How UAE Gratuity Is Actually Calculated (with a Worked Example)

Gratuity is one of the few things UAE Labour Law really gets right for employees — but it's also one of the most misunderstood. The number isn't your monthly salary times years. It's narrower than that, and the small print costs people money every year.

Here's the version I'd give a friend over coffee.

The starting point: basic salary only

Gratuity is calculated on basic salary, not your total package. If your contract reads "AED 25,000 total — AED 10,000 basic, AED 15,000 allowances", gratuity is built on the AED 10,000.

That's the most common mistake. People budget for an exit payout assuming their full package, then receive a smaller cheque and assume the employer cheated them.

The formula

For 1 to 5 years of service: 21 calendar days of basic salary per year.

After 5 years: still 21 days per year for the first five, then 30 days per year for the years that follow.

The whole thing is capped at two years' basic salary, no matter how long you stayed.

A worked example

Basic salary AED 10,000 a month, seven years of service.

Daily wage: 10,000 ÷ 30 = AED 333.33

First five years: 21 × 5 × 333.33 = AED 35,000

Following two years: 30 × 2 × 333.33 = AED 20,000

Total: AED 55,000

What can change the answer

Resignation before 5 years. Reduces your entitlement under federal law (one-third or two-thirds depending on tenure). DIFC and ADGM employees skip this reduction. For the full breakdown of thresholds and worked examples, read [Resigning vs Being Let Go](/en/blog/resignation-vs-termination-uae-gratuity).

Less than 1 year of service. No gratuity at all.

Unauthorised absence or termination for cause. Can void the entitlement under specific clauses.

Working under DIFC/ADGM. Same accrual formula, but with an 18-month cap and no resignation penalty — see the [DIFC and ADGM employment guide](/en/blog/difc-adgm-employment-law-gratuity) for how the regimes compare.

A small piece of advice

Run the number once a year, even if you're not planning to leave. If your gratuity has fallen behind what your career is worth, that's a useful negotiation anchor when you're due a raise. The Gratuity Calculator will do the maths in a few seconds.

FAQ

Q: Is gratuity taxed?

No personal income tax in the UAE, so the full amount lands in your account.

Q: Can my employer hold gratuity against debts I owe them?

They can offset documented debts (a salary advance, for example), but they cannot withhold it without a legal basis. Disputes go to MOHRE.