Employment & HR
End-of-service gratuity — how it is actually calculated
Twenty-one days' basic pay per year for the first five years, thirty days a year after that, capped at two years' total pay. Most employers have never accrued for it.
The entitlement
What the law gives, regardless of contract.
An employee who completes one year or more of continuous service is entitled to end-of-service gratuity. The calculation is twenty-one days' basic salary for each of the first five years of service, and thirty days' basic salary for each year thereafter, with the total capped at two years' pay. Only basic salary counts — housing, transport and other allowances are excluded. Part-time and other flexible workers accrue on a pro rata basis. Unpaid leave does not count towards service.
The recurring problem is that this is a real liability accruing from the employee's first day, and a large proportion of small UAE companies carry no provision for it at all. It becomes visible at exactly the wrong moment — when a long-serving employee resigns, when the business is being sold and the buyer runs due diligence, or when a company is closing and discovers that end-of-service dues rank ahead of shareholders. For a company with ten staff averaging four years of service, the accumulated liability is a substantial figure that has never appeared on a management account.
The numbers
- Qualifying service
- One year of continuous service
- Years 1–5
- 21 days' basic salary per year
- Year 6 onwards
- 30 days' basic salary per year
- Cap
- Two years' total pay
- Basis
- Basic salary only — allowances excluded
- Termination for cause
- Can forfeit entitlement in defined circumstances
What it costs
In practice
How this is actually administered.
- Accrue it monthly from day oneIt is a liability from the first year of service, and a provision built monthly is invisible while an unprovided one is a crisis.
- Calculate on basic salary onlyUsing the total package overstates it; using an artificially low basic understates a liability that is still owed.
- Apply the correct rate to each bandTwenty-one days for the first five years, thirty for each year after. Not thirty days for everything.
- Include the cap in the modelTwo years' total pay. It only bites at very long service, but it bites.
- Settle within the statutory period on terminationLate payment of end-of-service dues is itself a breach and is a common MOHRE complaint.
Related
Questions
Twenty-one days' basic salary for each of the first five years of service, and thirty days' basic salary for each subsequent year, capped at two years' total pay.
No. It is calculated on basic salary only, which is why packages are structured with a low basic.
Yes, on completing one year of continuous service. The rules that reduced gratuity for resignation under the old law no longer apply in the same way.
In defined circumstances of termination for cause. It is not forfeited simply because the employee resigned.
One question
How many people are on the payroll?
Then the order matters. Establishment card, then quota, then work permit, then entry permit, then medical, Emirates ID and contract registration. Skipping ahead to a signed offer letter before the quota exists is the usual way a start date slips by six weeks.
The first hire, in orderOr just ask usThis is the size where informal arrangements start costing money — salaries paid partly outside WPS, leave that was never tracked, gratuity nobody has accrued for. None of it is hard to fix now and all of it is expensive to fix at a MOHRE hearing.
What you are accruing without knowingOr just ask usThen Emiratisation quotas, WPS timing, ILOE subscriptions and health insurance renewals are running on separate calendars, and the penalty for each is levied per employee. Consolidating those dates is usually worth more than any single piece of advice.
What gets inspectedOr just ask us