In the UAE, certain laws and regulations make the country an amazing place to live and work. Among the most important ones, you can find the Labour Law, which entitles employees to a set of benefits. Gratuity payments are among those benefits, and knowing how to calculate them by using a gratuity calculator is essential for employers and employees.
In this article, you will learn everything you need to know about UAE gratuity and how to calculate it accurately. In this way, you will get correct results when paying your employees in the United Arab Emirates. Or, in case you are an employee, you will be able to know how much you will receive. Let us observe:
- What is the gratuity benefit that employees in the UAE can receive?
- How should employers calculate gratuity for employees working in the UAE?
- What happens when an employer refuses to pay end-of-service gratuity benefits?
- What happens in case an unlimited contract terminates before its renewal procedure?
- How can you protect your rights before leaving your job?
- How can Connect Resources help you calculate gratuity and process payroll in the UAE?
1. What is the gratuity benefit that employees in the UAE can receive?
In the UAE, the current Labour Law has many rules and regulations that benefit employees and companies equally. In the case of employees, there is a particular rule that benefits them when their employment contracts are terminated. This is known as gratuity in the UAE, which is regulated by the same legislation that controls pensions and social security.
The UAE Labour Law states that all employees are entitled to receive this monetary benefit once they have finished their employment contracts. There are many types of gratuity benefits that they can receive, depending on their circumstances and whether they are eligible. For instance, employees working in the private sector can receive any of the following provisions upon the termination of their contracts:
- Unpaid wages or any overtime payments due.
- Encashment of leaves that they did not use.
- Repatriation of expenses applicable as per the Labour Law and the employment contract for end-of-service benefits.
- End-of-service gratuity benefits.
You can also find some additional benefits that employees in the UAE can get in case of unfair dismissal. For example, if they are eligible and meet the criteria, they can get compensation for up to 3 months’ salary. In the case of limited contracts, the compensation amount must not exceed the total 3-month remuneration or the amount due for the remaining contractual period.
However, it is important to know that the calculation of the UAE gratuity depends on a number of relevant factors. For example, the type of contract, basic salary, and the total number of years served in the company are some of them. Furthermore, the reason for the termination of the employment contract is another element that must be taken into account when using a gratuity calculator in the UAE.
1.1. What types of employment contracts are important for calculating gratuity?
In the UAE, you can find two types of contracts; a fixed or limited term and an unlimited contract. Each of these employment contracts has different terms and conditions, so it is essential to know each of their concepts. When calculating gratuity after these contracts terminate, you should use a gratuity calculator to get accurate results.
In the case of the limited contract, you should know that employees agree to stay working for the set date and number of years. Furthermore, it is also important to keep in mind that there are consequences for resigning before the end of that period. For example, it can lead to a labour ban, loss of labour rights, or payment of compensation to the employer.
On the other hand, an unlimited contract has no number of years and no end date either. In this case, it is a requirement to include 1 to 3 months of notice period before contract termination.
For each of the previously mentioned contracts, there is a method to calculate gratuity. But first, you should be aware of the rules stated in the Labour Law. Therefore, we recommend that you download the UAE new Labour Law in 2022 in PDF format and read it before using a gratuity calculator.
2. How should employers calculate gratuity for employees working in the UAE?
It is vital that all employers know the importance of the end-of-service gratuity pay among the benefits that employees receive. Therefore, using an effective UAE gratuity calculator is imperative when calculating this important monetary compensation for employees in the country. Additionally, as we mentioned before, it is crucial to take into account the type of contract and other key elements.
2.1. How should you calculate gratuity for an unlimited contract?
In this case, you must consider the duration of your service. More precisely, there are four scenarios that are used to calculate gratuity with an end-of-service calculator in the UAE:
- Less than 1 year of service: In this first case, employees who resign before completing one year of service are not entitled to any gratuity pay or final settlement.
- Between 1 and 3 years of service: In this case, employees receive one-third (1/3) of the 21 days’ gratuity pay.
- Between 3 and 5 years of service: Employees can receive two-thirds (2/3) of the 21 days’ gratuity pay.
- 5 years of service or more: If employees have served the company for 5 or more years, they are entitled to the full 21 days’ gratuity pay.
Let us see a numerical example where the salary of an employee is AED 10,000. When calculating UAE gratuity, you must follow these steps:
- Identify the employee’s daily wage, which is AED 333.30 (10,000/30 = 333.30).
- Multiply it by 21 to identify the employee’s 21 days’ salary, which will be AED 6,999.30 (333.30 × 21 = 6,999.30).
- From this number, you can get the 1/3 (1-3 years) or the 2/3 (3-5 years) to get the total gratuity pay, depending on the years of service.
- In case the employee has worked for 5 or more years, the total amount of gratuity pay that he/she will receive is AED 6,999.30 for each year.
2.2. How should you calculate gratuity for a limited contract?
In this case, the process is similar, and remember that using a gratuity calculator in Dubai or the UAE is recommendable. We will now take a look at the following scenarios for calculating gratuity upon the termination of a limited contract:
- Less than 1 year of service: Just like in the previous case, employees who resign before completing one year of services are not entitled to any gratuity pay or final settlement.
- Between 1 and 5 years of service: In this second scenario, employees are entitled to full gratuity based on their 21 days’ salary.
- 5 years of service or more: In this last case, employees receive full gratuity pay too. However, this time, gratuity pay is based on their 30 days’ salary. Plus, they receive this pay for every year of work.
It is easier to understand it by looking at an example, and we will use the same example as before (basic salary: AED 10,000). An accurate Dubai gratuity calculator follows these steps:
- Identify the employees daily wage (AED 10,000/30 = AED 333.30).
- Multiply it by 21 or 30, depending on the situation (AED 333.30 × 21 = AED 6,999.30).
- In case an employee has served for more than 5 years, their gratuity pay for each year is acceptable. However, the total amount should not exceed 2 years’ total salary figure.
In case you desire to get more information about this process, make sure to make inquiries to the pertinent authorities. It can be the MOHRE in Dubai or an agency that specializes in payroll and employee benefits. Keep in mind that the MOHRE in the UAE does not directly manage gratuity regulations but the Pensions Authority.
3. What happens when an employer refuses to pay end-of-service gratuity benefits?
The most recent UAE Labour Law specifies the following:
- Employers must pay end-of-service benefits to employees within 14 days of the termination of the contract.
- Employers cannot terminate employees’ contracts without paying end-of-service benefits.
- In the event of the death of an employee, the employer must pay the gratuity entitlements to the deceased’s family.
- Employers must not reduce or deduct the gratuity amount based on an employee’s contract type or resignation date unless the law grants it.
In case an employer refuses to pay gratuity in the UAE, employees can file an immediate complaint at the Labour Office. Then, they can pursue legal procedures in a Labour Court. You can follow this advice for similar cases, like the ones regarding leave salary calculation in the UAE and others.
4. What happens in case an unlimited contract terminates before its renewal procedure?
The new UAE Labour Law states that all unlimited contracts must be converted into limited contracts. These will have a validity of up to 3 years. However, in case an unlimited employment contract is terminated before it is converted into a limited one, the employer must use an end-of-service calculator. With it, they will calculate gratuity as per the previous law (if eligible).
When we refer to the old Labour Law, employers must calculate gratuity payment by following the previous guidelines. These proceedings can vary depending on whether the contract is terminated by the employee or the employer.
5. How can you protect your rights before leaving your job?
Before taking the case to a Labour Court for a dispute resolution of your benefits, you must gather evidence that supports your position. For example, you can maintain an employment diary that dates and records significant events. These events can be salary bumps or slashes, performance reviews, reprimands, commendations, and informal remarks by your employer.
You can note every event with all details (time, date, location, witnesses, etc.) and keep track of written material. For instance, these include emails, memos, evaluations, and more. Additionally, using a gratuity calculator in Abu Dhabi or in any other location in the UAE can be useful too.
6. How can Connect Resources help you calculate gratuity and process payroll in the UAE?
Calculating the end-of-service gratuity benefits of UAE employees correctly is something that requires you to have knowledge in many aspects as en employer. Connect Resources can offer you with the guidance and information you need to get accurate results without wasting time. In fact, if you are an employer or business owner, we can help you run your payroll efficiently and flawlessly.
Our specialists will provide you with the most effective payroll outsourcing services to ensure accuracy and compliance with UAE laws. In addition, we help you manage all payroll elements, including employee benefits, payslips, overtime, bonuses, and many other details.
Are you interested in getting payroll services to increase your company’s efficiency? Contact us now to get more information about our solutions. If you run a business in any of the following countries, feel free to request any of our services:
Would you like to receive more information about the process to calculate gratuity in the UAE? In that case, get in touch with our team to receive full guidance on this matter and every detail related to it. In case you desire to talk to one of our payroll specialists directly, make sure to call us at +971 43 316 688. In addition, you can also send us an email at contact@connectresources.ae to get more information and tips.
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