When my last contract renewal came around, I did what most of us do: I guessed my end-of-service number, and I guessed it wrong. Not slightly wrong. My guess used my gross salary, and the law does not care about gross salary. The gap was five figures in dirhams.
This article is the calculation I wish someone had shown me, start to finish, with real numbers.
The gratuity formula under the current labour law
The rule sits in Article 51 of Federal Decree-Law No. 33 of 2021, and it is short enough to memorize:
- 21 days of basic salary for each year of the first five years of service
- 30 days of basic salary for each year after the fifth
- A daily rate of basic monthly salary ÷ 30
- A minimum of one full year of continuous service to qualify at all
- A ceiling: total gratuity cannot exceed two years of basic salary
Fractions of a year past the first year count pro-rata. Days of unpaid leave are excluded from the service period.
What counts as basic salary, and what does not
This is where most estimates break.
Gratuity is calculated on basic salary, not gross. The difference between the two is where almost every wrong estimate comes from.
A typical UAE offer letter splits pay into basic salary plus allowances: housing, transport, sometimes phone or ticket allowances. Only the basic line feeds the gratuity formula. Two people earning the same AED 12,000 gross can have very different gratuity outcomes if one has a basic of AED 8,000 and the other AED 5,000, and that split was decided the day the offer was signed.
Check the actual number on your contract or salary certificate before running any calculation. It is usually smaller than people remember.
Does resignation reduce your gratuity? Not since 2022
Under the old law, resigning from an unlimited contract could cut gratuity to one third or two thirds depending on years served. That rule is gone. Since the current law took effect on 2 February 2022, an employee who resigns after completing one year receives the same full calculation as one whose employer ended the contract.
Plenty of older articles and calculators online still apply the one-third and two-thirds reductions. If a calculator asks whether your contract is “limited or unlimited”, it is describing the law as it stood before 2022; the distinction no longer exists for this purpose.
A worked example in dirhams, start to finish
Take a basic salary of AED 8,000 and six and a half years of service.
- Daily rate: 8,000 ÷ 30 = AED 266.67
- First five years: 21 days × 5 = 105 days → 105 × 266.67 = AED 28,000
- Remaining 1.5 years: 30 days per year × 1.5 = 45 days → 45 × 266.67 = AED 12,000
- Total gratuity: AED 40,000
Sanity-check against the cap: two years of basic is 8,000 × 24 = AED 192,000, far above 40,000, so the cap does not bite. For it to matter at 21 to 30 days per year, service needs to pass roughly 26 years, so the cap mostly affects very long tenures.
One more real-world note from watching settlements happen at the trading company where I work: the final figure is computed on the basic salary at the end of service, so a mid-career restructuring of your package that moves money from basic to allowances quietly shrinks the eventual payout.
Treat the number as a moving target, not a windfall
Your gratuity is not a bonus; it is deferred pay that grows every month you stay. It is also, for many expats, the single largest sum they will ever receive in one transfer, and it usually lands exactly when income stops. Knowing the number in advance turns it from a surprise into a plan.
I keep my own running estimate as a savings goal in Masrofna and update it once a year at renewal time; however you track it, the twenty-minute exercise of computing your real number beats any calculator’s guess, because you will do it with the right basic salary.
The math is fixed by law. Run your own numbers.