End of Service Gratuity Calculation in the UAE and Unlawful Termination in 2026
Understanding the End of Service Gratuity Calculation in the UAE is important for employees and employers when an employment relationship comes to an end. Questions frequently arise regarding how gratuity is calculated, whether the basic salary or total salary should be used, when the payment becomes due, and whether an employee who has been unlawfully terminated may claim additional compensation.
For private-sector employment relationships falling within its scope, the principal legislation is Federal Decree-Law No. 33 of 2021 Concerning the Regulation of Employment Relationships, as amended.
It is important to distinguish end-of-service gratuity from compensation for unlawful termination in the UAE. They are separate legal entitlements and are subject to different requirements.
UAE Labour Law – Official UAE Legislation Platform
Ministry of Human Resources and Emiratisation – MOHRE
How Is End of Service Gratuity Calculated in the UAE?
Under Article 51 of the UAE Labour Law, a foreign full-time worker who has completed one year or more of continuous service is generally entitled to an end-of-service gratuity upon termination of employment.
The traditional End of Service Gratuity Calculation in the UAE is based on the employee’s last basic wage, rather than the total salary including allowances. This is also reflected in current MOHRE guidance. (MoHRE)
The calculation is generally as follows:
For the first five years of service:
21 days of basic wage for each year of service.
For each year exceeding five years:
30 days of basic wage for each additional year.
A foreign worker may also be entitled to gratuity for a fraction of a year proportionate to the period actually worked, provided that the worker has completed at least one year of continuous service. The Arabic source article also notes that unpaid periods of absence are excluded from the relevant service calculation.
The statutory gratuity is subject to the applicable legal limits and rules, and alternative end-of-service arrangements may apply in certain circumstances.
UAE Labour Law – Federal Decree-Law No. 33 of 2021
End of Service Gratuity Calculation in the UAE: Practical Example
A simple example helps explain the End of Service Gratuity Calculation in the UAE.
Assume that an employee’s last basic monthly wage is AED 6,000 and the employee has completed five years of continuous service.
Daily basic wage:
AED 6,000 ÷ 30 = AED 200
Gratuity for each of the first five years:
AED 200 × 21 days = AED 4,200
Gratuity for five years:
AED 4,200 × 5 = AED 21,000
Accordingly, the estimated end-of-service gratuity would be AED 21,000, subject to verification of the employment record, applicable law, unpaid absences, contractual arrangements and any applicable alternative end-of-service scheme.
Where the employee’s service exceeds five years, the subsequent years are generally calculated at 30 days of basic wage for each additional year.
For example, the original Arabic article also provides a seven-year calculation using a basic salary of AED 12,000 and arrives at AED 66,000 under the traditional calculation method.
Is UAE End of Service Gratuity Calculated on Basic Salary or Total Salary?
This is one of the most frequently asked questions concerning the End of Service Gratuity Calculation in the UAE.
For a foreign full-time employee under the statutory gratuity system, the calculation is generally based on the employee’s last basic wage, rather than the total monthly remuneration including allowances.
MOHRE’s current employer guidance states that a foreign employee becomes entitled to end-of-service gratuity after completing one year of continuous service and that the calculation is based on the employee’s last basic wage received. (MoHRE)
For example, if an employee receives:
Basic salary: AED 10,000
Allowances: AED 5,000
Total monthly salary: AED 15,000
the traditional statutory gratuity calculation would generally use the AED 10,000 basic wage, not AED 15,000.
This distinction can make a significant difference to the final amount.
The source article similarly distinguishes basic salary from total remuneration and warns against calculating the gratuity automatically on all monthly allowances.
When Must End-of-Service Entitlements Be Paid in the UAE?
Under Article 53 of the UAE Labour Law, the employer is required to pay the worker’s wages and other statutory and contractual entitlements within 14 days from the date of termination of the employment contract.
Depending on the individual circumstances, final employment entitlements may include:
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unpaid salary;
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end-of-service gratuity;
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payment for accrued but unused annual leave;
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notice pay where legally due; and
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other contractual or statutory employment entitlements.
However, these entitlements should not automatically be calculated on the same wage basis. Each entitlement must be assessed under the provisions applicable to it.
The original article likewise identifies the 14-day payment requirement and outlines the documents that may be relevant when pursuing unpaid employment entitlements.
What Is Unlawful Termination in the UAE?
The expression “arbitrary dismissal” is still frequently used in online searches and everyday discussions. However, when discussing the current UAE Labour Law, it is important to use the statutory concept accurately.
Article 47 is titled “Unlawful Termination of Worker’s Service.”
Under Article 47, termination by an employer is unlawful where the employee’s service is terminated because the worker:
filed a serious complaint with the Ministry; or
filed a case against the employer which was proven to be true.
The current statutory wording is therefore important. The mere fact that an employer terminates an employee does not automatically establish unlawful termination under Article 47.
The reason for termination, its timing, any prior complaint or legal proceedings, and the evidence linking those matters to the dismissal may all need to be examined.
The official legislation confirms this scope of Article 47. (UAE Legislation)
The source Arabic article makes the same distinction and cautions against relying on older online explanations based on the previous labour-law concept of arbitrary dismissal.
How Much Compensation Can Be Awarded for Unlawful Termination in the UAE?
Where the competent court determines that termination was unlawful within the meaning of Article 47, the employer may be ordered to pay the worker fair compensation.
When determining the amount, the court takes into consideration:
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the nature of the work;
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the amount of damage sustained by the employee; and
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the employee’s length of service.
However, Article 47 imposes an important limit.
The compensation must not exceed the employee’s wage for three months, calculated according to the employee’s last wage received. (UAE Legislation)
Therefore, three months’ salary is a statutory maximum, not an automatic award in every unlawful termination case.
The court determines the appropriate compensation based on the circumstances and evidence, subject to that maximum.
Can an Employee Claim Both End of Service Gratuity and Unlawful Termination Compensation?
Potentially, yes.
This is a particularly important distinction when considering the End of Service Gratuity Calculation in the UAE.
Article 47 expressly provides that compensation for unlawful termination does not prejudice the employee’s right to notice allowance and end-of-service gratuity, where the employee is otherwise entitled to those amounts under the law. (UAE Legislation)
Therefore, depending on the facts, an employment claim may involve separate heads of claim such as:
end-of-service gratuity + notice pay + unpaid salary + unused annual leave entitlement + unlawful termination compensation.
Each claim must nevertheless be calculated separately and the legal requirements for each entitlement must be established.
For example, the statutory basis used for calculating end-of-service gratuity is not necessarily identical to the wage basis applicable to an Article 47 unlawful termination award.
End of Service Gratuity Calculation in the UAE
How Can an Employee Prove Unlawful Termination?
Whether a termination falls within Article 47 depends on the evidence and circumstances of the particular case.
Relevant documents may include:
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the employment contract;
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termination letter;
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previous MOHRE complaint;
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documents relating to court proceedings against the employer;
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emails and written correspondence;
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salary and WPS records; and
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documents establishing the chronology between the employee’s complaint or case and the subsequent termination.
The timing of events can be particularly relevant.
Accordingly, an assessment of unlawful termination in the UAE should not be based solely on the wording of the termination letter. The complete factual chronology and supporting documents should be reviewed.
Ministry of Human Resources and Emiratisation – MOHRE
End of Service Gratuity and Employment Lawyers in the UAE
Where there is a dispute regarding the End of Service Gratuity Calculation in the UAE, unpaid employment entitlements or unlawful termination, it is important to review the employment contract, basic and total salary, length of service, termination letter, WPS or salary records, and any previous complaint filed with MOHRE.
Azza Ibrahim Hassan Al Mulla Advocates & Legal Consultants L.L.C. assists employees and employers with employment disputes and the assessment of legal entitlements under UAE law.
For related information and legal services, you may also visit:
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Immediate Legal Consultation – advo-uae.com
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Disclaimer: The information in this article is provided for general legal awareness only and does not constitute individual legal advice. Legal procedures, available remedies and potential outcomes vary according to the facts, documents, parties and jurisdiction involved in each case.
