UAE Gratuity Formula Explained: Step-by-Step Calculation Breakdown
If you're working in the United Arab Emirates (UAE), understanding how your end-of-service gratuity is calculated is very important. Gratuity is a monetary loyalty benefit paid by the employer to an employee upon completion of their employment contract. Under the UAE Labour Law, the calculation depends primarily on your basic salary and the total number of years you have served in the company. This guide breaks the formula down step by step so you can estimate your entitlement with confidence.
1. Basic Salary Is Key
It's a common misconception that gratuity is calculated on your total salary. In reality, it's calculated on your basic salary only, excluding allowances like housing, transport, or medical insurance. If your monthly package lists a combined figure, you'll need to identify the basic salary component specifically from your labour contract before you can calculate anything accurately.
2. Service Less Than 1 Year
If an employee resigns or is terminated before completing one full year of continuous service, they are not entitled to receive any end-of-service gratuity, regardless of the circumstances of their departure.
3. Service Between 1 and 5 Years
If you have completed at least 1 year but not more than 5 years of service, you are entitled to a gratuity payout based on 21 days of basic salary for each year of service.
4. Service More Than 5 Years
For those who have dedicated more than 5 years to a company, the calculation changes for the additional years. You continue to receive 21 days of basic salary for each of the first 5 years, but for every year beyond that, you receive 30 days of basic salary instead.
Keep in mind that total gratuity, no matter how many years you've worked, cannot exceed two years' wage. This cap only matters for very long service.
Worked Example
Consider an employee with a basic salary of AED 7,000 who completes 6 years of service:
Remaining 1 year: (7,000 / 30) × 30 × 1 = 233.33 × 30 × 1 = AED 7,000
Total Gratuity = AED 24,500 + AED 7,000 = AED 31,500
Step-by-Step: How to Calculate Your Own Gratuity
- Find your exact basic salary from your labour contract, not your offer letter or total package figure.
- Count your total years of continuous service. Once you have completed one year, part of a year counts proportionally. Exclude unpaid leave days taken during your employment.
- Apply the correct formula based on whether your service is under 5 years or beyond 5 years, using the equations above.
- Check the two-year wage cap to see if it limits your final payout, which mostly affects very long-tenured employees.
- Cross-check your result against what your employer offers in your final settlement before signing anything.
Calculate Your UAE Gratuity Instantly
Instead of doing complex mathematical equations and worrying about mistakes, use our free digital tool to estimate your gratuity within seconds. Just enter your basic salary and your first and last working day into our UAE Gratuity Calculator 2026 to get an instant estimate.
If you're on a fixed-term contract, our detailed guide on UAE Gratuity Calculation for Limited Contracts walks through the same formula with additional worked examples. And if you're unsure whether allowances count toward your calculation, see our guide on UAE Gratuity Calculated on Basic Salary or Total for a full breakdown of what's included and excluded.
Before you accept any settlement figure, use our final settlement checklist, and see our guide on resignation vs termination if you're wondering whether the reason for leaving changes your payout.
Common Mistakes to Avoid
- Using your total salary instead of basic salary. This is the single most common calculation error and can significantly overstate your expected payout.
- Forgetting the 5-year threshold changes the daily rate. Years beyond the fifth are calculated at 30 days per year, not 21.
- Not applying the two-year wage cap. Very long-service employees sometimes calculate a number the law doesn't actually allow.
- Ignoring unpaid leave deductions. Unpaid days of absence are not counted in your service, so they reduce your total qualifying days of service.
Frequently Asked Questions
What salary figure is used to calculate UAE gratuity?
Only your basic salary is used. Allowances such as housing, transport, and medical insurance are excluded from the calculation entirely.
How many days of salary do I get per year of service?
You receive 21 days of basic salary for each of your first 5 years of service, and 30 days of basic salary for each year beyond that.
Is there a maximum limit on how much gratuity I can receive?
Yes. Total gratuity cannot exceed two years' wage, regardless of how many years you've actually worked.
Do I get any gratuity if I worked less than a year?
No. Employees who resign or are terminated before completing one full year of continuous service are not entitled to any gratuity payout.
Does resigning change how my gratuity is calculated?
No. Under current UAE Labour Law, the same formula applies whether you resign or are terminated, as long as you've completed at least one year of service. If your contract is an old unlimited contract, Article 68 allows the employer to apply the old law's calculation, so confirm with HR.
How can I quickly estimate my gratuity amount?
You can use our free UAE Gratuity Calculator. Enter your basic salary and your first and last working day to get an instant estimate without manual calculation.
Disclaimer: This article is for general informational purposes and reflects UAE Labour Law as of 2026. It is not legal advice. For large or disputed settlements, confirm current rules directly with MOHRE or a licensed UAE labour lawyer.
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