Guide · updated 16.08.2026 · 8 min read · Lucent Legal team

UAE Gratuity: How It's Calculated by Law, With Examples

You're leaving a job, and the gratuity figure from HR doesn't match your own math. The end-of-service formula is short, but three things trip people up: allowances they wrongly add in, a disputed length of service, and the payout cap. Here's the formula straight from the law, what actually counts toward the base, and three worked examples you can check yourself.

Who qualifies, and when

You qualify after one full year of continuous work for the same employer. Gratuity covers private-sector employees on the UAE mainland and in most free zones. DIFC and ADGM are the exception, since they run their own employment law and courts. Under a year, you get nothing, whatever the reason for leaving.

Partial years after the first full year count in proportion to the days you actually worked. A disputed termination date changes the amount directly. If your employer pushes for an earlier date, check the exact proportion through the official MOHRE calculator or with a lawyer.

The formula: 21 and 30 days

The formula runs in two tiers tied to your length of service:

1. Each year within the first 5 years — 21 days of basic salary.
2. Each year beyond 5 years — 30 days of basic salary.

The daily wage is your basic monthly salary divided by 30, whatever the real number of days in the month. That rule sits in the executive regulations (Cabinet Resolution No. 1 of 2022), and the official MOHRE calculator computes it the same way.

What counts as basic salary, and what doesn't

Only the basic salary in your contract counts. This one point is where most people over- or under-estimate their payout:

• Counts: basic salary alone — the fixed base rate named in your contract as the core of your pay.
• Doesn't count: housing allowance, transport allowance, bonuses, commissions, overtime, and other benefits in kind.

Say your take-home pay is AED 15,000 but your contract lists a basic salary of AED 9,000. Gratuity comes off that 9,000, not the full amount. Almost every dispute over the figure starts here, so check the basic-salary line in your contract, not the number on your bank statement.

Three worked examples

Here are three cases run end to end, so you can see the formula and the cap in action:

The first is a typical short stint, calculated purely at the 21-day rate and never crossing the 5-year line. The second shows the threshold at work: the first 5 years at 21 days, the remaining 2 years already at 30. The third shows the cap — the raw formula gives AED 294,000, but the law limits the payout to two years' basic salary.

The cap: no more than two years' salary

Your total gratuity can never exceed 2 years' salary, which is basic salary × 12 × 2. With long service, the day-based formula almost always hits this ceiling. Past the 5-year mark every year adds 30 days — effectively a month of basic salary — so the running total reaches the 24-month limit fairly fast, as the 26-year example shows.

Resignation vs. termination: new contracts vs. old ones

Since the 2022 labour reform, resigning and being terminated pay the same gratuity. Federal Decree-Law No. 33/2021 made all new contracts fixed-term, capped at 3 years, and dropped the old split between "you were let go" and "you quit." With at least 1 year of service, the sum is identical either way.

Older unlimited contracts signed before 2 February 2022 and never converted may still fall under the old resignation rules. Some sources put the reduction at roughly 1/3 of the calculated amount for 1–3 years of service and 2/3 for 3–5 years. Past 5 years, the old rules paid the full amount even on resignation. This turns on your contract's exact date and type, not on general figures online, so confirm it with a lawyer if yours was never converted.

When gratuity can be forfeited

Full forfeiture is rare, not automatic. The old 1980 law zeroed out gratuity on almost any summary dismissal. Under the current law, the only ground for a complete denial is dismissal for assault or gross misconduct that harmed the employer's business. Most other grounds for summary dismissal under Article 44 don't forfeit gratuity on their own.

To withhold or offset gratuity against damages, an employer normally needs a court ruling or a MOHRE-approved settlement. Refusing to pay simply because you were dismissed for misconduct, without that basis, is unlawful. If the employer still won't pay after termination, the route matches unpaid salary — a complaint to MOHRE (see unpaid salary).

Topic: UAE Labour Law 2026

This material is for information only and is not legal advice. UAE law changes — a lawyer will assess how it applies to your situation.