What is the New Law of Gratuity in UAE?
The new UAE gratuity law, effective from February 2, 2022 under Federal Decree Law No. 33 of 2021, mandates that private-sector expatriate employees are entitled to end-of-service gratuity after completing one year of continuous service, calculated at 21 days of basic salary per year for the first five years and 30 days per year thereafter, with a maximum payout limit of two years’ total wage, and payment must be made within 14 days of termination.
What is the new UAE gratuity law?
The new UAE gratuity law is defined under Federal Decree Law No. 33 of 2021, which came into effect on February 2, 2022, replacing Federal Law No. 8 of 1980. It standardizes end-of-service benefit entitlements for employees in the private sector across the United Arab Emirates.
The regulation applies only to non-national employees in the private sector. UAE citizens are covered by the national pension system under different legislation. Gratuity under the new law is a lump sum paid at the end of employment, calculated based on the employee’s last basic salary and years of continuous service.
There is no distinction between resignation and termination. If the employee has completed at least one full year of service, they are eligible for full gratuity, regardless of how the employment ended.
A single employment contract model now governs all private sector jobs using a fixed-term contract. This simplifies employment relationships and eliminates gratuity reductions previously based on contract type or voluntary resignation.
The law emphasizes clear rules and timely payments. Employers must pay gratuity within 14 days after the employee’s last working day.
Who is eligible for gratuity under the new UAE law?
Minimum service requirement
Employees in the UAE private sector who complete at least one year of continuous service are eligible for end-of-service gratuity. This benefit is mandatory and applies exclusively to expatriate workers.
Exclusions
UAE nationals are not covered under this law. They participate in the General Pension and Social Security Authority system, which provides different retirement benefits.
Eligibility in resignation and termination
Full gratuity is payable regardless of whether the employee resigns or is terminated, as long as the one-year service condition is met.
Part-year service
Gratuity includes proportional payment for partial years beyond the first year. For example, if an employee works 2.5 years, gratuity applies to 2 years and 6 months of service.
Leave impact on eligibility
Unpaid leave and unauthorized absences are excluded from service duration. Paid leave, including maternity and sick leave, is included in full.
How is gratuity calculated under the new UAE law?
Calculation formula
Gratuity is calculated using the employee’s last basic salary and total service years. The law defines two calculation levels:
21 days of basic salary for each year during the first five years
30 days of basic salary for each year beyond the fifth year
Daily wage method
The daily wage is calculated by dividing the monthly basic salary by 30. This amount is then multiplied by 21 or 30, depending on the applicable tier.
Example
If the employee’s basic salary is AED 10,000
Daily wage = AED 10,000 ÷ 30 = AED 333.33
Gratuity for years 1–5 = AED 333.33 × 21 = AED 7,000 per year
Gratuity for year 6+ = AED 333.33 × 30 = AED 10,000 per year
Maximum payout
The law limits total gratuity to no more than two years’ total wage.
Exclusions
Gratuity is based only on basic salary. It excludes housing allowance, transportation, commissions, and bonuses.
What type of employment contract affects gratuity calculation?
Contract standardization
Only fixed-term contracts are valid under the new UAE labor law. This replaces the previous system that allowed both limited and unlimited contracts.
Old law conditions
Previously, gratuity could be reduced or denied based on resignation timing: Resignation between one and three years received only one-third of the calculated gratuity
Resignation between three and five years received two-thirds
In some cases, no gratuity was paid for early exits under fixed contracts
New law rule
Under the new structure, none of these reductions apply. Full gratuity is owed after one year of service regardless of the contract outcome.
What are the payment timelines for gratuity under the new UAE law?
Standard deadline
Gratuity must be paid within 14 days of the employee’s final working day. This applies across all UAE private-sector employment.
In case of death
If the employee passes away while employed, the employer must pay gratuity and all dues to the legal beneficiaries within 10 days.
Consequences of delay
Failure to meet the deadline can result in labor violations, fines, and case escalation through the Ministry of Human Resources and Emiratisation.
How does leave or absence affect gratuity calculation?
Paid leave is included
Fully paid leave counts toward total service duration. This includes: Annual leave
Maternity leave
Sick leave
Unpaid leave is excluded
Unpaid leave does not count toward service when calculating gratuity.
Example: 30 days of unpaid leave reduces credited service by 30 days
Employers must document and separate paid vs unpaid absences when determining eligibility.
What are the gratuity rules in DIFC and ADGM zones?
Alternative system: Contribution-based model
DIFC and ADGM operate under separate rules and do not follow the lump sum gratuity model.
DIFC DEWS plan
The DIFC Employee Workplace Savings (DEWS) plan requires monthly contributions to a savings fund, replacing end-of-service gratuity.
5.83% of basic salary is contributed for employees with fewer than five years of service
8.33% of basic salary is contributed after five years
Employees can optionally contribute more on top of the employer’s portion.
ADGM system
ADGM applies a defined contribution model similar to DIFC. Contributions are made monthly, giving employees an accumulating retirement fund during their employment.
What are the employer obligations and rights under the new UAE gratuity law?
Key obligations
Employers must: Calculate gratuity using basic salary only
Pay gratuity within 14 days of termination
Track service time, unpaid leave, and changes in salary
Maintain records for audit and legal purposes
Legal right to deductions
Employers can deduct from gratuity any amounts legally owed by the employee, such as: Salary advances
Company loans
Missing equipment or property losses
Dispute handling
For claims below AED 50,000, MoHRE may issue a binding decision. For larger or unresolved cases, the matter is referred to the labor court.
How does the UAE gratuity law impact U.S. companies and expatriates?
U.S. company compliance
U.S. companies with operations in the UAE must apply the UAE gratuity law to all qualifying employees. Home-country retirement or severance plans do not replace this legal requirement.
Expatriate entitlements
U.S. citizens working in the UAE for more than one year are entitled to gratuity. The payout is based on basic salary and total service.
DIFC and ADGM obligations
U.S. employers based in DIFC must contribute monthly to the DEWS fund.
5.83% contribution for less than five years of service
8.33% contribution for five years or more
Example cost scenario
A U.S. company employing 20 workers, each with a AED 15,000 basic salary, would accrue a gratuity liability exceeding AED 3 million after five years.
Contract review
Employees should verify: Clear breakdown of basic salary
Gratuity clauses
Jurisdiction of employer (federal UAE or free zone)
Penalties for non-compliance
Violations may result in: Delayed work permits and visa renewals
License suspension
Court-ordered settlements and fines
Conclusion
The updated UAE gratuity law introduces a clear, standardized approach for end-of-service benefits across the private sector. By aligning payment timelines, calculation methods, and eligibility criteria, the legislation removes ambiguity for both employers and expatriate workers. Employers must calculate gratuity based strictly on basic salary and meet the 14-day payout deadline after termination. Expatriate employees working for more than one year are legally entitled to this benefit regardless of how their employment ends.
For quick and accurate estimates, use the official Gratuity Calculator UAE to determine potential entitlements based on your salary and service duration.
FAQs
Who qualifies for gratuity under UAE labor law?
Any expatriate employee in the UAE private sector who completes at least one continuous year of service qualifies for gratuity.
How is UAE gratuity calculated?
Gratuity is calculated using the last basic salary. It is 21 days of pay per year for the first five years and 30 days per year after five years, capped at two years’ total wage.
When must gratuity be paid after termination?
Employers must pay gratuity within 14 days from the employee’s last working day.
Does unpaid leave affect gratuity calculation?
Yes. Unpaid leave is excluded from the total service period used for gratuity calculation.
Are DIFC and ADGM employees covered under this law?
No. Employees in DIFC and ADGM fall under separate rules that require monthly employer contributions to defined savings plans instead of end-of-service gratuity.
