If you work in the UAE private sector, it’s important to understand your end-of-service benefits, including gratuity, your rights in cases of termination, and what happens if your role is made redundant. UAE labor law provides clear guidelines on calculating statutory gratuity, paying out unused annual leave, handling notice periods, and the circumstances under which gratuity may be reduced or forfeited. Additionally, you should be covered by Insurance for Loss of Employment (ILOE) to help during redundancy. Knowing these rules ensures you receive all the entitlements you are legally owed and can plan your next steps with confidence.

Eligibility for Gratuity

To qualify for end-of-service gratuity you must:

▪️Have completed at least one year of continuous service with your employer.

▪️Be employed under a limited or unlimited contract.

Who is Not Eligible? Employees are not eligible for gratuity if they:

▪️Were dismissed for gross misconduct or serious violations of company rules.

▪️Resigned before completing one year of service.

Notice Period

▪️Notice periods are counted in calendar days, not working days, including weekends and public holidays.

▪️The standard notice period is 30 calendar days, unless a different period is specified in your employment contract.

Annual Leave and End-of-Service Pay

▪️Any unused annual leave accrued at the end of employment must be paid out in addition to gratuity.

▪️End-of-Service Pay is calculated based on your basic salary and the number of unused leave days.

▪️Employers can deduct leave taken in advance if it exceeds accrued leave.

Gratuity Calculation Rules

As per The UAE Labor Law (Federal Decree-Law No. 33 of 2021, private sector) you are entitled to the following:

▪️Service of 1 to 5 years: 21 days’ basic salary per year of service.

▪️Service beyond 5 years: 30 days’ basic salary for each additional year, with the total not exceeding two years’ salary.

Step-by-Step Calculation

1. Determine your basic salary: Only the basic salary counts; allowances (housing, transport, etc.) are excluded.

2. Calculating gratuity for the first 5 years:

   ▪️Multiply 21 days’ basic salary by the number of years worked (up to 5 years).

   • Example: Basic salary AED 10,000, 1 years of service = 10,000 ÷ 30 × 21 × 1=AED7,000

3. Calculating gratuity for years beyond 5:

   ▪️Multiply 30 days’ basic salary by the number of additional years beyond 5.

   ▪️Example: 7 years of service at AED 10,000:

   • First 5 years: 10,000÷30 × 21 × 5 = AED35,000 ($10,000÷30\times 21\times 5=AED35,000)$

   • Additional 2 years: 10,000÷30 × 30 × 2 = AED20,000 ($10,000÷30\times 30\times 2=AED20,000)$

   • Total gratuity = AED 55,000

Adjustments for Resignation or Termination

▪️Termination for gross misconduct: gratuity will be forfeited.

▪️Employers can deduct any outstanding debts, costs for damaged/lost equipment or loans, salary advances and leave taken beyond entitlement.

▪️Sick leave is generally not deducted from gratuity unless there was unauthorized leave (i.e. not certified with a medical certificate)

Redundancy Pay

▪️UAE labor law does not mandate redundancy pay in the private sector.

▪️If termination is due to redundancy or business closure, employees are entitled to full gratuity.

▪️Some employers may offer additional severance as a goodwill gesture, but it is not required by law.

Insurance for Loss of Employment (ILOE):

ILOE is a mandatory unemployment insurance scheme in the UAE providing a financial safety net for employees who lose their jobs for reasons beyond their control, offering up to three months of support (60% of basic salary). *Note this is not the responsibility of an employer to register you or pay for this.

To make a claim, log in to the official website (iloe.ae) or app, submit your claim within 30 days of job loss, provide required documents such as your termination letter and Emirates ID, and confirm the reason for job loss was involuntary (not resignation or firing) to receive up to 60% of your basic salary for up to three months.

Key Points to Remember

✔️Gratuity is based only on basic salary, not allowances.

✔️Notice periods are calendar days, including weekends and public holidays.

✔️Unused annual leave must be paid; leave taken in advance can be deducted.

✔️Gratuity may be forfeited in cases of gross misconduct.

✔️Redundancy does not trigger extra pay beyond gratuity unless contractually agreed. For support in case of redundancy you would need to make an ILOE claim.

Conclusion

By understanding your basic salary, length of service, accrued annual leave, notice periods, and the rules around redundancy and ILOE coverage, you can ensure you receive all end-of-service entitlements you are legally entitled to in the UAE.

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