End-of-Service Gratuity in the UAE 2026: How Severance Pay Is Calculated for Employers and Employees

The UAE end of service gratuity is a lump-sum severance payment your employer owes you when your job ends, and it is one of the most misunderstood numbers in a Dubai pay package. If you have worked at least one full year, you have earned it. This guide shows both sides of the desk: how an employer must budget for it, and how an employee can check the figure is right.

The rules are set by federal law, not by a handshake. Below we walk through the accrual bands, the basic-salary rule, the 2-year cap, what changed in 2022, the free-zone savings-scheme alternative, and a worked AED example you can copy for your own case.

Want your number now? Use our free UAE gratuity calculator to work out your end-of-service payment in seconds, on your basic salary, in English, German, or Arabic.

What the UAE end of service gratuity is and who qualifies

The UAE end of service gratuity is a statutory severance benefit paid to private-sector employees at the end of their service, calculated on basic salary and earned at a fixed number of days per year worked. It is owed once an employee completes at least one continuous year of service, and it applies whether the employee resigns or is dismissed.

The benefit is governed by Federal Decree-Law No. 33 of 2021 (the UAE Labour Law) and its Executive Regulations, Cabinet Resolution No. 1 of 2022. The Ministry of Human Resources and Emiratisation (MOHRE) administers it. The rules sit inside the wider framework of the UAE Labour Law, so an employer setting up a payroll should read both this benefit and the broader employer obligations under UAE labour law together.

Three conditions decide eligibility. First, the work must be in the private sector under a MOHRE contract. Second, the employee must complete at least one full year of continuous service. Below one year, no gratuity is owed. Third, the period beyond the first full year is counted, so a part-year on top of completed years is paid pro-rata.

How the gratuity accrues: the 21-day and 30-day bands

Gratuity builds up in two bands. For each of the first five years of service, you earn 21 calendar days of basic wage. For every year beyond the fifth, you earn 30 calendar days of basic wage. The longer you stay, the faster the benefit grows, because the rate steps up after year five.

This two-band rule is set out in Article 51 of the federal law. Here is the structure in plain terms.

A few details matter here. The "days" are calendar days of basic wage, not working days. The daily wage is the basic monthly salary divided by 30. And completed part-years after the first year are paid pro-rata, so an employee who leaves at six years and four months is paid for those extra four months, not rounded down to six years.

The basic-salary-only rule (this is where most disputes start)

Gratuity is calculated on basic salary alone, not on the total package. Allowances for housing, transport, phone, schooling, or any other add-on are excluded from the calculation base. This single rule is the source of most gratuity disputes, because workers often assume their full take-home figure is used.

Consider an employee on a total package of AED 20,000 split as AED 10,000 basic plus AED 10,000 in allowances. Their gratuity is built on the AED 10,000 basic, not the AED 20,000 total. Two people with identical take-home pay can therefore receive very different gratuity if their contracts split basic and allowances differently. For a clearer view of how basic and allowances interact in a Dubai package, our guide on Dubai take-home pay breaks the components down.

For employers, the lesson is to set the basic-salary line deliberately at hiring, because it drives both gratuity and other entitlements for the life of the contract. For employees, it is worth checking your contract: a package that looks generous can carry a thin basic and therefore a thin gratuity.

How to calculate end of service gratuity UAE: a worked example

The cleanest way to learn how to calculate end of service gratuity UAE is to run one full case. Take an employee with an AED 10,000 basic salary and seven completed years of service who is leaving the company.

Step 1: Find the daily wage. Divide the basic monthly salary by 30. AED 10,000 ÷ 30 = AED 333.33 per day.

Step 2: Calculate the first five years at the 21-day band. That is 5 years × 21 days = 105 days. Multiply by the daily wage: 105 × AED 333.33 = AED 35,000.

Step 3: Calculate years six and seven at the 30-day band. That is 2 years × 30 days = 60 days. Multiply by the daily wage: 60 × AED 333.33 = AED 20,000.

Step 4: Add the two bands. AED 35,000 + AED 20,000 = AED 55,000 total gratuity.

Step 5: Check the cap. The total gratuity can never exceed two years of the full (total) wage, a ceiling that for this employee sits well above the AED 55,000 result, so no cap applies. The employee receives AED 55,000.

That gratuity on basic salary UAE figure, AED 55,000, is what the contract earned across seven years. The same worker with the same total package but a higher allowance split and a lower basic would receive less, which is exactly why the basic line on the contract matters so much.

Adding a partial year to the example

Real exits rarely land on a clean anniversary. Suppose the same employee leaves at seven years and six months instead of exactly seven. The first seven years work exactly as above and produce AED 55,000. The extra six months sit in the 30-day band, because they fall beyond year five. Half a year at 30 days is 15 days, so 15 × AED 333.33 = AED 5,000 more. The final figure becomes AED 60,000.

The takeaway is that you do not lose the part-year. Once the first qualifying year is behind you, every additional day of service is counted at the band rate that applies to it, then pro-rated. Employers should resist any temptation to round a leaving date down, and employees should count their service to the actual last working day.

The 2-year cap and the daily-wage method

The total gratuity is capped at two years of the full (gross) wage. This ceiling protects employers from runaway liabilities on very long, very senior tenures, and in practice it only bites for employees with several decades of service. For most careers, the bands produce a figure well under the cap, as the worked example above shows.

The daily-wage method is the engine behind every gratuity sum. You convert the monthly basic into a daily rate by dividing by 30, then multiply by the number of accrued days from each band. Because the divisor is always 30 regardless of the actual days in a month, the calculation is consistent and easy to audit. Both employer and employee can reconstruct the same number from the contract, which reduces disputes.

What changed in 2022: the unified contract regime

Before February 2022, UAE contracts came in two types, limited and unlimited, and a worker who resigned from an unlimited contract lost part of their gratuity on a sliding scale. That distinction is gone. Under the new law, all private-sector contracts are now fixed-term (limited) and renewable, and the old resignation penalty has been removed.

The practical effect is large for employees. An employee who resigns today keeps their full accrued gratuity, provided they meet the one-year minimum, exactly as if they had been terminated without cause. Under the old unlimited-contract system, the same resignation could cut the gratuity to one-third. As Gulf News explains on the resignation-versus-dismissal point, there is now no difference in the calculation whether you resign or are dismissed, so the reason your job ends no longer changes the accrual math.

For employers, this removes a planning quirk. You can no longer assume a resigning employee will cost less in gratuity than a terminated one. Budget for the full accrued figure in every exit.

The free-zone alternative: DEWS and savings schemes

Some free zones replace the statutory gratuity with a funded savings scheme. The clearest example is the DIFC Employee Workplace Savings plan, known as DEWS. Since 1 February 2020, employers in the Dubai International Financial Centre must contribute a monthly percentage of each employee's basic salary into a regulated savings plan instead of accruing a traditional end-of-service lump sum.

Under the DIFC savings scheme, as reported by The National, the employer pays a monthly contribution of basic salary into the plan, set at 5.83 percent for the first five years of service and 8.33 percent thereafter, mirroring the 21-day and 30-day bands as a funded equivalent. The money is invested and belongs to the employee, who can also add voluntary contributions and pick from risk-profiled funds. The benefit is that the employee's entitlement is funded as they go, rather than sitting as an unfunded promise on the employer's books.

This matters most for employees in financial-centre free zones and for employers deciding where to base staff. Outside zones that mandate a scheme, the statutory MOHRE gratuity remains the default. If you are weighing where to set up, our overview of employer obligations under UAE labour law sits alongside this benefit choice.

Notice periods and when the gratuity must be paid

Gratuity does not stand alone at the exit; it sits next to the notice period and the final settlement. Either side can end the contract for a legitimate reason by giving written notice of between 30 and 90 days, as set in the contract. During that notice period the employee keeps working and keeps accruing service, so the clock on the gratuity bands runs until the actual last working day.

The settlement itself is time-bound. The employer should pay the gratuity together with any other end-of-service dues, such as unused leave and the final salary, within 14 days of the contract ending. For employees, this is the window to check the math against the worked example above. For employers, it is the deadline to have the daily-wage calculation, the band split, and any documented deductions ready before the employee leaves.

One practical point ties notice and gratuity together. An employee who resigns without serving the agreed notice can owe the employer a notice-period compensation, but that is a separate debt; it does not erase the gratuity. The two are settled against each other on paper, with the gratuity earned in full and any owed notice compensation handled as its own line.

When gratuity can be reduced or forfeited

Gratuity is more protected than many people assume. Under the new law, an employee dismissed for one of the gross-misconduct grounds in Article 44 does not automatically lose their gratuity, a clear change from the old 1980 law where summary dismissal wiped it out entirely. The one-year minimum still applies, but the act of dismissal itself no longer voids the benefit.

An employer's right to touch the gratuity is narrow. The employer may deduct proven, documented amounts the employee genuinely owes the company, such as an unreturned advance, from the final payment. Anything beyond a proven debt must go through the labour courts, not a unilateral deduction. The safe reading for both sides is that gratuity is owed once the one-year threshold is met, and reductions are the exception, tied to specific proven debts rather than to the manner of leaving.