Key takeaways
- A full-time foreign employee with at least one year's continuous service earns 21 days' basic wage for each of the first 5 years and 30 days' for each year after.
- Gratuity is based on the last basic wage, not the full salary. Unpaid absence does not count as service, and the total is capped at 2 years' wage.
- Accrue it monthly. A provision built month by month avoids a large, unplanned charge when someone leaves.
- A pay rise increases the gratuity for all past service, so the provision steps up in the month the basic wage goes up.
End-of-service gratuity accrues every month an employee works and is paid as a lump sum on departure. Across a sizeable workforce it becomes one of the larger liabilities on the balance sheet, and one auditors and lenders look at closely. If it is recognised only when someone resigns, a single month's accounts absorb the whole cost and the cash has to be found within 14 days. This article covers how UAE gratuity is calculated, a worked example in AED and how to accrue it monthly.
The UAE gratuity rule
Gratuity is set by Article 51 of Federal Decree-Law No. 33 of 2021, the Labour Law. For a full-time foreign employee who has completed at least one year of continuous service, it is 21 days' basic wage for each of the first 5 years of service, and 30 days' basic wage for each year after that.
The rest of the rule (Art. 51(3) to (7)):
- Part years count pro rata, once the first full year is complete.
- Unpaid absence days are excluded from service.
- The calculation uses the last basic wage, not total salary with allowances.
- The total is capped at 2 years' wage.
- Amounts the employee lawfully owes the employer can be deducted.
All end-of-contract dues, gratuity included, are payable within 14 days of the end of the contract (Art. 53).
This is the general rule. Before settling a final payment, check the employee's contract and MOHRE guidance; MOHRE is the Ministry of Human Resources and Emiratisation.
Who it covers
UAE nationals receive end-of-service benefits under the pensions legislation, not this formula (Art. 51(1)). The Labour Law does not cover federal and local government employees, the armed forces, police and security services, or domestic workers, who have a separate law (Art. 3(2)).
Employers in the voluntary alternative end-of-service savings scheme (Cabinet Resolution No. 96 of 2023) pay monthly contributions into an approved fund instead of building up a lump-sum liability. This article covers the standard gratuity.
A day's basic wage
The law counts gratuity in days of basic wage, so a daily rate is needed. In the examples below we take the annual basic wage divided by 365. Other methods are in use, so check the contract and MOHRE guidance, and apply one method consistently across the workforce.
A worked example
An employee joined on 1 March 2019 on a basic wage of AED 8,000 a month. The total package is AED 14,000 with housing and transport allowances. They leave on 31 August 2026, after 7 years and 6 months, with no unpaid leave.
| Service | Days of basic wage |
|---|---|
| Years 1 to 5: 5 × 21 | 105 |
| Years 6 and 7: 2 × 30 | 60 |
| Final 6 months: 0.5 × 30 | 15 |
| Total | 180 |
The daily basic wage is AED 8,000 × 12 ÷ 365 = AED 263.01. Gratuity is 180 days at that rate: AED 47,342 (180 × AED 96,000 ÷ 365).
Three checks on the figure. Allowances do not count: the same 180 days on the AED 14,000 package would give AED 82,849, overstating the gratuity by AED 35,507. Unpaid leave comes off: with 20 days of unpaid leave, service falls by 20 days, all in the 30-day band, and the gratuity by about AED 432. And the cap does not bite here. Two years' wage is AED 192,000, and with this method the cap only matters after more than 25 years with one employer.
Accruing gratuity every month
Under accrual accounting, gratuity is a cost of every month the employee works. It belongs in each month's accounts as a provision: a liability for an amount to be paid later.
A common method for monthly accounts:
- At each month-end, calculate each employee's gratuity as if they left that day, on their current basic wage and service to date.
- Compare the total with the provision already in the balance sheet.
- Post the difference: debit gratuity expense in staff costs, credit the end-of-service provision.
- When someone leaves, pay from the provision: debit the provision, credit the bank.
The calculation is only as good as the employee data behind it. Joining dates, basic wage and unpaid leave usually sit in HR or payroll systems, so the month-end routine should pull from the same source payroll uses rather than a separate spreadsheet.
Employees with less than a year's service are not yet entitled. Many employers accrue for them anyway, because most staff pass the one-year mark; choose a policy and apply it consistently. For year-end accounts under full IFRS (International Financial Reporting Standards), the auditor may expect a more formal measurement, so raise it early.
Example: a pay rise
An employee joins on 1 January 2024 on a basic wage of AED 6,000. On 1 January 2026, after 2 years, it rises to AED 7,000.
| AED | |
|---|---|
| Monthly accrual on AED 6,000 (21 days a year) | 345 |
| Provision at 31 December 2025, after 2 years | 8,285 |
| The same 2 years at AED 7,000 | 9,666 |
| Catch-up in January 2026 | 1,381 |
| Monthly accrual on AED 7,000 | 403 |
January 2026 carries a charge of about AED 1,784: the month's AED 403 plus the AED 1,381 catch-up. Because gratuity uses the last basic wage, every raise reprices all past service. Where pay reviews take effect on one date across the organisation, the catch-up lands in a single month for the whole workforce and should be budgeted as such. A second step comes after 5 years, when each year of service is worth 30 days rather than 21 and the monthly accrual rises by about 43%.
Paying it out
When an employee leaves, confirm the last basic wage and the service dates, deduct unpaid absence, apply any lawful deductions, and pay within 14 days of the contract end, with the other final dues. Then compare the payment with the provision held for that employee. A large difference usually means the monthly calculation missed a pay rise or a service date.
For a quick figure, our gratuity calculator gives an estimate based on basic wage.
How ebs can help
ebs Chartered Accountants runs payroll every month, from checking changes to salaries and deductions to issuing payslips, and handles WPS (the Wage Protection System), gratuity and end-of-service calculations, so the gratuity provision flows into the monthly accounts. The first consultation is free: contact us.
This article is general information as at 23 September 2026, not advice on your specific circumstances. Labour rules change; check the current position before acting.