UAE gratuity: 21 days, 30 days, and the rules that shrink the payout
End of service gratuity looks simple until you calculate one. Here is what counts as salary, why the rate changes after five years, how unpaid leave is treated, and the two year cap that limits long service.
End of service gratuity is the entitlement employees ask about most and employers calculate wrong most often. The formula itself is short. What makes it awkward is everything around it: which part of the salary it applies to, what happens at the five year boundary, how unpaid leave is treated, and a cap that quietly limits very long service.
This guide walks through the rules under Federal Decree-Law No. 33 of 2021 with worked examples, and flags the places where an employee's expectation and the legal entitlement usually diverge.
The basic entitlement
A private sector employee who completes one continuous year of service is entitled to end of service gratuity. The rate is 21 calendar days of basic salary for each of the first five years, and 30 calendar days of basic salary for each year after that. The daily figure is derived from the monthly basic salary divided by 30.
One consequence is worth stating plainly: the difference between leaving at four years and eleven months and leaving at five years and one month is larger than most employees realise, and the difference compounds from there.
Basic salary is not the salary
Gratuity is calculated on the last basic wage. Housing, transport, commission and bonus are excluded. This is the single biggest source of disputes at exit, because many UAE packages are deliberately structured with a modest basic and substantial allowances.
An employee on AED 20,000 total with a AED 8,000 basic does not accrue gratuity on AED 20,000. They accrue it on AED 8,000. Nothing about that is irregular, but it is rarely explained at the point of hire, and it arrives as an unpleasant surprise years later.
Two worked examples
Take an employee with a basic salary of AED 9,000, which gives a daily rate of AED 300.
| Service | Calculation | Gratuity |
|---|---|---|
| 3 years | 3 × 21 days × AED 300 | AED 18,900 |
| 5 years | 5 × 21 days × AED 300 | AED 31,500 |
| 8 years | (5 × 21) + (3 × 30) days × AED 300 | AED 58,500 |
| 12 years | (5 × 21) + (7 × 30) days × AED 300 | AED 94,500 |
The eight year figure is worth pausing on. Three additional years beyond the five year mark add AED 27,000, while the first three years added AED 18,900. Same employee, same salary, different accrual rate.
What reduces the entitlement
Three rules commonly reduce a calculation below what an employee expects, and all three are routinely missed by spreadsheets.
- Unpaid leave is excluded from the service period. A three month unpaid sabbatical does not count toward accrual, so the service length used in the formula is shorter than the elapsed employment.
- Total gratuity is capped at two years' wages. For very long service this becomes the binding constraint rather than the day count.
- Only completed service counts toward the year multiplier in the standard calculation, and partial years are handled pro rata on the same daily basis.
The fourteen day settlement window
Gratuity is not a payment that can wait for the next payroll cycle. Under the labour law, the employer must pay wages and all other entitlements due within fourteen days of the end of the contract. That covers outstanding salary, accrued annual leave encashment and the gratuity itself.
Fourteen days is short if the calculation only begins once someone has left. It is comfortable if the figure has been accruing visibly throughout the employment, which is the practical argument for tracking gratuity as a live liability rather than computing it at exit.
Why this belongs in the system, not a spreadsheet
Every input to a gratuity calculation already exists in an HR system: the start date, the basic salary and its history, unpaid leave days, and the termination date. A spreadsheet recalculates all of this from memory at the worst possible moment, under a fourteen day clock, usually during a difficult conversation.
An accrued liability that nobody can see until somebody resigns is not a liability you are managing. It is one you are discovering.
Two questions are worth asking about your current process. Can you produce today's gratuity figure for any employee without building anything? And does that figure already account for their unpaid leave and every historical change to their basic salary? If the answer to either is no, the fourteen day window is doing more work than it should.
See it run on your own data.
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