Two things decide the number, and employers get both wrong. Gratuity is calculated on **basic salary only** — not total package — and it accrues at **21 days per year for the first five years, 30 days thereafter**. Everything due must be paid **within 14 days** of the last working day.
End of Service Gratuity
Calculation, worksheet and final settlement
Two things decide the number, and employers get both wrong. Gratuity is calculated on basic salary only — not total package — and it accrues at 21 days per year for the first five years, 30 days thereafter. Everything due must be paid within 14 days of the last working day.
| Item | Detail |
|---|---|
| Employee | [NAME], passport [NUMBER] |
| Employer | [COMPANY NAME] |
| Jurisdiction | [Mainland / Free zone] — DIFC and ADGM use funded schemes instead; see the notes |
| Date of joining | [DATE] |
| Last working day | [DATE] |
| Total service | [YEARS] years [MONTHS] months [DAYS] days |
| Unpaid leave to exclude | [DAYS] days |
| Qualifying service | [YEARS] years |
| Basic salary at termination | AED [AMOUNT] per month |
| Total salary (for the cap) | AED [AMOUNT] per month |
| Reason for termination | [Resignation / Employer termination / Expiry / Summary dismissal] |
| Payment due by | [DATE] — 14 days from the last working day |
1. Does Gratuity Arise?
| Circumstance | Gratuity | Note |
|---|---|---|
| Service under one year | None | One year of continuous service is the qualifying threshold |
| Resignation after one year | Full entitlement | Under the current law, resignation no longer reduces gratuity |
| Employer termination after one year | Full entitlement | |
| Expiry of the fixed term | Full entitlement | |
| Summary dismissal on a statutory ground | [May be forfeited] | Only where the ground and the procedure are properly established — take advice |
| Death in service | Full entitlement | Paid to the estate |
| Part-time and flexible work models | [Pro-rated] | Calculated on the basis prescribed for the model |
| DIFC / ADGM employees | Not applicable | Funded scheme contributions replace accrual |
1.1Under the previous law, resignation before five years reduced gratuity to a fraction. That no longer applies. Calculators and templates still applying a resignation reduction are out of date and will understate what is owed.
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These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.
Gratuity is calculated on basic salary, excluding housing, transport and every other allowance. An employer computing on total package will substantially overpay; an employee expecting it on total package will feel short-changed. State the basic salary clearly in the contract and the offer so nobody is surprised at the end.
Twenty-one days’ basic salary for each of the first five years, thirty days for each year after that. The daily rate is basic monthly salary divided by 30.
The previous law scaled gratuity down for employees resigning before five years. That was removed. Online calculators, HR templates and internal policies still applying a resignation reduction are out of date and will understate the entitlement — which becomes a MOHRE complaint.
No gratuity accrues below one year of continuous service. Above it, entitlement runs from the first day, with part years pro-rated.
All end-of-service entitlements are due within 14 days of the last working day. That is short, and it covers gratuity, leave encashment, final salary and any notice payment. Begin the computation when notice is given rather than after the employee has left.
Total gratuity cannot exceed two years’ total salary. On any normal package that ceiling sits far above the entitlement, as the worked illustration shows. What actually drives the figure is the basic salary, not the cap.
DIFC employers contribute monthly into DEWS or a certified alternative qualifying scheme instead of accruing gratuity, and ADGM operates its own funded arrangement. A gratuity calculation applied to a DIFC employee is simply the wrong instrument. Confirm the jurisdiction before computing anything.
Because gratuity attaches to basic salary alone, the basic-to-allowance split has a real long-term cost consequence. A structure weighted towards allowances is lawful and common. It should be a conscious decision made at offer stage and disclosed, not a surprise discovered after seven years of service.
Recruitment fees, work permits, visas, medical testing and Emirates ID are employer costs by law and cannot be recovered from the final settlement. Attempting to net them off is a contravention and is among the more commonly enforced points.
Periods of unpaid leave are excluded from the service calculation. Sick leave and paid statutory leave are not. Track unpaid periods contemporaneously rather than reconstructing them at exit.
Forfeiture of gratuity on summary dismissal is available only where a statutory ground is properly established and the required procedure followed, including giving the employee an opportunity to respond. Employers reach for it too readily, and a forfeiture that fails converts into an arbitrary dismissal claim as well.
Untaken leave is the second most disputed line in a UAE final settlement after gratuity. Reconcile to the leave system, show accrued less taken, and state the daily rate used. A bare figure invites a challenge.
Cancellation and settlement are separate steps, and cancelling first removes the employee’s leverage and their status. Settle, issue the statement, then cancel — and tell the employee about the grace period that follows.
The settlement statement in Section 6 shows the basis of each figure. Most gratuity disputes are arithmetic that was never explained. A single page prevents a large share of MOHRE complaints.
Reflects UAE law current as of {{DATE OF USE}}. Federal Decree-Law 33/2021 and its Cabinet resolutions govern gratuity, and DIFC and ADGM operate separate funded schemes whose rates and rules change — confirm the current position with MOHRE, the relevant free zone, or a UAE employment adviser before finalising a settlement.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, corporate secretary, or accountant as relevant) before you rely on it.