End of Service Gratuity in the UAE: The Employer's Guide to Getting It Right

Almost everything written about UAE gratuity is written for the employee working out what they are owed. Very little is written for the employer carrying the liability, which is odd, because the employer is the one who has to fund it, account for it, and pay it within a deadline most companies do not realise exists.

This guide covers the rules as they stand, the two mistakes that cause most end of service disputes, why an untracked gratuity liability is a genuine balance sheet problem rather than an administrative one, and what the voluntary savings scheme changes.

Key takeaways

• Gratuity is payable to foreign employees after one year of continuous service.
• The accrual is 21 days of basic wage for each of the first five years, and 30 days of basic wage for each year after that.
• It is calculated on basic wage, not gross salary. Allowances are excluded, and how you split basic from allowances therefore determines your liability.
• The total is capped at 24 months of basic wage.
• Final settlement, including gratuity, must be paid within 14 days of the contract ending.
• Periods of unpaid leave are excluded from the service calculation.

The rules, stated plainly

End of service gratuity is a statutory entitlement for foreign workers in the UAE private sector under Federal Decree-Law No. 33 of 2021 and its executive regulations. The structure is straightforward once the terms are clear.

• Under 1 year of service — no entitlement
• Years 1 to 5 — 21 days of basic wage accrued per year
• Year 6 onward — 30 days of basic wage accrued per year
• Overall maximum — 24 months of basic wage

Entitlement begins after one year of continuous service. Below that, no gratuity is due. Partial years after the first are calculated pro rata, and the total entitlement cannot exceed 24 months of basic wage, however long the employee stays.

Unpaid leave does not count toward the service period. If an employee takes three months of approved unpaid leave across their tenure, their countable service is three months shorter.

Basic wage is where the money is decided

This is the single most consequential point in the whole subject, and it is the one most often handled carelessly at the point of hiring rather than at the point of leaving.

Gratuity accrues on basic wage, not on gross salary. Housing, transport, and other allowances are excluded. Two employees on identical gross packages can therefore carry very different gratuity liabilities depending purely on how their contracts split basic from allowances.

The practical consequence is that your end of service exposure is set by contract design, years before anybody leaves. A company that structures packages with a high basic and modest allowances is accruing substantially more liability than one with the reverse, on the same total cost.

There are two failure modes here. The first is drafting contracts without any thought to this, then discovering the exposure at scale. The second is structuring basic so low that it is challenged, or that it fails to reflect the reality of the role. The split has to be defensible as well as efficient, and the time to get it right is at offer stage.

The 14 day deadline most employers miss

Final settlement, including gratuity, accrued leave and any notice entitlement, must be paid within 14 days of the contract ending.

That is a short window, and it is where the administrative failure usually happens. If gratuity has never been tracked, the calculation has to be reconstructed from scratch at exactly the moment when the employee has already left, the file is incomplete, and somebody is on holiday. Disputes are far more often the product of a rushed calculation than of a disagreement about the law.

Tracking the accrual monthly turns final settlement into a lookup rather than a project. It also means the liability appears in your accounts where it belongs, rather than as an unpleasant surprise.

A worked scenario: a five year employee, two contract structures

Consider two employees, both leaving after exactly five years of continuous service, both on a total monthly package of AED 20,000.

The first has a contract with a basic wage of AED 12,000 and AED 8,000 in allowances. Their gratuity accrues on the AED 12,000. Five years at 21 days of basic wage per year gives 105 days of basic pay.

The second has a contract with a basic wage of AED 18,000 and AED 2,000 in allowances. The same five years, the same 21 days per year, the same 105 days. But the daily rate is derived from AED 18,000 rather than AED 12,000, so the settlement is half as large again.

Neither company did anything wrong. Both employees cost the same to employ month to month. The difference in end of service liability was decided entirely by how the offer letters were drafted, and neither employer thought about it at the time. Had the second company modelled its gratuity exposure across its workforce at the point of designing its salary structure, it would at least have known what it was carrying.

Does an employee who resigns still get gratuity?

Entitlement is based on completed continuous service of at least one year. The reduction rules that applied to resignation under the pre-2022 framework do not operate in the same way under the current law, so employers should not assume a resignation reduces the figure. Given how often this is misunderstood on both sides, confirm your specific position before settling, particularly where the circumstances of the exit are contested.

The voluntary savings scheme, and whether to use it

Under Cabinet Resolution No. 96 of 2023, employers may opt into an alternative end of service savings scheme rather than carrying the traditional lump sum liability. Contributions are made into regulated investment funds on behalf of employees, replacing the accrual model going forward while preserving entitlements already accrued.

The argument for it is cash flow and predictability. Instead of an unfunded liability that grows quietly and lands in a 14 day window, you make defined monthly contributions and the obligation is funded as it accrues.

The argument against it is that it introduces an ongoing cash cost where previously there was a deferred one, and it requires administration and employee communication to do properly. For a business with high turnover and short average tenure, the traditional model may cost less in practice.

It is a genuine decision rather than an obvious one, and it should be made on your own turnover profile and cash position rather than on general advice.

Common mistakes

• Calculating gratuity on gross salary rather than basic wage. This overstates the liability, and employees who have read one of the many employee-facing calculators will sometimes expect it.
• Never tracking the accrual, then reconstructing it under a 14 day deadline.
• Ignoring unpaid leave when counting service, which overstates the entitlement.
• Designing salary structures without modelling the gratuity consequence, then discovering the exposure across a whole workforce at once.
• Missing the 14 day settlement deadline, which turns an administrative delay into a labour complaint.
• Treating an accrued gratuity liability as invisible because it is not yet payable. It is a real obligation and it belongs in your accounts, particularly if the business is ever sold or audited.
• Assuming the free zone you operate in follows the federal position exactly. Several have their own regimes, and DIFC and ADGM in particular operate different frameworks.

Where Auxilium fits

Auxilium tracks gratuity and leave accrual month by month as a standard part of the payroll we run, so final settlement is a lookup rather than a reconstruction, and the liability sits visibly in your reporting throughout.

We also advise on salary structure at the point of hiring, which is where end of service exposure is actually decided, and on whether the voluntary savings scheme suits your turnover profile. For companies employing through our employer of record service, the accrual and the settlement sit with us.

Do you know what your end of service liability actually is? Auxilium tracks gratuity accrual monthly as part of the payroll we run, and advises on the salary structures that determine it before you are committed. Talk to our payroll team.

About the author

Matthew Weeks, Director of Growth, Auxilium Services

Matthew leads growth at Auxilium and is a specialist in GCC market entry, advising companies on employer of record (EOR) and international payroll, business setup and company formation, and UAE and Saudi Golden Visa and residency strategy. He works daily with founders and HR leaders to hire compliantly, expand without a local entity, and retain senior talent across the UAE, Saudi Arabia and the wider Gulf.

Disclaimer

This article is general guidance on UAE employment and payroll practice and is not legal advice. Auxilium is a private advisory and services firm, not a government entity, and rules change. Verify your specific position with the Ministry of Human Resources and Emiratisation or take professional advice before acting.