Gratuity Calculator UAE: How It Works and Why You Need It

Working in the UAE comes with many benefits. One of the most important is the gratuity payment, also known as end-of-service benefit.
But many employees and even employers still have questions about how it’s calculated, who is eligible, and why the gratuity calculator UAE is so useful.

This guide breaks everything down in simple language. We’ll explain the latest rules, share practical examples, and show how a gratuity calculator can help.

What is Gratuity?

In the UAE, gratuity is a lump-sum payment an employee receives when their service ends, provided they’ve worked at least one year.
It is a financial thank-you from the employer for the employee’s dedication and loyalty.

Gratuity is not the same as salary or bonus. It’s separate and guaranteed by UAE Labour Law.
Employees leaving the job—whether due to resignation, termination, or contract expiry—can be eligible, depending on their situation.

Why Gratuity Matters

Gratuity is more than just extra money. Here’s why it’s important:

• Financial security: It helps employees transition smoothly after leaving a job.
  
• Recognition: It acknowledges employees’ years of service and effort.
  
• Legal requirement: Employers must pay gratuity to stay compliant with the UAE Labour Law.
  
• Retention: Knowing they’ll get gratuity often encourages employees to stay longer.
  

These reasons show why both employers and employees should understand how it works.

Key Factors That Affect Gratuity Calculation

Calculating gratuity isn’t as simple as multiplying your salary by years of work.
Several factors determine the final amount:

1. Type of employment contract: Limited or unlimited.
   
2. Reason for leaving: Resignation, termination, mutual agreement, or redundancy.
   
3. Length of service: Only after one year of continuous service.
   
4. Basic salary: Only the basic salary counts, excluding housing, transport, or other allowances.
   
5. Absence without pay: Unpaid leave days are excluded from service duration.
   

Let’s look at each of these in detail.

Types of Contracts in the UAE

The UAE used to have two main contract types: limited and unlimited.

• Limited contract: Has a fixed start and end date.
  
• Unlimited contract: Had only a start date and ran until either party ended it.
  

Important update:
In 2022, the UAE Labour Law changed.
The unlimited contract was phased out to reduce disputes.
All employees now have limited contracts, even if newly issued or renewed.

Yet, the calculation methods are still often explained using both terms, so it’s useful to understand them.

Gratuity Calculation for Limited Contracts

Here’s how gratuity works under a limited contract:

• Less than 1 year of service: No gratuity.
  
• 1–5 years of service: 21 days’ basic salary per year.
  
• More than 5 years:
  
  • First 5 years: 21 days’ basic salary per year.
    
  • Beyond 5 years: 30 days’ basic salary per additional year.
    

Important:
The total gratuity must not exceed two years’ basic salary.

Gratuity Calculation for Unlimited Contracts (Old System)

Although new unlimited contracts are no longer issued, some employees are still covered under old contracts until renewal.

For resignation:

• Less than 1 year: No gratuity.
  
• 1–3 years: 1/3 of 21 days’ salary per year.
  
• 3–5 years: 2/3 of 21 days’ salary per year.
  
• More than 5 years: Full 21 days’ salary for the first five years, then 30 days per additional year.
  

For termination by employer:

• Less than 1 year: No gratuity.
  
• 1–5 years: Full 21 days’ salary per year.
  
• More than 5 years:
  
  • First 5 years: 21 days per year.
    
  • Beyond 5 years: 30 days per year.
    

Again, the cap is two years’ basic salary.

Step-by-Step: How to Use a Gratuity Calculator UAE

A gratuity calculator UAE makes this process fast and easy. But if you’d like to understand how it works or want to check it manually, here’s a complete breakdown:

Step 1: Find your daily wage

Gratuity is based only on your basic monthly salary.
Exclude all allowances like housing, transport, bonuses, or overtime.

Formula:

Daily wage = Monthly basic salary ÷ 30

Example:
If your basic salary is AED 10,000:

AED 10,000 ÷ 30 = AED 333.33 per day

This daily wage is the foundation for your calculation.

Step 2: Identify the applicable number of gratuity days

The UAE labour law gives different entitlements based on how long you’ve worked:

• For the first five years of service: you get 21 days of basic salary for each year.
  
• For any period beyond five years: you get 30 days of basic salary for each additional year.
  

Tip: If you’ve worked, for example, 6 years and 8 months, you should calculate gratuity for those 8 months too, as a fraction of a year.

Step 3: Multiply your daily wage by gratuity days

Now, calculate your gratuity for each part of your service.

For the first five years:

Daily wage × 21 days

Using the example:

AED 333.33 × 21 = AED 6,999.93 per year

Then, multiply this by the number of years:

5 years × AED 6,999.93 = AED 34,999.65

For the sixth year (beyond 5 years):

Daily wage × 30 days
AED 333.33 × 30 = AED 9,999.90

Step 4: Adjust based on resignation or termination rules

The final amount often changes based on how your job ended:

• If you resigned under an unlimited contract:
  
  • Between 1–3 years of service: entitled to 1/3 of gratuity.
    
  • Between 3–5 years: entitled to 2/3.
    
  • After 5 years: entitled to the full amount.
    
• If your employer terminated you without misconduct: usually entitled to the full gratuity.
  
• If dismissed for gross misconduct or resigned before completing 1 year: you may lose your gratuity completely.
  

This adjustment is important to stay aligned with UAE labour law.

Step 5: Calculate the total gratuity

Add the gratuity amounts you calculated for each year (or partial year):

Example:

AED 34,999.65 (first five years) + AED 9,999.90 (sixth year)
Total gratuity = AED 44,999.55

Then do a final check:

• The total gratuity must not exceed two years’ basic salary (which would be AED 10,000 × 24 = AED 240,000 in this case).
  
• Deduct any unpaid loans, advances, or days of unpaid leave, since unpaid leave days don’t count in service duration.
  

Additional tips

• Partial years matter: If you worked 6 years and 8 months, calculate gratuity for those 8 months (0.67 of a year):
  
  • AED 333.33 × 30 = AED 9,999.90 × 0.67 ≈ AED 6,699.93
    
• Gratuity is separate from other payments: Your final settlement may also include unpaid salary, payment for unused annual leave, end-of-contract bonuses, or notice period compensation.
  

Summary in a quick table

Example Calculation

Suppose:

• Basic salary: AED 10,000.
  
• Service duration: 6 years.
  
• Resigned under unlimited contract.
  

Step 1: Daily wage = AED 333.33.

Step 2:

• First 5 years: AED 333.33 × 21 = AED 6,999.93 per year.
  
• Sixth year: AED 333.33 × 30 = AED 9,999.90.
  

Step 3:

• For resignation after 5 years, entitled to full gratuity:
  
  • 5 × AED 6,999.93 = AED 34,999.65.
    
  • Plus AED 9,999.90.
    
• Total = AED 44,999.55.
  

Special Cases & Rules

Gratuity payment can change if:

• Employee is dismissed for gross misconduct: loses gratuity.
• Resigns without notice: may lose part of gratuity.
• Contract ends by mutual agreement after 1+ years: full gratuity.
• Redundancy or company closure: full gratuity if service is over 1 year.

Why Use a Gratuity Calculator UAE?

Manual calculation is possible—but complex.
A gratuity calculator UAE offers these benefits:

✔ Fast and simple: Enter salary and years; get instant result.
✔ Accurate: Avoid errors, follow legal formulas.
✔ Updated: Reflects latest UAE Labour Law.
✔ Useful for planning: Helps employees know what to expect and negotiate.

Employers also use it to budget for end-of-service payouts.

Other End-of-Service Benefits

Besides gratuity, employees may get:

• Unpaid salary.
  
• Payment for unused annual leave.
  
• Flight tickets (if in contract).
  
• Notice period compensation.
  

These aren’t part of gratuity but part of final settlement.

What the UAE Law Says

Under UAE Labour Law:

• Employees with 1+ year service must get gratuity.
  
• Employers must pay within 14 days after employment ends.
  
• Only basic salary counts (no housing/transport).
  
• Maximum gratuity: two years’ basic salary.
  

For the latest details, always check the Ministry of Human Resources & Emiratisation (MOHRE) website.

Frequently Asked Questions

How do I calculate gratuity in the UAE?

Use this formula:

• Less than 5 years: daily wage × 21 × years.
  
• Beyond 5 years: daily wage × 30 × extra years.
  Adjust for resignation rules if under unlimited contract.
  

What is the new rule for gratuity in UAE?

As of 2022, all new contracts are limited contracts.
Unlimited contracts are phased out to reduce disputes.
Gratuity must be paid within 14 days of leaving.

How to calculate final settlement in UAE?

Final settlement = gratuity + unpaid salary + unused leave + other agreed benefits – any deductions.

What is the formula for calculating gratuity?

Daily wage × number of gratuity days (21 or 30) × years of service.
Daily wage = monthly basic salary ÷ 30.

Conclusion

The gratuity calculator UAE is a powerful tool that saves time and helps both employers and employees follow the law.

For employees, it offers clarity and financial security.
For employers, it prevents mistakes and disputes.

Understanding gratuity isn’t just about numbers—it’s about appreciating people’s dedication and ensuring fair treatment.

If you’re an HR professional or business owner, consider using modern HR tools and calculators to stay compliant.
If you’re an employee, check your contract and use the calculator to see what you’re entitled to.

By staying informed, everyone benefits.

Need Help?

If you want to simplify HR processes—from gratuity calculation to payroll and compliance—modern HR software can help.
Solutions like Octofy by HRSG offer automated calculations, reports, and legal updates, so you can focus on growing your business.

Whether you’re an employer or employee, understanding and calculating gratuity the right way keeps the workplace fair, transparent, and secure.

Also Read: Salary Certificate Format in UAE