Every employment contract in the UAE eventually touches the question of gratuity and how it should be calculated. It determines the one-time payment that an employee receives at the end of service, and small errors in calculation can create large financial and legal headaches. This guide strips the complexity away, showing the exact rules you need, the common traps that cause disputes, and explain how accounting consultants in Dubai can help in this regard.
What the law says
The UAE Labour Law sets out a simple framework for end-of-service pay. An employee who completes at least one year of continuous service is entitled to an end-of-service benefit calculated on the last basic wage. The law specifies 21 days’ basic pay for each year of service for the first five years and 30 days’ basic pay for each additional year thereafter. That total is capped so the gratuity does not exceed two years’ total pay. These are the core rules to remember when you calculate gratuity Dubai.
DMCC has published practical worked examples and a step-by-step method that reflect the law and show how employers should calculate the daily rate and the amounts due for different lengths of service. We include one of those examples later in this post so you can see the arithmetic. The DMCC note is a useful operational guide and is regularly relied on by employers and advisers in Dubai.
Who is entitled and when entitlement starts
Entitlement begins after one full year of continuous service. The law treats the first year as a threshold. If an employee leaves before completing 12 months they normally have no statutory end-of-service entitlement. After the first year the calculation uses the last basic salary. Employers should exclude unpaid leave from the service period and should ensure records match passport entries, visas and payroll records. These eligibility rules are critical when you review a termination or a resignation and when you prepare a final settlement in Dubai.
How the formula works in practice
To calculate gratuity Dubai you take the last basic monthly salary and convert it into a daily wage. The daily wage is the basic monthly salary multiplied by 12, divided by 365. For the first five years you apply 21 days per year to that daily wage. For any year beyond five you apply 30 days per year to the daily wage. If the employment term includes partial years you prorate the entitlement. The total gratuity cannot exceed two years’ total pay. These calculation steps form the backbone of any accurate end-of-service computation.
DMCC’s guidance gives the exact formula used in practice. It shows the arithmetic for a simple case and for a longer service period. That guidance also explains how to treat part-time work by converting hours to a ratio and multiplying the full-time entitlement by that ratio. The DMCC example is a reliable reference for companies and for accounting consultants in Dubai preparing client statements.
A worked example you can follow
Imagine an employee whose last basic salary is AED 10,000 per month. The daily basic salary equals AED 10,000 times 12 divided by 365, which gives approximately AED 328.77 per day. For each year in the first five years the entitlement equals 21 days multiplied by the daily wage. That means one year of service yields an annual end-of-service amount of AED 6,904.17 using the figures above. If the employee worked four years and three months, you multiply the annual amount for the relevant years and prorate the partial year to produce a final gratuity figure. If the employee worked for seven years you calculate five years at the 21-day rate and two years at the 30-day rate, then sum both parts. Examples like this match the DMCC worksheet and mirror the Ministry guidance. Using a clear worked example helps avoid calculation errors when you prepare final payroll and exit settlements in Dubai.
Practical points
The calculation uses the last basic salary. Employers often ask whether allowances and bonuses count. The starting point is the basic wage, not variable pay. Courts and tribunals sometimes consider commissions or bonuses in specific cases, but the standard statutory formula uses basic pay. Employers can lawfully deduct amounts the employee owes, and they must exclude unpaid leave from service length when computing the entitlement. The law also caps the total gratuity so the final figure never exceeds two years’ total pay. These practical points matter when you reconcile payroll records before final payment.
Edge cases and common disputes
Disputes commonly arise where records do not match or where an employee has mixed periods of part-time and full-time work. Employers sometimes misapply the daily wage formula or forget to prorate partial years. Another frequent area of dispute is whether certain allowances form part of the “basic wage” for the calculation. Where a contract specifies a higher “basic” component that includes some allowances, the label in the contract matters. For employees with long service, employers must be careful with the two-year cap. If you expect a dispute, document the payroll, the entry and exit records, the contract and any minutes or correspondence that record where the employee performed key duties. Clear documentation reduces the risk of court or labour department claims.
Why you should involve qualified accounting consultants in Dubai
Calculating gratuity is arithmetic, but handling it well requires experience. Accounting consultants in Dubai bring two practical strengths. They reconcile payroll with visa and attendance records so the service period is accurate. They also test whether the items shown in payroll meet the legal definition of basic wage. Those checks avoid disputes and reduce the risk of penalties. Accounting consultants in Dubai can also model different termination outcomes and produce a clear, auditable final figure to present to the employee. For clients who want certainty and speed, professional handling by accounting consultants in Dubai removes negotiation friction at exit.
A simple checklist before payment
Before you make the final payment confirm three points. First, the employee has completed at least one year of continuous service. Second, the basic salary used is the last basic pay shown in payroll. Third, any unpaid leave days have been excluded from the service period. If the employer needs to deduct lawful amounts from the gratuity, document the basis for the deduction. Following these steps prevents common errors and avoids follow-up claims. If you prefer, engage accounting consultants in Dubai to check these items independently before payment.
Closing thought
Gratuity calculation in the UAE is straightforward once you know the formula. The law requires 21 days’ basic salary per year for the first five years and 30 days thereafter, using the last basic wage and capped at two years’ pay. For people and businesses in Dubai, understanding gratuity Dubai ensures fair, compliant exit settlements. If you want to avoid mistakes and keep records clean, SSCOGLOBAL and our accounting consultants in Dubai will prepare the calculation and supporting documentation for you.
