PAYMENT OF GRATUITY
What is the employee entitled to on the termination of his
On the termination of the employment contract, an employee is entitled
to the following:
1. A notice period, or any amount due in lieu of the notice period in
the case of an unlimited contract.
2. In the case of an unlimited contract, compensation for unreasonable
dismissal if the contract was terminated by the
employer for unreasonable cause.
3. In the case of a limited contract, compensation equivalent to the
period until the end of the contract, or three month’s
wages, whichever is shorter.
4. Payments equivalent to the balance of unutilised leave or any part
5. Payments for overtime or any balance of wages due and not yet paid.
6. End of service gratuity calculated on the duration of the
7. Repatriation expenses as per the Law or the employment contact,
subject to the employee not being in violation or in
breach of either the Law or the employment contract.
What does the term end of service gratuity mean in terms of
In the case of an employment agreement for a unlimited term, an
employee who completes one year or more in continuous service shall be
entitled to gratuity at the end of their service. The gratuity shall
be calculated as follows:
(1) 21 days wages for each year of the first five years.
(2) 30 days wages for each additional year on condition that the total
of the gratuity does not exceed the wages of two years.
I have been working in a shipping company for around seven years. I
will be 60 years’ old by the first week of November. As far as I know,
the Labour Law states that Dh5,000 need to be deposited to stamp the
employment visa after 60 years. Now, I have been offered a job by one
of the companies and they need my service urgently.
Can I resign now from my present company and join the new
organisation? Would it affect my gratuity and other terminal benefits?
Since you have completed more than two years with your current
company, you can resign the job any time with a thirty-day notice as
per Article 117 of the UAE Labour Law or otherwise in accordance with
the terms and conditions provided in your employment contract.
Furthermore, your resignation from your current employment will not
affect your gratuity and other end of employment benefits. At the time
of resignation, you will be entitled to full gratuity in accordance
with Article 132 of the UAE Labour Law.
According to the said article, “The employee who has completed one
year or more in continuous service is entitled to the end of service
benefits at the end of his service at the firm. Days of absence from
work without pay are not included in computing the period of service,
and the remuneration is to be calculated as follows:-
1. Twenty one days’ pay for each year of the first five years of
2. Thirty days’ pay for each additional year, provided that the entire
total remuneration shall not exceed two years’ pay.”
I have been working in a company here on an unlimited contract. I
have resigned recently with 30 days notice period. I would very much
appreciate if you kindly advice me on the labour ban, if any, end of
service benefits, and my passport which they kept with them.
First of all, the employer does not have the right to hold the
employee’s passport without the latter’s consent. Secondly, according
to Articles 125, 131, 132,133 and 137 your end of service benefits
are; a certificate of service (free of charges), the expenses of
sending you back to your home country (a ticket and any other agreed
upon expenses according to the labour contract), and your gratuity
would be the salary of 21 days for each year divided by three.
Finally, Under the UAE laws, if an employee leaves a job without
completing two years, then, the Ministry of Labour will impose a work
ban for six months or for one year if requested by the employer (KT).
How is gratuity calculated?
Gratuity is calculated on an annual basis or part thereof provided
that the employee has actually completed one year of employment with
the employer or more. Days of absence from work without pay are not
included in calculating the length of service. However, he will be
entitled to end of service gratuity for fractions of a year he spent
in service provided that he has completed at least one year in
On what basis is gratuity calculated?
Without prejudice to what is stipulated by the policies of some
establishments in the granting of pensions or retirement benefits to
employees, gratuity for those who are paid monthly, weekly or daily
wages is calculated according to the employee’s last received basic
wage before the employment was terminated. This wage is the basis for
calculating the gratuity for the whole period of an employee’s
Would a commission or payment by percentage be considered a basic
According to a court ruling delivered by the UAE court, except for
allowances and bonuses, any amount payable to an employee as wages
including wages paid by percentage basis, commissions, or for
performance will be considered as wage and will be taken into
consideration in calculating gratuity.
Can the employer deduct any payment from the gratuity payable to
The employer may deduct any amount owed to him by the employee such as
outstanding loans from the employees end of the service gratuity. If
there is any dispute over the payment of gratuity or the amount of
gratuity payable, the matter should be referred to the Ministry for
Is the amount calculated for gratuity affected if the employee
resigns from employment?
An employee employed under a contract for an unlimited period who
resigns after a continuous service of not less than one year and not
more than three years is entitled to one third of the end of service
gratuity provided above. If the period of continuous service is more
than three years and less than five years he is entitled to two thirds
of the gratuity. If his continuous service is more than five years, he
is entitled to the full gratuity. If an employee who is employed under
a contract for a limited period on the other hand chooses to resign
before the end of the contract, he is not entitled to end of service
gratuity unless his continuous service exceeds five years.
Under what circumstances can an employee be deprived of his end of
An employee may be deprived of his end of service gratuity if he
has been dismissed for one of the reasons stated in Article 120 of the
Law, or if he terminated his employment to avoid such dismissal.
Under what circumstances will an employee be entitled to gratuity if
he terminates his employment contract without notice?
Under Article 121 of the Law, an employee will be entitled to
gratuity on termination without notice in either of the following
(1) The employer has failed to comply with his obligations towards the
employee, as provided for in the employment contract or in the Law.
(2) The employee was assaulted by his employer or his legal
The above applies to employees who have been continuously employed for
a minimum period of one year, regardless of whether the contract of
employment is for a fixed or unlimited term.
If the establishment or company has a pension scheme, which is
beneficial to the employee, is this a substitution for the payment of
If the employer has a pension scheme applicable to all the employees
of the business, such a scheme must be published and known to all
employees, and must specify that it will be a substitute to the
gratuity rules outlined in the Law. It must also be more beneficial to
the employees than the gratuity provision of the Law. Otherwise the
employee may benefit from both unless the employee agreed or consented
to the scheme in question.
Can the employee and the employer agree to pay gratuity for the
termination of the employment contract for a preceding period?
The employer and the employee may, upon mutual agreement, decide upon
the payment of the employee’s gratuity for the years that he has
already served his employer. A new contract will then be entered into
between the parties. The employee’s employment with the employer is
still considered as a continuous period for the purpose of calculating
interest, or, at the time when he resigns, calculating the employee’s
total years of service with the employer.
Where an employee has worked for an employer in two or more
countries, will he be entitled to gratuity?
This will depend on a number of factors such as the terms of the
employment contract, the law of the country the employment is being
conducted in and the general practice of the employer. For instance,
many multinationals which transfer their employees to another country
pay the end of service benefits applicable at the time of transfer. In
such cases, the transfer is essentially considered as new employment
for the purposes of gratuity payments.
The matter will however depend on the facts of each case as it is not
covered by the Law but rather is addressed in certain judgments.
Therefore, it should not be assumed that if an employee is transferred
to another country that the UAE law will continue to apply or that his
employment contract will continue to be enforced. The Law is
considered as a matter of public policy and thus certain cases may be
different in other jurisdictions. In addition, the country the
employee is being transferred to may contain different regulations
regarding the transfer of employees to and from other jurisdictions.
Therefore, the law of the country the employee is transferred to may
prevail and give regard (or otherwise) to the employee’s previous
employment contract. In such cases therefore it is advisable to seek
independent advice on the matter.
It is also not possible to apply a foreign law to a UAE employment
contract. If the governing law in the employment contact is UAE law
and filed with the Ministry, then gratuity will be calculated from the
commencement date of that contract. This contract will take precedence
over any other contract with a foreign governing law.
Can an employee mortgage or assign payment of his gratuity?
It is possible to mortgage or assign payment of an employee’s gratuity
to the employer or to a third party by mutual agreement, provided that
in the agreement with a third party, the employer and the employee
agree to this in writing with an understanding of all parties that the
employee may forfeit his right to gratuity which is not yet due if he
violates a provision of the Law. In any event, an employee’s gratuity
can only be assigned subject to the employee becoming entitled to it.
When does gratuity become due and payable?
Gratuity will only become due and payable on the termination of an
Are the end of service gratuity and other dues payable to the
employee considered priority debts?
The employee’s wages, overtime, and any other benefits, including end
of service gratuity, are considered to be a preferential debt for
which the employee shall have a lien over any movable or immovable
property owned by the employer ranking second to government charges,
judicial fees and family alimony payments.
How effective are foreign employment contracts in the UAE?
Such contracts are enforceable and valid as contracts executed in the
UAE. However, if there is an additional local contract and a dispute
arises, the provisions in the contract which are more favourable to
the employee will probably be upheld, providing there is evidence in
support of the provision in question.
In terms of the gratuity payable, where there are two contracts, the
employee may only benefit from one.
The enforceable contract will in most cases be the one filed with the
Ministry and gratuity calculated according to the salary specified in
the UAE employment contract.
I finished my three-year contract. I told my employer I wanted to
resign. My contract is limited. My employer claimed I am not entitled
to end of service benefits. It is right? What are my entitlements?
Whom should I talk to?
Since you have spent more than a year with your employer, according to
Article 132 of the federal labour law, you are eligible to 21 days’
salary for each year you have worked for the employer. In addition to
the gratuity, you are eligible for a ticket to your home country or to
the country that you have agreed to travel to with your employer at
the beginning of your work.
Moreover, you have the right to claim any outstanding rights that you
did not receive yet, provided that these rights are not due before a
year. If your employer refuses to pay your dues, you should report
this to the labour office in the city where you are working (KT).
My husband, who works as an administration staff, will complete
three years in his job in June. He has an unlimited contract and as
per his offer letter, he is eligible for a ticket once in two years.
Now he wishes to change his job. His salary as per the contract is
Dh2,500, but now he is getting Dh3,750 because of a recent increment.
He needs to give a one month notice. But should he mention that he no
longer wishes to continue the contract or that he is resigning?
Gratuity is based on basic of
If contract is unlimited, employer can terminate it with 30 days'
The law is clear that if an employee leaves the job within the first
three years, he is entitled to one third of the end of service
gratuity. Since, your husband has not completed three years, he is
only entitled to 1/3 of the gratuity as per Article 137 of the UAE
Labour Law. Therefore, your husband may submit a simple resignation
with 30 days notice. Besides, the end of service gratuity is based on
the basic of the last salary without adding any benefits or allowances
of any kind as per the terms of Article (134) of the Labour Law. (KT)
I work as a safety officer with a private company here on a
three-year limited contract. I have completed three years in service
but my company has not renewed my visa. The company did not give me a
one-month notice period before terminating my service. The management
has, however, made me sign a clearance paper and promised to pay my
salary, the end of service benefits, air ticket, and one-month salary
against notice period. A friend of mine said they are lying, and will
give me nothing as I have signed the clearance paper in which I
acknowledged that I have received all my entitlements. What should I
Don’t sign clearance paper before getting entitlements
As long as you have completed your three-year limited contract, you
are entitled to the end-of-service benefits. According to Article
(132) of the Federal Labour Law, an employee, who completes one year
or more in uninterrupted service, is entitled to the end-of-service
benefits as long as he has not committed any crime or serious mistake
that led to the termination of his service.
Regarding your signature, you should not have done it. Your signature
means that you have willingly acknowledged that you did receive your
entitlements. To claim otherwise, you have to prove that you did not.
It has become your responsibility to show the evidence.
Below is the original text of the UAE Federal Labour Law with the
section on gratuity payments. Articles 132, 137, and 138 refer
specifically to the calculation of gratuity.
Federal Law No 8, For 1980, On Regulation of Labour Relations
Termination and Severance Pay
A worker who has completed one or more years of continuous service
shall be entitled to severance pay at the end of his employment. The
days of absence from work without pay shall not be included in
calculating the period of service. The severance pay shall be
calculated as follows:
21 days' wage for each of the first five years of service.
30 days’ wage for each additional year of service provided always that
the aggregate amount of severance pay should not exceed two year's
A worker shall be entitled to severance pay for any fraction of a year
he actually served, provided that he has completed one year of
Without prejudice to the provisions of laws that grant pensions or
retirement benefits to employees in certain firms, severance pay shall
be calculated on the basis of the wage last due for monthly, weekly
and daily paid workers, and on the basis of the average daily wage
referred to in Article 57 hereof for those paid on piecemeal. The wage
used as a basis for calculating severance pay shall not include
whatever is given to the worker in kind, housing allowance, transport
allowance, travel allowance, overtime pay, representation allowance,
cashier’s allowances, children education allowance, allowances for
recreational and social facilities, and any other bonuses or
An employer may deduct any amounts owed to him by a worker from the
latter's severance pay.
For the purposes of Article 132, no severance pay shall accrue for the
employment cases that preceded the enforcement of this Law except
where the worker is a National. This, however, shall be without
prejudice to any rights acquired by the worker under the repealed
labour laws, the employment contract, or under any agreement,
regulations or work rules of the firm. In the event of the worker's
death, his severance pay shall be paid to his legal heirs.
Where a worker under an indefinite term contract abandons his work at
his own initiative after a continuous service of not less than one
year and not more than three years, he shall be entitled to one-third
of the severance pay provided for in the preceding article. Such a
worker shall be entitled to two thirds of the said severance pay if
his continuous service exceeds three years up to five years, and to
the full severance pay if it exceeds five years.
Where a worker under a definite term contract abandons his employment
at his own initiative before the expiry of his contract period, he
shall not be entitled to severance pay unless his continuous period of
service exceeds five years.
A worker shall forfeit entitlement to his entire severance pay in any
of the following two cases:
If he is dismissed from service for any of the reasons specified in
Article 120 hereof or if he abandons his employment in order to avoid
being dismissed in accordance with that Article.
If he abandons his employment of his own accord, otherwise than in
either of the two cases specified in Article 121 hereof, without
notice (in the case of indefinite term contracts) or before completing
five years of continuous service (in case of definite term contracts).
Where a firm has a provident fund for the workers and the rules of the
fund stipulate that whatever the employer pays into the fund for the
worker's account is in discharge of his legal obligation in respect of
severance pay, the worker shall be paid the savings balance in his
account or the severance pay due under the Law, whichever is the
greater. Where the rules of the fund do not stipulate that the amounts
paid by the employer are in discharge of his legal obligation toward
the severance pay, the worker shall receive whatever is due to him in
the provident fund in addition to the statutory severance pay.
Where a firm has a retirement, insurance or a similar scheme, a worker
who is entitled to a retirement pension may opt for treatment under
the said pension or severance pay or under the pension or insurance
scheme, whichever is more advantageous to him.
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