UAE gratuity is calculated from basic salary only: 21 days of it per year for the first five years, 30 days per year after that, where one day is basic ÷ 30. Allowances do not count, which is exactly where my own estimate went wrong when my last contract renewal came around. I had used my gross salary, and the gap was five figures in dirhams.
This article is the calculation I wish someone had shown me, start to finish, with real numbers.
How is gratuity calculated in the UAE?
The rule sits in Article 51 of Federal Decree-Law No. 33 of 2021, the labour law in force since 2 February 2022, and the official government portal summarises it in a few lines:
- 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 year of continuous service to qualify at all
- A ceiling: total gratuity cannot exceed two years of wages
Fractions of a year count pro-rata. Days of unpaid absence are excluded from the service period. Part-time workers get the same formula scaled by their hours against a full-time contract.
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, utilities, sometimes phone or ticket allowances. The government portal is explicit that those allowances are excluded. 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 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 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.
Resigning still has a cost, just not through this formula. How the exit is handled matters: skipping part of a notice period can cost more than the gratuity a resignation used to forfeit.
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. Two years of basic equals 720 days at the daily rate, which this formula only reaches after about 25 and a half years of service, 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 the package that moves money from basic to allowances quietly shrinks the eventual payout.
When is gratuity paid, and can the employer deduct from it?
The law gives the employer 14 days from the end of the contract to pay outstanding wages, other entitlements and gratuity. The same rules allow the employer to deduct any amount the worker owes from the gratuity, so an unpaid salary advance or a company loan comes off the top before the number reaches a bank account.
Some employers have also moved staff into the voluntary alternative savings scheme, where monthly contributions of 5.83% to 8.33% of basic salary go into approved investment funds in place of the traditional lump sum. If an employer has opted in, the Article 51 formula above is no longer the whole picture, and the payout depends on which system applies.
Treat the number as a moving target, not a windfall
Gratuity is not a bonus; it is deferred pay that grows every month of service. 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. That is why it pairs with the ILOE unemployment insurance payout, which is also computed on basic rather than gross. It is also one of the items a salary quietly pays for that disappears on moving to freelance work. 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.