End-of-service gratuity in the UAE is a lump sum an employer pays a foreign employee when the employment ends, provided the employee has completed at least one year of continuous service. Under Article 51 of Federal Decree-Law No. 33 of 2021, it is 21 days of basic wage for each of the first five years of service and 30 days of basic wage for each year after that, calculated on the last basic wage and capped at two years' wage in total. This guide is for the owner of a 3 to 30 person company. It covers who is entitled, the formula, four worked examples, what changed for resignations, when the money is due, and the part most guides skip: how to book the liability in your accounts every month so the final settlement is not a surprise. It is general information, not legal advice.
Who is entitled to end-of-service gratuity?
A foreign employee working full time in the private sector who has completed one year or more of continuous service. The rule sits in the federal labour law (Federal Decree-Law No. 33 of 2021) and its Executive Regulations (Cabinet Resolution No. 1 of 2022), which apply to mainland companies and to most free zones.
| Person | Gratuity under the labour law? |
|---|---|
| Foreign employee, full time, 1 year or more of continuous service | Yes |
| Foreign employee with less than 1 year of service | No |
| UAE national | No. End-of-service benefits come through the pension and social security system (GPSSA, or the Abu Dhabi fund), and the employer pays pension contributions instead |
| Part-time or job-sharing employee | Yes, in proportion to contracted hours (see below) |
| Temporary work of less than one year | No |
| Employee enrolled in the voluntary Savings Scheme | Gratuity stops accruing from enrolment; rights earned before that date are preserved |
| Employee of a DIFC or ADGM entity | Separate employment regimes (see below) |
| Freelancer or contractor paid on invoice | No. They are suppliers, not employees |
Time served during probation counts towards service once the employee stays on. Every contract under the 2021 law is fixed-term, and renewals with the same employer count as one continuous period of service.
What is the gratuity formula?
Threshold: 21 days of basic wage per year for the first five years of service, 30 days of basic wage per year after that. The total cannot exceed two years' wage. No gratuity is due before one full year of continuous service.
The calculation has three steps.
- Daily basic wage = last monthly basic wage ÷ 30.
- Gratuity days = 21 × years of service up to five, plus 30 × years of service beyond five.
- Gratuity = daily basic wage × gratuity days, limited to the cap.
A useful shortcut: 21 days is 0.7 of a month, so each of the first five years costs 70% of one month's basic wage. Each year after that costs one full month's basic wage.
What counts as basic wage?
The basic wage written in the employment contract registered with MOHRE, at the figure in force when the employment ends. Housing allowance, transport allowance, overtime, commission and bonuses are all excluded. Because the law uses the last basic wage, a pay rise increases the gratuity for every past year of service, not only future years.
This makes the split between basic and allowances a real cost decision. A AED 12,000 package with AED 6,000 basic produces a much smaller gratuity than the same package with AED 10,000 basic. For how commission sits next to basic, see agency commissions and payroll in the Gulf.
How are part years and unpaid leave treated?
Once the employee has passed one year, part years count in proportion. Two years and six months is 2.5 years of service. Days of unpaid absence are not counted as service, so deduct unpaid leave days before you calculate.
What is the two-year cap?
Article 51 says the total gratuity cannot exceed two years' wage. Gratuity calculators and most advisers apply this as 24 months of basic wage. On that reading the cap is only reached after about 25.5 years of service (105 days for the first five years, then 30 days a year until the total reaches 720 days).
Worked examples
| Case | Last basic wage | Service | Days | Calculation | Gratuity |
|---|---|---|---|---|---|
| 1. Under five years | AED 6,000 | 3 years | 63 | 200 × 63 | AED 12,600 |
| 2. Over five years | AED 10,000 | 7 years | 105 + 60 | (333.33 × 105) + (333.33 × 60) | AED 55,000 |
| 3. Part year | AED 8,000 | 2 years 6 months | 52.5 | 266.67 × 52.5 | AED 14,000 |
| 4. Cap | AED 15,000 | 28 years | 795, capped at 720 | 500 × 795 = 397,500, limited to 15,000 × 24 | AED 360,000 |
Example 1: three years, basic AED 6,000. Daily basic wage is 6,000 ÷ 30 = AED 200. Gratuity days are 21 × 3 = 63. Gratuity is 200 × 63 = AED 12,600.
Example 2: seven years, basic AED 10,000. Daily basic wage is 10,000 ÷ 30 = AED 333.33. The first five years give 21 × 5 = 105 days, which is AED 35,000. The next two years give 30 × 2 = 60 days, which is AED 20,000. Gratuity is 35,000 + 20,000 = AED 55,000.
Example 3: two years and six months, basic AED 8,000. Daily basic wage is 8,000 ÷ 30 = AED 266.67. Service is 2.5 years, so gratuity days are 21 × 2.5 = 52.5. Gratuity is 266.67 × 52.5 = AED 14,000.
Example 4: twenty-eight years, basic AED 15,000. Daily basic wage is AED 500. The first five years give 105 days and the next 23 years give 690 days, 795 in total, which is AED 397,500. Two years of basic wage is 15,000 × 24 = AED 360,000, so the gratuity is limited to AED 360,000.
A case with unpaid leave. An employee on AED 9,000 basic leaves exactly four years after joining but took 60 days of unpaid leave. Four full years would give 21 × 4 = 84 gratuity days. The 60 unpaid days are not service, which removes 21 × 60 ÷ 365 = 3.45 days and leaves 80.55. At AED 300 a day the gratuity is about AED 24,165, compared with 84 × 300 = AED 25,200 if the leave had been paid.
Does resigning reduce the gratuity?
No. Under the old 1980 labour law, an employee who resigned with less than five years of service received only a fraction of the gratuity. Federal Decree-Law No. 33 of 2021, in force since 2 February 2022, removed that reduction. Article 51 now uses the same formula whether the employee resigns, the employer terminates, or the contract simply ends. Older spreadsheet templates still apply the reduction, so check any calculator you inherited.
Part-time and other work patterns
The Executive Regulations cover part-time and job-sharing contracts. The gratuity is the full-time amount multiplied by the employee's share of full-time hours: contracted hours per year ÷ full-time hours per year. An employee on AED 6,000 basic for the full-time role who works half the hours for three years is due 50% of AED 12,600, which is AED 6,300. Temporary work of less than one year earns no gratuity.
When must gratuity be paid, and what can you deduct?
Deadline: Article 53 of the labour law requires the employer to pay wages and all end-of-service entitlements within 14 days of the date the contract ends.
The final settlement normally includes the last month's wage, pay for unused annual leave, any notice pay, and the gratuity. Keep the signed settlement statement.
Deductions from the gratuity are limited to amounts due by law or under a court judgment, under the conditions in the Executive Regulations. An outstanding salary advance or company loan that is documented and signed is the common example. Withholding gratuity as leverage in a dispute, or deducting a loss that no court has ordered, tends to end in a MOHRE complaint. Monthly wages have their own deadline and rules under the Wage Protection System, covered in WPS and payroll for UAE small businesses.
What is the voluntary Savings Scheme?
Cabinet Resolution No. 96 of 2023 created an alternative to the lump-sum gratuity. Instead of paying at the end, the employer pays a monthly contribution into an investment fund licensed by the Securities and Commodities Authority, and the employee receives the contributions plus any investment returns when they leave.
| Service | Employer contribution |
|---|---|
| Less than five years | 5.83% of monthly basic wage |
| Five years or more | 8.33% of monthly basic wage |
The percentages are the gratuity formula expressed monthly: 21 days a year is 21 ÷ 360 = 5.83%, and 30 days a year is 30 ÷ 360 = 8.33%. Once an employee is enrolled, gratuity stops accruing for them. The gratuity earned before enrolment is preserved, calculated on the basic wage at the enrolment date, and is paid when the employment ends. An employer that joins must stay in for at least one year and can enrol all employees or selected groups.
As of September 2026 the scheme is still voluntary for employers. MOHRE ran a public consultation on it until 28 February 2026 and has said further changes are expected, and several advisers expect a move towards a mandatory scheme. No mandatory date has been announced, so plan on the gratuity rules above and check MOHRE announcements once or twice a year.
DIFC and ADGM
The two financial free zones have their own employment laws and are outside the federal scheme. In the DIFC, the lump-sum gratuity was replaced from 1 February 2020 by mandatory monthly employer contributions into DEWS or another qualifying scheme, at the same 5.83% and 8.33% of basic wage. ADGM has its own employment regulations and has been moving in the same direction. If your company is licensed in either zone, use that zone's rules and not this guide.
How do you account for gratuity every month?
Gratuity is earned month by month but paid years later. If the books only show it on the day someone leaves, every earlier month overstated profit and the settlement lands as one large expense. The fix is a monthly accrual.
Create two accounts: an expense account, "End-of-service gratuity expense", and a liability account, "Provision for end-of-service benefits". Each month, post:
| Account | Debit | Credit |
|---|---|---|
| End-of-service gratuity expense | 1,912.50 | |
| Provision for end-of-service benefits | 1,912.50 |
The monthly amount per employee is basic wage × 5.83% during the first five years of service (21 ÷ 30 ÷ 12) and basic wage × 8.33% after that (one month's basic ÷ 12). A sample calculation for a four-person team:
| Employee | Basic wage | Service so far | Rate | Monthly accrual |
|---|---|---|---|---|
| A | AED 6,000 | 3 years | 5.83% | AED 350.00 |
| B | AED 10,000 | 7 years | 8.33% | AED 833.33 |
| C | AED 8,000 | 2 years 6 months | 5.83% | AED 466.67 |
| D | AED 4,500 | 8 months | 5.83% | AED 262.50 |
| Total | AED 1,912.50 |
That is AED 22,950 a year for this team. Three practical points:
- Employees under one year. Employee D has no entitlement yet. Most small companies accrue from the first month anyway, because most employees stay past a year. If the employee leaves before twelve months, reverse the accrual: debit the provision, credit the expense.
- Pay rises need a true-up. Gratuity uses the last basic wage, so a rise revalues all past service. If Employee A moves from AED 6,000 to AED 7,000 at the three-year mark, the liability goes from AED 12,600 to 7,000 ÷ 30 × 63 = AED 14,700. Post the AED 2,100 difference as extra expense in the month of the rise, then accrue AED 408.33 a month (7,000 × 5.83%) from there.
- Check the balance once a year. At year end, calculate what each employee would receive if they left that day, add it up, and adjust the provision to match. Companies reporting under full IFRS measure this liability with an actuarial method under IAS 19. Small companies commonly use the leave-today figure, so ask your accountant or auditor which basis they expect.
What happens when you pay?
The expense has already been recorded, so the payment only clears the liability. When Employee A leaves at three years with a provision of AED 12,600:
| Account | Debit | Credit |
|---|---|---|
| Provision for end-of-service benefits | 12,600 | |
| Bank | 12,600 |
If the provision is short, the gap goes to expense. With AED 11,900 provided and AED 12,600 due: debit provision 11,900, debit gratuity expense 700, credit bank 12,600. If it is over-provided, credit the excess back to the expense account.
A provision is an accounting entry, not cash. Some owners also move the monthly amount into a separate bank account so the money exists when the settlement is due.
Why does the provision matter for corporate tax and for profit?
For the team above, leaving out the accrual overstates annual profit by AED 22,950. That distorts pricing, profit-based bonuses, owner drawings, and the figure a bank or buyer looks at. A buyer will calculate the unrecorded liability and take it off the price.
For corporate tax, taxable income starts from the accounting profit in your financial statements. Ministerial Decision No. 114 of 2023 requires the accrual basis under IFRS, allows IFRS for SMEs where revenue is up to AED 50 million, and lets businesses with revenue up to AED 3 million choose the cash basis. Advisers generally treat a gratuity accrual that is properly calculated under the labour law and recorded under accounting standards as deductible in the period it accrues, as long as it meets the general test of being incurred wholly and exclusively for the business. At the 9% rate, AED 22,950 of accrued expense is about AED 2,066 of tax in the year. On the cash basis, the deduction arrives only when the gratuity is paid. Keep a calculation per employee to support the figure, and confirm the treatment with your tax adviser, particularly for owner-employees and related parties. Registration, deadlines and Small Business Relief are covered in UAE corporate tax registration and filing for small businesses.
From the platform: Staks does not calculate gratuity for you. What it keeps is the data the calculation needs. On the Scale plan ($99 a month), each employee record holds the start date and the basic salary, payroll records keep basic salary separate from bonus, commission, reimbursements and deductions, and every change to an employee's basic salary is logged with the date it took effect, which you can query through the Claude connector. On the Growth plan ($49 a month) and above, you can add a gratuity expense account and a provision account to the chart of accounts and post the monthly accrual as a manual journal entry, so the liability shows on the balance sheet.
Frequently asked questions
Is gratuity calculated on basic salary or total salary?
Basic salary only, at the last figure in the employment contract. Housing, transport, overtime, commission and bonuses are excluded.
Does an employee who resigns get the full gratuity?
Yes, once they have completed one year of continuous service. The reduction for resigning with under five years of service belonged to the old 1980 law and does not apply under Federal Decree-Law No. 33 of 2021.
Does an employee who leaves after ten months get any gratuity?
No. Entitlement starts at one full year of continuous service. After that point, part years are paid in proportion.
Do UAE national employees receive gratuity?
Not under the labour law formula. UAE nationals are registered with the pension and social security system, and the employer pays monthly pension contributions for them instead.
Related reading
- WPS and payroll for UAE small businesses
- Agency commissions and payroll in the Gulf
- UAE corporate tax registration and filing for small businesses
- UAE corporate tax for freelancers
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