End of Service Benefits in the UAE: A Step-by-Step Guide

December 20, 2024 by Middle East Briefing

End of service benefits in the UAE are mandatory financial payments for private-sector employees, calculated based on basic salary and years of service, with eligibility starting after one year of continuous employment. Proper compliance benefits employers and employees, ensuring fair treatment and legal adherence.

By Giulia Interesse

End of service benefits are a cornerstone of employment law in the United Arab Emirates, providing a critical financial safety net for employees and a mandatory obligation for businesses. Governed under the UAE Federal Labour Law and supplemented by various resolutions, end of service benefits reflect the UAE’s commitment to fostering a secure and equitable work environment for its diverse workforce.

For businesses, the proper management of end of service benefits is not just a legal requirement but a strategic imperative. Failing to comply with end of service benefits regulations can result in significant financial penalties, operational disruptions, and reputational harm that may undermine recruitment and retention efforts. Conversely, understanding and implementing end of service benefits effectively can enhance an employer’s attractiveness in the highly competitive UAE job market.

This article unpacks the key aspects of end of service benefits in the UAE, including eligibility criteria, calculation methods, and the recent introduction of alternative savings schemes.

End of service benefits eligibility and types

Eligibility for end of service benefits in the UAE is determined by an employee’s length of service and the nature of their employment contract. These benefits are designed to provide financial recognition for an employee’s contribution to their employer and ensure fair treatment upon the conclusion of their employment.

Below are the key aspects of eligibility and entitlements.

General eligibility criteria: Expatriates vs. UAE/GCC nationals

Employees, whether UAE nationals or expatriates, become eligible for end of service benefits after completing one year of continuous service.

For expatriates, benefits are primarily offered as a lump-sum gratuity payment, while UAE and GCC nationals are enrolled in mandatory pension schemes with the General Pensions and Social Security Authority (GPSSA) or the Abu Dhabi Pension Fund (ADPF).

Types of contracts and termination scenarios

Types of contracts

Employees on fixed-term contracts are entitled to gratuity payments based on the duration of their employment. Upon completion of the contract, entitlements are calculated according to the length of service.

On the other hand, for unlimited contracts, end of service benefits are calculated similarly to fixed-term contracts, with specific considerations for reasons and circumstances of termination.

Termination scenarios

Resignation after one year of continuous service makes employees eligible for gratuity payments, ensuring that their time with the organization is appropriately compensated.

Similarly, in cases where employees are terminated arbitrarily or without cause, they may be entitled to receive the full range of end of service benefits, offering a safeguard against unjust treatment.

In situations involving redundancy or mutual termination agreements, additional compensation may be negotiated as part of the exit terms, reflecting the specific circumstances and providing further financial security to the affected employee.

Alternative work patterns and special cases

Employees working under part-time, temporary, or flexible contracts are also eligible for end of service benefits. Their gratuity is calculated on a pro-rata basis relative to their working hours compared to a standard full-time schedule.

Additional entitlements

Besides gratuity, employees are also entitled to payments for unused annual leave, unpaid salary, and other contractual allowances. Employers must settle all dues within 14 days of contract termination.

Calculating end of service benefits

Gratuity calculation for limited contracts

For employees on limited contracts, gratuity is calculated based on their basic salary and years of service. The formula follows these guidelines:

First five years of service: Employees earn 21 days’ basic salary for each year worked.
After five years: The gratuity increases to 30 days’ basic salary for each additional year of service.

This ensures that long-serving employees are rewarded with higher gratuity payments as recognition for their extended contribution.

Gratuity calculation for unlimited contracts

The calculation for unlimited contracts is similar but capped to a maximum of two years’ salary:

First five years of service: Employees are entitled to 21 days’ basic salary for each year worked.
After five years: Gratuity rises to 30 days’ basic salary for every subsequent year.

The cap ensures that gratuity payments remain within reasonable limits, even for long-tenured employees.

Basic salary as the basis for calculation

Only the employee’s basic salary, as stated in the employment contract, is used to determine gratuity payments.

Additional income such as allowances, commissions, or bonuses is excluded from the calculation.

Employers and employees should refer to the latest salary details in the contract to ensure the accuracy of the gratuity computation.

Enhanced end of service benefits

Some employers may opt to offer benefits that exceed the statutory minimum requirements. These enhanced schemes often provide more substantial gratuity payments or additional financial incentives. Employees should review their contracts or any relevant collective agreements to understand if such provisions apply.

Practical application

Employers must ensure that gratuity is calculated accurately and settled promptly upon termination of employment. Meanwhile, employees should familiarize themselves with the formulas and methods to confirm they receive their entitled benefits.

By maintaining transparency and adherence to labor laws, both parties can navigate this process effectively and minimize disputes.

Process and documentation needed for claiming end of service benefits

Process and documentation for claiming end of service benefits

To ensure a seamless process when claiming end of service benefits in the UAE, employees need to take certain steps and have the required documentation prepared. Proper understanding and organization can help avoid disputes and delays.

Reviewing the employment contract

The first step is to thoroughly review the employment contract. This document outlines the specific terms and conditions regarding end of service benefits, including the method of calculation, notice periods, and any additional entitlements. Employees should familiarize themselves with these details to understand their rights.

Providing the required notice

Employees who plan to resign must adhere to the notice period specified in their contract or as mandated by UAE labor law. Failure to provide proper notice may result in reduced benefits or penalties, impacting the final settlement.

Maintaining accurate records

Keeping comprehensive and accurate employment records is crucial. This includes maintaining copies of the employment contract, salary certificates, and any other relevant documents. These records serve as evidence to support claims for benefits and ensure that entitlements are calculated correctly.

Engaging with the employer

Open communication with the employer is essential for a smooth claims process. Employees should discuss key aspects of their end of service benefits, such as the calculation, expected payment date, and any outstanding dues, to ensure mutual understanding and prevent misunderstandings.

Seeking legal advice if necessary

In cases where disputes arise or there are concerns about the calculation or payment of benefits, seeking legal advice can be a prudent step. Consulting a labor lawyer or contacting relevant UAE labor authorities can provide guidance and help resolve issues efficiently.

FAQs regarding end-of-service benefits in the UAE

What are end-of-service benefits in the UAE?

End of service benefits, also known as gratuities, are financial payments owed to employees upon leaving their jobs, provided they meet specific eligibility requirements set out by UAE labor law. These benefits are designed to compensate employees for their tenure with the organization and are calculated based on their basic salary and years of service.

Who is eligible for end-of-service benefits?

Employees working in the UAE’s private sector are eligible for end-of-service benefits under Federal Decree Law No. 33 of 2021, provided they have completed at least one year of continuous service with their employer. Employees in other sectors or those who do not meet the tenure requirement may not qualify.

How is the duration of service calculated for gratuity entitlement?

The duration of service is calculated based on the total number of days worked with the employer. Extended periods of unpaid leave, such as sabbaticals, are not included in the calculation.

How are gratuity payments calculated in the UAE?

Gratuity payments are determined based on the employee’s basic salary and years of service:

For 1 to 5 years of service: Employees are entitled to 21 days of basic salary for each completed year.
For more than 5 years of service: Employees are entitled to 30 days of basic salary for each completed year after the fifth year.

Can you provide an example of gratuity calculation in the UAE?

Suppose an employee’s basic monthly salary is AED 10,000 (US$2,722.58):

For each year up to 5 years, the daily wage is AED 333.33 (US$90.75), calculated by dividing AED 10,000 (US$2,722.58) by 30. The gratuity for 21 days of service would be AED 7,000 (US$1,905.81), that is, 21 × AED 333.33 (US$90.75).
For years beyond 5, the daily wage remains AED 333.33 (US$90.75), but the gratuity increases to 30 days’ salary, equaling AED 10,000 (US$2,722.58) per year.

Notably, the total gratuity amount cannot exceed two years’ worth of the employee’s salary.

Are all employees in the UAE entitled to end-of-service benefits?

The end-of-service benefits under UAE labor law specifically apply to private-sector employees. Employers may have additional provisions for other sectors or expatriate workers, which should be confirmed with the relevant organization.

What should employees do to confirm their gratuity entitlements?

Employees should review their employment contracts and consult with their employer for clarity on specific calculations and entitlements within their organization. If disputes or uncertainties arise, they may seek legal advice or contact labor authorities for guidance.

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