee's status and applicable employment arrangements.

Under Article 51, a full-time foreign worker who has completed one year or more of continuous service is entitled to end-of-service benefits calculated according to the basic wage.

UAE nationals are subject to the applicable pension and social security legislation rather than the same statutory gratuity calculation applicable to foreign workers.

Employers should therefore avoid applying a single gratuity formula to every employee without first confirming:

For an eligible full-time foreign employee, the statutory calculation is based on the last basic wage.

First Five Years

The employee generally receives:

For service exceeding five years:

30 days of basic wage × additional years of service

The employee may also be entitled to a proportional amount for a completed part of a year, provided the employee has completed at least one year of continuous service.

One of the most common areas of confusion is whether gratuity is calculated using total salary or basic salary.

For eligible employees covered by Article 51, the law specifies that end-of-service benefits are calculated according to the last basic wage.

For payroll purposes, employers should therefore clearly distinguish between:

Basic Wage

The contractual basic component used for the statutory gratuity calculation.

Allowances

These may include amounts such as:

The distinction should be clearly reflected in employment contracts and payroll records.

Assume an eligible employee has:

Last basic wage: AED 10,000 per month. Continuous service: 3 years

Approximate daily basic wage:

AED 10,000 ÷ 30 = AED 333.33

Gratuity for each of the first five years:

AED 333.33 × 21 = AED 7,000

For three years:

AED 7,000 × 3 = AED 21,000

Therefore, based on these assumptions, the indicative statutory gratuity would be:

AED 21,000

This example is illustrative only. Actual entitlement should be calculated based on the employee's precise employment dates, applicable legislation, payroll records and circumstances of termination.

Assume:

Last basic wage: AED 15,000 per month. Continuous service: 8 years

For the first five years:

AED 15,000 ÷ 30 × 21 × 5

= AED 52,500

For the remaining three years:

AED 15,000 ÷ 30 × 30 × 3

= AED 45,000

Indicative total gratuity:

AED 97,500

Again, this is an illustrative calculation based on the stated assumptions and should not be treated as a determination of an individual employee's entitlement.

An employee who has completed at least one year of continuous service may be entitled to gratuity for a part of a subsequent year on a proportional basis.

For example, an employee who has completed:

4 years + 6 months

would generally have the additional six months considered proportionately in calculating the entitlement.

Accurate employment start and end dates are therefore important.

Even relatively small differences in dates can affect the final settlement calculation.

The UAE Labour Law specifies that unpaid days of absence are not included in the calculation of the service period for end-of-service benefits.

Employers should therefore maintain accurate records of:

Payroll systems should be configured appropriately so that relevant unpaid periods are not incorrectly included in the gratuity calculation.

End-of-service gratuity is only one component of an employee's final settlement.

Depending on the circumstances, the final settlement may also need to consider:

These items should be calculated separately and then consolidated into the employee's final settlement.

Employers should avoid assuming that the gratuity calculation represents the employee's entire final financial entitlement.

Accurate employee records are essential for calculating end-of-service benefits.

Employers should maintain:

A well-maintained employee file can significantly reduce disputes and calculation errors.

Using Total Salary Instead of Basic Wage

This can result in an incorrect gratuity calculation where the statutory basic-wage basis applies.

Incorrect Joining Date

Even a small discrepancy in the recorded employment start date can affect the service period.

Ignoring Salary Changes

The calculation should reflect the applicable last basic wage rather than relying on an outdated salary record.

Incorrect Treatment of Unpaid Absence

Unpaid absence should be treated appropriately when determining the service period.

Incorrect Part-Year Calculation

The proportional entitlement for a qualifying part of a year should be calculated correctly.

Incomplete Leave Records

Outstanding annual leave may form part of the final settlement and should be reviewed separately.

Failure to Reconcile Payroll Records

Differences between HR records, payroll records and accounting records can create settlement issues.

End-of-service benefits should not be considered only when an employee leaves.

Businesses should maintain appropriate accounting records for accrued employee benefits as part of their financial reporting processes.

Finance teams should periodically review:

This can help management maintain better visibility over the company's employee-related obligations.

For businesses with a larger workforce, automated payroll and accounting systems can help track employee information and support periodic reconciliation.

A structured employee exit process can reduce the risk of errors.

Step 1 - Confirm Employment Details

Verify:

Step 2 - Review Leave

Confirm:

Step 3 - Calculate Gratuity

Apply the appropriate statutory formula based on the employee's circumstances.

Step 4 - Review Other Entitlements

Consider salary, notice and other applicable amounts.

Step 5 - Review Deductions

Verify any lawful and appropriately documented deductions.

Step 6 - Prepare Final Settlement

Prepare a clear calculation showing how the final amount was determined.

Step 7 - Obtain Appropriate Approval

Final settlement should be reviewed and approved in accordance with the company's internal procedures.

The UAE has also introduced an optional alternative end-of-service savings scheme for participating employers and employees.

The scheme enables participating companies to allocate amounts relating to end-of-service benefits into government-approved investment funds, with the objective of growing employee savings through investment returns.

Employers considering participation should understand:

Businesses should obtain appropriate professional advice before changing their end-of-service benefits structure.

Employers can improve their payroll processes by implementing a structured framework.

Practical End-of-Service Benefits Checklist for UAE Employers

ZILE Global supports UAE businesses with HR, Payroll and employee-related financial processes, helping organisations establish structured and compliant payroll administration.

Our approach combines HR administration, payroll expertise and accounting discipline to help businesses manage employee-related obligations accurately and efficiently.

Are Your Payroll and Employee Benefit Records Up to Date?

End-of-service benefits should not be treated as a calculation performed only when an employee leaves.

Accurate employee records, salary information, leave balances and payroll data should be maintained throughout the employment relationship.

A structured process can help businesses:

ZILE Global can help you review your payroll processes, calculate end-of-service benefits and establish structured HR and payroll controls aligned with your business requirements.