UAE Gratuity Law and End-of-Service Benefits: A Comprehensive 2026 Guide to Gratuity Calculation, Voluntary End of Service Benefits Schemes and Practical Compliance

UAE Gratuity Law and End-of-Service Benefits: A Comprehensive 2026 Guide to Gratuity Calculation, Voluntary End of Service Benefits Schemes and Practical Compliance

Estimated reading time: 12 minutes

Key Takeaways

• Statutory framework: FFederal Decree-Law No. 33 of 2021 Regarding the Regulation of Employment Relations and its Executive Regulations issued under Cabinet Resolution No. 1 of 2022 establish the statutory framework governing end of service gratuity and alternative schemes.
• Gratuity formula: 21 days’ basic wage for first 5 years, 30 days thereafter, capped at 2 years’ wage.
• Alternative schemes: DIFC’s DEWS plan and the federal Savings Scheme transform liabilities into funded contributions.
• Compliance essentials: 14-day payment rule, lawful deductions, accurate record-keeping of unpaid leave, and clear contract drafting.

1. Introduction: Why Gratuity Calculation in the UAE Now Demands Strategic Attention

Gratuity calculation in the UAE is no longer a back-office task. Since the entry into force of Federal Decree-Law No. 33 of 2021 and its Executive Regulations, and the launch of the Savings Scheme, end of service benefits have become central to workforce strategy, compliance and balance-sheet management. Employers must now understand how traditional gratuity interacts with funded schemes, including the Voluntary Alternative End of Service Benefits Scheme established under Cabinet Resolution No. 96 of 2023.

2. The Statutory Framework: From Traditional Gratuity to Savings-Enhanced End of Service Benefits UAE

2.1. Labour Decree-Law & Unified General Rules

The core rules for private-sector gratuity are in Federal Decree-Law No. 33 of 2021, effective 02 February 2022, replacing the 1980 law. The gratuity accrual of 21 days for each of the first 5 years and 30 days for each subsequent year is expressly provided under Article 51 of Federal Decree-Law No. 33 of 2021.

2.2. Executive Regulations & Work Types

Cabinet Resolution No. 1 of 2022 defines continuous service, handles unpaid leave, and pro-rata entitlement for part-time, temporary and flexible work, ensuring alignment with the protective purpose of the law.

2.3. End of Unlimited Contracts

All private-sector roles have shifted from indefinite to fixed-term contracts, unifying the gratuity formula under Article 51 and abolishing legacy distinctions—except for gross-misconduct scenarios under Article 44.

3. Eligibility, Employee Categories and the Core Formula for Calculating Gratuity in UAE

3.1. One-Year Threshold

Foreign full-time employees gain gratuity rights after 1 year of continuous service. Days of unpaid leave are excluded from service calculation.

3.2. Nationals vs. Expatriates

Emirati workers fall under social security laws; expatriates receive a lump-sum gratuity per Article 51 once the 1-year threshold is met, regardless of termination type.

3.3. Standard Formula & Cap

• 21 days’ basic wage for each of the first 5 years;
• 30 days’ basic wage for each subsequent year;
• Maximum entitlement of 24 months’ basic wage.

3.4. Non-Standard Arrangements

Part-time, temporary or flexible roles earn pro-rata gratuity based on hours or days worked under the Executive Regulations.

4. Practical Gratuity Calculation, Lawful Deductions and the 14-Day Payment Rule

4.1. Worked Example

For a 7-year employee with AED 6,000 basic salary:
• Daily wage = AED 6,000 ÷ 30 = AED 200
• First 5 years: 105 days × AED 200 = AED 21,000
• Next 2 years: 60 days × AED 200 = AED 12,000
• Total gross gratuity = AED 33,000 (below the AED 144,000 cap)

4.2. Lawful Deductions

Deductions (advances, fines, court judgments) are allowed if supported by contract and within regulatory limits under the Executive Regulations.

4.3. Unpaid Leave Impact

Unpaid absence shortens “countable” service—for example, 6 months’ leave in 6 calendar years reduces countable service to 5.5 years.

4.4. 14-Day Rule

Employers must pay gratuity and all end-of-service entitlements within 14 days of contract end, or face MoHRE complaints and court referrals.

5. Special Regimes: Dubai International Financial Centre, the Federal Voluntary Alternative End of Service Benefits Scheme

5.1. DIFC DEWS Plan

The Dubai International Financial Centre Employment Law No. 2 of 2019, as amended, introduced the Dubai International Financial Centre Employee Workplace Savings Scheme, which replaces the previous gratuity system with a defined contribution savings model administered through regulated trust structures.

5.2. Federal Savings Scheme

Under Cabinet Resolution 96 of 2023, employers may opt into a voluntary Savings Scheme, preserving accrued gratuity and funding future entitlements via regulated investment funds.

5.3. Private End of Service Benefits Schemes Products

Any employer-sponsored savings arrangement must comply with Article 51 of Federal Decree-Law No. 33 of 2021 and, where applicable, Cabinet Resolution No. 96 of 2023 to ensure that accrued statutory gratuity rights are preserved and lawfully funded.

5.4. Future Direction

While no universal pension mandate exists yet, the legal architecture anticipates progressive adoption of funded schemes, making proactive planning essential.

6. Strategic and Compliance Considerations for Employers, HR and Expatriate Employees

6.1. Contract Drafting & Remuneration Structure

Separate basic wage from allowances clearly to avoid disputes and preserve the protective purpose of the gratuity formula.

6.2. Internal Gratuity Calculators

Ensure tools (e.g. internal calculators) reflect the 1-year threshold, exclude unpaid leave, apply 21/30-day accruals, cap, and distinguish Savings Scheme participants.

6.3. Termination & Insolvency Risk

Model aggregate liabilities in advance, consider funded schemes to protect employees and company reputation in distress scenarios.

6.4. Banking & Personal Planning

Employees should review bank set-off rights against gratuity; funded schemes may offer greater security and integration with retirement planning.

6.5. Road Ahead

Employers should monitor legislative developments concerning the Voluntary Alternative End of Service Benefits Scheme established under Cabinet Resolution No. 96 of 2023 and any future amendments to Federal Decree-Law No. 33 of 2021.

FAQ

• How is gratuity in the UAE calculated?
  It’s based on basic wage: 21 days/year for first 5 years, 30 days/year thereafter, capped at 2 years’ wage. Unpaid leave is excluded.
• What is the 14-day rule?
  Employers must settle all end-of-service payments, including gratuity, within 14 days of contract termination to avoid penalties.
• Can I join the federal Savings Scheme?
  Yes, under Cabinet Resolution 96 of 2023 employers may voluntarily subscribe, funding future benefits via approved investment funds while preserving accrued gratuity.
• Does DIFC follow the same rules?
  No—DIFC uses its DEWS defined-contribution plan instead of the federal lump-sum gratuity regime.