New Gratuity Law in UAE 2022: End of Service Benefits Calculation & Eligibility Guide

Executive Summary

The new gratuity law in UAE 2022, enacted through Federal Decree-Law No. 33 of 2021, which came into effect on 2 February 2022, fundamentally altered how end-of-service benefits are calculated and distributed in the private sector. Under the current framework, foreign employees who complete at least one year of continuous service are entitled to gratuity payments calculated at 21 days' basic wage for each of the first five years, and 30 days' basic wage for each subsequent year, with the total gratuity not exceeding two years' remuneration [1].

The legislation distinguishes between different employment contract types and termination scenarios, with specific provisions for unlimited versus limited contracts, resignation versus termination, and the newly introduced alternative gratuity scheme that allows employers to contribute to investment funds instead of traditional lump-sum payments [2]. These changes represent a significant shift from the previous labor law, introducing more structured calculation methods and additional options for both employers and employees in managing end-of-service benefits.

Table of Contents

1. Legal Framework of the New Gratuity Law in UAE
2. Eligibility Criteria for Gratuity Benefits
3. Gratuity Calculation Methods
4. Contract Type Implications
5. Termination Scenarios and Impact
6. Alternative Gratuity Scheme
7. Special Provisions and Exceptions
8. Payment Procedures and Timelines
9. Frequently Asked Questions About UAE Gratuity Law 2022

Legal Framework of the New Gratuity Law in UAE

The foundation of the new gratuity law in UAE rests on Federal Decree-Law No. 33 of 2021 Regulating Labor Relations, which replaced the previous Federal Law No. 8 of 1980 and introduced comprehensive reforms to employment regulations in the private sector. This legislation, commonly referred to as the "New Labor Law," established unified general rules for employment across the UAE, including detailed provisions for end-of-service gratuity calculations and eligibility requirements [3].

The law operates in conjunction with Federal Decree-Law No. 47 of 2021 Concerning the Unified General Rules of Employment, which specifically addresses end-of-service gratuity in Article 11. This decree establishes that foreign full-time employees who complete one year of continuous service are entitled to gratuity calculated based on their basic wage, with different rates applied to different periods of service [4].

Complementing these primary legislations, Cabinet Resolution No. 96 of 2023 introduced the Alternative Voluntary End of Service Scheme, creating a framework for employers to contribute monthly to investment funds as an alternative to traditional gratuity payments. This resolution defines key terms including basic wage, total wage, and establishes the regulatory framework for the alternative scheme [2].

Eligibility Criteria for Gratuity Benefits

Eligibility for end-of-service gratuity in the UAE is contingent upon several fundamental requirements that employees must satisfy. The primary condition mandates that foreign employees must complete a minimum of one year of continuous service with their employer to qualify for any gratuity payment, regardless of the circumstances surrounding the termination of employment [1].

The law specifically excludes UAE nationals from the standard gratuity provisions, as they are covered under separate pension and social security legislation. For foreign employees, the calculation of continuous service includes all periods of actual work, excluding unauthorized absences without pay, which are deducted from the total service period when determining gratuity entitlements.

Employment contracts must be properly documented and registered with the Ministry of Human Resources and Emiratisation (MOHRE) to ensure gratuity eligibility. Employees working under probationary periods are entitled to gratuity if their total service, including probation, exceeds one year. However, periods of unpaid leave or suspension are typically excluded from the gratuity calculation, unless specifically provided for in the employment contract or company policies [3].

Gratuity Calculation Methods

The calculation of end-of-service gratuity under the new gratuity law in UAE 2022 follows a structured formula based on the employee's length of service and basic wage. For the first five years of continuous service, employees are entitled to 21 days' basic wage for each year of service. For each year of service beyond five years, the entitlement increases to 30 days' basic wage per year, creating a two-tier calculation system that rewards longer-term employment [1].

The basic wage, as defined by the legislation, excludes allowances, bonuses, and other benefits in kind, focusing solely on the base salary specified in the employment contract. This distinction is crucial for accurate gratuity calculations, as many employees receive significant portions of their compensation through allowances and performance-based bonuses that do not factor into the gratuity calculation [4].

To illustrate the calculation methodology:

For service up to 5 years:

• Monthly basic wage: AED 10,000
• Daily wage: AED 333.33 (10,000 ÷ 30)
• Annual gratuity: AED 7,000 (333.33 × 21)
• Total for 5 years: AED 35,000

For service beyond 5 years (example: 7 years total):

• First 5 years: AED 35,000 (as above)
• Additional 2 years: AED 20,000 (333.33 × 30 × 2)
• Total gratuity: AED 55,000

The maximum gratuity payable is capped at two years' total remuneration, preventing excessive accumulation for very long-term employees [1].

Contract Type Implications

The type of employment contract significantly influences gratuity calculations and entitlements under UAE law. The legislation recognizes two primary contract types: limited-term contracts with specified end dates and unlimited-term contracts that continue indefinitely until terminated by either party. Each contract type carries distinct implications for gratuity calculations and eligibility scenarios [5].

Limited-term contracts provide more structured gratuity calculations, as the end date is predetermined. When these contracts expire naturally without renewal, employees are entitled to full gratuity calculations based on their total service period. However, if an employee terminates a limited contract before its expiry without legitimate reasons recognized by law, gratuity entitlements may be reduced or forfeited entirely depending on the circumstances [3].

Unlimited-term contracts offer greater flexibility but introduce complexity in gratuity calculations, particularly when termination occurs without mutual agreement. The law provides different calculation methodologies based on whether the employer or employee initiates termination, with significant implications for the final gratuity amount. Employees terminating unlimited contracts typically receive reduced gratuity compared to those whose employment is terminated by the employer without cause [5].

Termination Scenarios and Impact

Different termination scenarios significantly affect gratuity entitlements, with the law distinguishing between employer-initiated termination, employee resignation, and mutual agreement termination. When employers terminate employees without cause (arbitrary dismissal), employees are entitled to full gratuity calculations plus potential compensation for unfair termination, which can amount to up to three months' total wage [5].

Employee-initiated termination (resignation) results in reduced gratuity depending on the length of service. Employees with less than one year of service receive no gratuity, while those with 1-3 years receive one-third of the calculated amount, 3-5 years receive two-thirds, and over five years receive the full calculated gratuity. This graduated system encourages longer-term employment while recognizing employees' rights to change positions [3].

Termination for cause, where employees violate company policies or legal requirements, may result in complete forfeiture of gratuity entitlements. However, employers must follow due process and provide documented evidence of misconduct to justify gratuity denial. The law protects employees from arbitrary gratuity denial while maintaining employers' rights to address serious misconduct [5].

Mutual termination agreements allow parties to negotiate gratuity terms, potentially including enhanced payments or alternative arrangements. These agreements must be documented in writing and registered with relevant authorities to ensure legal enforceability and prevent future disputes regarding gratuity entitlements [3].

Alternative Gratuity Scheme

The Alternative Voluntary End of Service Scheme, introduced through Cabinet Resolution No. 96 of 2023, represents a significant innovation in UAE employment benefits. This optional program allows employers to contribute monthly to approved investment funds instead of accruing traditional gratuity liabilities, providing potential benefits for both employers and employees through professional fund management and investment returns [2].

Under this scheme, employers make monthly contributions calculated as a percentage of employees' basic wages, with the funds professionally managed by licensed investment institutions. Upon employment termination, employees receive their accumulated contributions plus investment returns, potentially yielding higher benefits than traditional gratuity calculations, particularly for shorter service periods where traditional gratuity might be limited [2].

The scheme operates under strict regulatory oversight by the Securities and Commodities Authority and the Central Bank of the UAE, ensuring fund safety and transparency. Employers must obtain explicit employee consent before enrollment, and employees retain the right to opt out and return to traditional gratuity accrual methods. This flexibility accommodates different risk tolerances and financial planning preferences among the workforce [2].

Key features of the alternative scheme include:

• Professional investment management with diversified portfolio options
• Monthly contribution tracking and transparent reporting
• Portability between employers participating in the scheme
• Potential for higher returns compared to traditional gratuity
• Regulatory protection through government oversight

Special Provisions and Exceptions

The UAE gratuity law includes several special provisions addressing unique employment situations and industry-specific requirements. Employees in free zones, while generally subject to similar gratuity principles, may encounter variations in calculation methods or payment procedures depending on the specific free zone authority regulations and their interaction with federal labor law [3].

Part-time and temporary employees are entitled to gratuity proportional to their working hours and contract duration, calculated on a pro-rata basis. The law ensures that non-full-time workers receive fair gratuity treatment, though the calculation methodology may differ from standard full-time employee formulas. This provision protects growing categories of flexible workers in the modern employment landscape [1].

Certain industries, including maritime, aviation, and oil and gas sectors, may have specialized gratuity arrangements approved by relevant authorities. These sector-specific provisions accommodate unique employment patterns, international operations, and industry standards while maintaining minimum gratuity protections established by federal law [3].

Employees on secondment or international assignment maintain gratuity accrual rights, with clear provisions for handling gratuity payments when employment spans multiple jurisdictions or involves complex corporate structures. The law addresses scenarios where UAE-based employment is interrupted by overseas assignments or corporate reorganizations [4].

Payment Procedures and Timelines

The law mandates specific timelines for gratuity payment upon employment termination, requiring employers to settle all gratuity entitlements within 14 days of the employment end date. This strict deadline ensures employees receive their benefits promptly, preventing extended delays that could cause financial hardship during employment transitions [1].

Payment procedures require employers to calculate gratuity accurately, deduct any legitimate offsets such as outstanding loans or advances, and provide detailed statements explaining the calculation methodology. Employees have the right to request clarification and dispute calculations they believe are incorrect, with access to labor dispute resolution mechanisms through MOHRE [5].

The calculation process involves several steps:

1. Determining total continuous service period
2. Calculating basic wage daily rate
3. Applying appropriate multipliers based on service length
4. Deducting authorized amounts (if any)
5. Preparing detailed payment statement
6. Processing payment within legal timeframe

Employers failing to meet payment deadlines face penalties including fines and potential criminal liability for willful non-payment. The law provides strong enforcement mechanisms to protect employee rights and ensure compliance with gratuity obligations [5].

Frequently Asked Questions About UAE Gratuity Law 2022

How do I calculate my gratuity under the new UAE law 2022?

Calculate 21 days' basic wage per year for the first 5 years of service, then 30 days' basic wage per year for each subsequent year. The total gratuity cannot exceed two years' remuneration. For example, if your monthly basic wage is AED 10,000, your daily wage is AED 333.33 (10,000 ÷ 30). After 7 years of service: first 5 years = AED 35,000 (333.33 × 21 × 5), plus 2 additional years = AED 20,000 (333.33 × 30 × 2), totaling AED 55,000.

Do I get gratuity if I resign in the UAE?

Yes, but the amount depends on your length of service. If you resign with less than 1 year of service, you receive no gratuity. For 1-3 years of service, you receive one-third of the calculated gratuity. For 3-5 years, you receive two-thirds. After 5 years of service, you receive the full calculated gratuity amount.

What is the difference between the new gratuity law and the old law?

The new gratuity law in UAE 2022 (Federal Decree-Law No. 33 of 2021) introduced the 21/30-day calculation formula, replacing the previous structure. It also introduced the Alternative Voluntary End of Service Scheme, allowing employers to contribute to investment funds instead of traditional lump-sum payments. The new law provides clearer provisions for different contract types and termination scenarios.

Is gratuity calculated on basic salary or total salary in UAE?

Gratuity is calculated on basic wage only, excluding allowances such as housing allowance, transportation allowance, bonuses, and other benefits in kind. Only the base salary specified in your employment contract is used for gratuity calculations. This is a critical distinction, as many employees receive substantial portions of their compensation through allowances that do not count toward gratuity.

When will I receive my gratuity payment in UAE?

Employers must pay gratuity within 14 days of your employment end date. This strict deadline applies regardless of the termination reason. The payment should include a detailed statement explaining the calculation methodology. Employers who fail to meet this deadline face penalties including fines and potential criminal liability.

Can I lose my gratuity in the UAE?

Yes, you can lose gratuity entitlements in specific circumstances: if you resign with less than 1 year of service, if you are terminated for cause (serious misconduct or policy violations), or if you breach contract terms without legitimate legal reasons. However, employers must follow due process and provide documented evidence to justify gratuity denial. The law protects employees from arbitrary gratuity denial.

Conclusion

The UAE gratuity law framework established by Federal Decree-Law No. 33 of 2021 and supporting legislation creates a comprehensive system for end-of-service benefits that balances employee protection with employer flexibility. The structured calculation methodology, clear eligibility criteria, and innovative alternative schemes provide multiple pathways for gratuity accrual and payment while maintaining minimum standards across all employment sectors.

Understanding these provisions is essential for both employers and employees to ensure compliance with legal obligations and protection of rights. The law's emphasis on documentation, timely payment, and dispute resolution mechanisms demonstrates the UAE's commitment to fair labor practices and economic stability in the employment sector.

Sources

[1] End of service benefits for workers in the private sector - Official UAE government guidance on gratuity calculation and eligibility requirements

[2] Cabinet Resolution No. (96) of 2023 Concerning the Alternative Voluntary End of Service Scheme - Legislative framework for alternative gratuity investment schemes

[3] Federal Decree by Law No. (33) of 2021 Regulating Labor Relations - Primary legislation governing private sector employment relationships and gratuity provisions

[4] Federal Law by Decree No. (47) of 2021 Concerning the Unified General Rules of Employment - Decree establishing gratuity calculation methodology and service requirements

[5] Terminating employment contracts and arbitrary dismissal - Government guidance on contract termination and gratuity implications