Gratuity in UAE is a statutory end-of-service benefit that every private-sector employee is entitled to after one year of continuous service. This guide covers the law behind it, the exact calculation formula, how EOSB works in Dubai and Abu Dhabi, the difference between gratuity and indemnity, and how final settlement is calculated — with worked examples and an audit checklist.
What is gratuity in UAE?
Gratuity is a lump-sum payment an employer must make to an employee when the employment relationship ends. It is not a bonus, not a pension contribution, and not discretionary. It is a legal entitlement defined by federal law, calculated from the employee's basic wage and length of continuous service.
The term is used interchangeably with "end-of-service benefit," "EOSB," and — in some Arabic-translated contracts — "indemnity." Regardless of what the employer calls it, the calculation for mainland private-sector employees follows the same formula across all seven emirates.
Gratuity exists because the UAE has no state pension system for expatriate workers. It is meant to provide a financial cushion between jobs. The employer is required to pay it within 14 days of the contract ending, alongside any other amounts owed under the final settlement.
EOSB: what the term actually means
EOSB stands for End of Service Benefits. In everyday use, people treat it as a synonym for gratuity, and for most mainland employees it is. But technically, EOSB can refer to the broader package of dues at the end of employment — gratuity plus unpaid salary, unused leave, notice pay, and any other contractual amounts.
When HR sends you an "EOSB calculation," check whether the number is gratuity alone or the combined settlement. A common source of confusion is comparing a calculator estimate (which shows gratuity only) against an employer worksheet that bundles everything into one line. Ask for the breakdown.
UAE gratuity law
Gratuity in UAE is governed by Federal Decree-Law No. 33 of 2021, which replaced the 1980 labour code on 2 February 2022. The implementing regulations are set out in Cabinet Decision No. 1 of 2022. Together, these two documents contain every rule that applies to private-sector gratuity on the mainland and in most free zones.
The key articles are in Chapter 6 of the decree-law:
- Article 51 — establishes entitlement after one year of continuous service.
- Article 51(2) — sets the 21-day and 30-day accrual bands.
- Article 51(3) — caps total gratuity at two years of basic wage.
- Article 51(4) — requires that the calculation use the last basic wage drawn, excluding all allowances.
- Article 53 — requires payment within 14 days of contract termination.
The 2021 law also removed the resignation penalty that existed under the old code. Under the previous framework, employees who resigned before completing five years of service received reduced gratuity. That reduction no longer applies to contracts governed by the new law. Read the full UAE labour law breakdown for chapter-by-chapter coverage.
Who qualifies for gratuity in UAE?
The threshold is one year of continuous service with the same employer. "Continuous" means uninterrupted — unpaid leave periods are generally subtracted from the total. Service starts from the contractual start date (not the visa date or the date the employee entered the country) and ends on the last working day.
Employees excluded from the federal labour law — government workers, domestic staff, and employees in DIFC or ADGM — follow different rules. DIFC employees may fall under the DEWS defined-contribution scheme instead of traditional gratuity. ADGM has its own employment regulations. If you are unsure which framework applies, check the jurisdiction named in your employment contract.
Gratuity calculation formula in UAE
The formula has two tiers and a cap:
After 5 years: 30 days of basic wage per additional year.
Cap: Total cannot exceed 2 years of basic wage.
Daily basic wage = monthly basic salary ÷ 30. Multiply the daily wage by the total gratuity days accrued. Partial years are pro-rated — a service period of 3 years and 4 months earns (3 × 21) + (4/12 × 21) = 70 gratuity days.
The formula uses the last basic salary drawn, not an average. If the employee received a raise two months before leaving, the higher figure applies. This is why keeping salary amendment letters matters.
EOSB calculation step by step
Here is the exact sequence payroll departments follow for a standard EOSB calculation in UAE:
Step 1: Confirm basic salary. Pull the last basic wage from the payslip or WPS record. Exclude housing, transport, phone, commission, and all other allowances. If the contract says "total salary" without a breakdown, request the split in writing.
Step 2: Calculate service period. Count from the contractual start date to the last working day. Use exact dates, not rounded years. The difference between 4 years 11 months and 5 years 0 months is significant — it determines whether the 30-day tier applies.
Step 3: Subtract unpaid leave. Any unpaid leave taken during employment is deducted from total service. Paid annual leave, sick leave, and maternity leave are not deducted. Ask for the specific unpaid leave dates, not just a total number — this makes the deduction verifiable.
Step 4: Compute gratuity days. Apply the 21-day rate to the first five years (or entire service if under five years), then the 30-day rate to anything beyond. Pro-rate partial years.
Step 5: Apply the cap. If the total exceeds 730 days of basic wage (two years), reduce to 730 days. The cap typically only triggers for employees with 22+ years of service.
Run your own numbers using the UAE gratuity calculator, which handles all five steps automatically.
Gratuity rules in Dubai
Dubai mainland employees follow the federal labour law. The gratuity rule in Dubai is the same 21/30-day formula with the two-year cap. There is no Dubai-specific gratuity law or emirate-level variation for private-sector workers.
What is different in Dubai is the dispute resolution path. Labour complaints in Dubai are filed through the Dubai Courts system after MOHRE mediation fails. Dubai also has a higher concentration of free-zone employees — DIFC, JAFZA, DAFZA, DMCC, and others — some of whom may have different gratuity arrangements depending on their zone's regulations.
For a detailed Dubai-specific breakdown with examples, see the gratuity calculation Dubai guide.
Abu Dhabi, Sharjah & other emirates
The computation of gratuity in Abu Dhabi, Sharjah, Ajman, Fujairah, Ras Al Khaimah, and Umm Al Quwain is identical to Dubai for mainland private-sector employees. Federal Decree-Law No. 33 of 2021 applies uniformly. The emirate you work in does not change the formula, the cap, or the payment deadline.
ADGM (Abu Dhabi Global Market) is the exception — it has its own employment regulations separate from the federal law. ADGM employees should check the ADGM Employment Regulations 2019 for their specific gratuity or end-of-service entitlements.
For Abu Dhabi-specific worked examples, see the gratuity calculation Abu Dhabi guide.
Indemnity vs gratuity in UAE
Some employment contracts — particularly those translated from Arabic or issued by free-zone authorities — use the word "indemnity" instead of "gratuity." For mainland private-sector employees, these terms refer to the same benefit calculated the same way.
The Arabic text of the decree-law uses "مكافأة نهاية الخدمة" (end-of-service reward). English translations vary between "gratuity," "end-of-service benefit," and "indemnity." The legal substance is the same. If your contract says "indemnity" but your employer is mainland-registered and MOHRE-regulated, the federal gratuity formula applies.
Where the distinction can matter is in DIFC and ADGM, where "indemnity" may refer to a benefit calculated under those jurisdictions' own rules rather than the federal formula.
Final settlement calculation in UAE
Gratuity is one line in the final settlement, not the whole thing. A complete settlement calculation in UAE includes:
- Unpaid salary — wages earned up to the last working day that have not been paid.
- Leave encashment — payment for accrued but unused annual leave days, calculated at basic wage rate.
- End-of-service gratuity — the EOSB amount from the formula above.
- Notice period compensation — if one party did not serve the full notice period, the other is owed the equivalent in pay.
- Repatriation — flight ticket to the employee's home country, if the contract requires it and the employee requests it.
- Deductions — loans, advances, or court-ordered amounts the employee owes the employer.
The employer must pay the full settlement within 14 days. A correct gratuity figure sitting next to an incorrect leave calculation still produces a wrong settlement. Review each line separately. Do not accept a single lump-sum number without a breakdown.
Resignation vs termination: effect on gratuity
Under the 2021 decree-law, employees who resign receive the same gratuity as employees who are terminated, provided they have completed one year of service. The old penalty system — which reduced gratuity to one-third or two-thirds for employees who resigned before completing three or five years — has been abolished for contracts governed by the new law.
The only scenario where gratuity can be forfeited is dismissal under Article 44 (gross misconduct), and even then the forfeiture provisions are narrower than under the old law. Employers cannot withhold gratuity because an employee resigned "too soon" or did not serve notice — the notice-period compensation is a separate matter.
For a detailed comparison including notice-period implications, see resignation vs termination gratuity UAE.
How to audit the employer worksheet
When HR sends the settlement sheet, check these five things:
1. Salary figure. Compare it to your latest payslip. If the worksheet uses a lower basic wage than your last payslip shows, ask for the source document. The law requires the last drawn basic wage.
2. Service dates. The start date should match your contract, not your visa issue date. The end date should be your actual last working day, not the resignation submission date or the payroll cut-off date.
3. Unpaid leave deduction. Request the exact dates, not a lump number. Cross-check against your leave records. Paid sick leave, annual leave, and maternity leave should not be deducted.
4. Gratuity days. Recalculate manually. If service is 6 years 3 months: (5 × 21) + (1.25 × 30) = 105 + 37.5 = 142.5 days. If the worksheet shows a different figure, ask what formula was used.
5. Cap application. The two-year cap should only reduce the amount if the calculated gratuity exceeds 730 days of basic wage. If you have fewer than 22 years of service, the cap almost certainly does not apply. If the employer applied it anyway, challenge it.
Mistakes that change the number
Using gross salary instead of basic wage. This is the most expensive mistake for employers and the most common shortchange for employees. If your contract bundles salary as a single figure, get the basic-to-allowance split documented. Read the basic vs gross salary guide for how to identify the correct figure.
Rounding service to whole years. Service of 4 years and 10 months is not "about 5 years" for gratuity purposes — and it is not "4 years" either. The two extra months add 3.5 gratuity days. Always use exact dates.
Ignoring salary revisions. If the employee received a raise, the new basic wage applies to the entire gratuity calculation, not just the period after the raise. The law says "last basic wage," not "weighted average."
Deducting paid leave from service. Only unpaid leave reduces service duration. Annual leave, sick leave within the 90-day allowance, and maternity leave are paid leave — they count toward continuous service.
Applying the old resignation penalty. Some payroll systems have not been updated since 2022 and still apply the one-third or two-thirds reduction for resigned employees. This is incorrect for contracts under the new law.
Worked examples
Example 1 — 3 years service, AED 8,000 basic
Example 2 — 7 years 6 months, AED 12,000 basic
Example 3 — 4 years with 45 unpaid leave days, AED 15,000 basic
Example 4 — 12 years, AED 25,000 basic (cap check)
The two-year cap did not apply here. It typically only limits gratuity for employees with 22+ years of service.
Before you sign the settlement
Run your own estimate before the employer sends the worksheet. Gather your latest payslip, contract, and any salary amendment letters. Enter the figures in the gratuity calculator and note the result.
When the employer worksheet arrives, compare line by line: salary base, service dates, unpaid leave deduction, gratuity days, and cap. If the total differs from your estimate by more than a few dirhams, one of those inputs is different — find which one before signing.
Read the release wording carefully. Many settlement documents include language like "the employee acknowledges receipt of all dues and has no further claims." If the gratuity line is wrong, signing that document makes it harder (though not impossible) to dispute later. Ask for corrections before you sign, not after.
If a dispute arises, read the unpaid gratuity guide for the MOHRE complaint process.
Calculate your gratuity now
Enter your basic salary, service dates, and unpaid leave to get an instant EOSB estimate based on UAE law.
Open the UAE gratuity calculator →Frequently asked questions
Gratuity is calculated on basic wage: 21 days per year for the first five years, 30 days per year after that, capped at two years of basic salary. Allowances are excluded.
EOSB stands for End of Service Benefits. In the UAE, it refers to the gratuity payment an employee receives after completing at least one year of continuous service, as required by Federal Decree-Law No. 33 of 2021.
In practice, yes. UAE law uses the term end-of-service benefit (gratuity). Indemnity is a translation used in some Arabic-to-English versions of the law and in some free-zone contracts, but the calculation is the same for mainland employees.
Final settlement includes unpaid salary, accrued unused leave, gratuity (EOSB), notice-period compensation if applicable, and any contractual bonuses or commissions earned but not yet paid. The employer must pay within 14 days.
No. Mainland private-sector employees across all seven emirates follow the same federal gratuity formula. DIFC and ADGM have their own employment frameworks, but those are jurisdiction-specific, not emirate-specific.
No. Under the 2021 decree-law, employees who resign after one year of service receive full gratuity. The old resignation penalty that applied under the 1980 law has been removed for new-style contracts.
