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How End-of-Service Pay Is Calculated in the UAE?

Learn how end-of-service benefits are calculated for direct employees in the UAE - final salary, gratuity and leave

Sameer B. avatar
Written by Sameer B.
Updated over 2 weeks ago

When a Direct Employee's contract ends in the UAE, they may be entitled to end-of-service benefits. The total compensation depends on factors such as contract type, tenure, nationality, and unused leave.

Components of End-of-Service Calculation

1. Final Salary

Calculated as:
Daily wage × Days worked in the final month


2. Gratuity Compensation

Gratuity applies only to non-GCC nationals or employees not enrolled in DEWS (DIFC jurisdiction).

For Limited-Term (definite) contracts:

Tenure

Gratuity Entitlement

Less than 1 year

Not eligible

1 to 5 years

21 days' basic pay per year of service

More than 5 years

30 days' basic pay per year of service

(for each year beyond 5 years)

For Unlimited-Term (indefinite) contracts:

Tenure

Gratuity Entitlement

Less than 1 year

Not eligible

1 to 3 years

1/3 of 21 days' basic pay per year of service

More than 3 years to 5 years

2/3 of 21 days' basic pay per year of service

More than 5 years

30 days' basic pay per year of service

(for each year beyond 5 years)

Example

Scenario
An unlimited-term employee contract is terminated after 7 years of service with a monthly salary of AED 10,000.

Calculate Gratuity

According to UAE labor law, gratuity is calculated as:

  • First 3 years: 1/3 of 21 days' basic pay per year of service
    →1/3 x ( 3 × (10,000 x (21/30))) = AED 7000

  • Years 4 to 5: 2/3 of 21 days' basic pay per year of service
    →2/3 x ( 2 × (10,000 x (21/30))) = AED 14,000

  • Next 2 years: One month’s salary per year
    → 2 × 10,000 = AED 20,000

Total gratuity: AED 41,000


3. Unused Vacation Leave

Calculated as:
Daily wage × Unused vacation days

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