How to Calculate End of Service Gratuity in UAE — Labour Law Guide 2025
March 2025 • 6 min read • UAE Compliance
End of Service (EoS) gratuity is a mandatory payment under UAE Labour Law that every employee is entitled to upon leaving, provided they have completed at least one year of continuous service. Getting the calculation wrong exposes employers to legal liability — and underpaying is one of the most common HR compliance errors in the UAE.
The gratuity formula
Gratuity is calculated based on the employee's basic salary at the time of leaving — not gross salary. Allowances (housing, transport, etc.) are not included in the base for gratuity calculation.
Gratuity rates by years of service:
- Less than 1 year: No gratuity payable
- 1–5 years: 21 days' basic salary per year of service
- More than 5 years: 30 days' basic salary per year of service
Maximum gratuity payable is capped at 2 years of total basic salary.
Resignation vs. Termination
Under the updated UAE Labour Law (Federal Decree-Law No. 33 of 2021, effective February 2022), gratuity is payable regardless of whether the employee resigned or was terminated — as long as they have served at least 1 year.
Prior to the 2022 law change, resignation cases had reduced gratuity entitlements. For contracts under the new law, the same rates apply whether the employee resigns or is terminated.
Gratuity calculation examples
Example 1 — 3 years of service
Basic salary: AED 8,000/month
Daily rate: AED 8,000 ÷ 30 = AED 266.67
Gratuity per year (1–5 years): 21 × AED 266.67 = AED 5,600
Total gratuity (3 years): 3 × AED 5,600 = AED 16,800
Example 2 — 7 years of service
Basic salary: AED 12,000/month
Daily rate: AED 12,000 ÷ 30 = AED 400
First 5 years: 5 × 21 × AED 400 = AED 42,000
Years 6–7 (above 5 years): 2 × 30 × AED 400 = AED 24,000
Total gratuity: AED 42,000 + AED 24,000 = AED 66,000
Common gratuity calculation mistakes
- Using gross salary instead of basic salary as the calculation base
- Not applying the 2-year cap check for long-serving employees
- Applying old (pre-2022) resignation reduction rates to new contracts
- Not accounting for partial years correctly (pro-rated for months worked)
- Miscounting years of service when the employee transferred between entities
Automating gratuity calculation
Peymatrix calculates End of Service gratuity automatically at the point of offboarding — applying the correct rates based on years of service, termination reason, and current basic salary. The calculated amount is included in the final settlement breakdown.
Automate UAE payroll and gratuity calculations
WPS, End of Service gratuity, and MOL reports — all handled automatically by Peymatrix.
Start free trial →