Gratuity is an important aspect of employment in the United Arab Emirates (UAE), providing financial security to employees upon completion of their service. It is a mandatory end-of-service benefit that employers are required to pay to their employees in accordance with the UAE Labour Law.
Calculating Gratuity:
The UAE Labour Law stipulates specific guidelines for calculating gratuity based on an employee’s basic salary and the duration of their service.
a. For employees with unlimited contracts:
For those who have completed one year or more, the gratuity amount is calculated as follows:
21 days’ basic salary for each year of service for the first five years.
30 days’ basic salary for each year of service after completing five years.
The daily wage for gratuity calculation is determined by dividing the monthly salary by 30.
b. For employees with limited contracts:
Exceptions and Special Cases:
There are certain exceptional cases where gratuity calculation may differ from the general guidelines:
In cases of gross misconduct or violation of the employer’s rules, an employer may withhold gratuity.
For employees covered under UAE Federal Decree-Law No. 8 of 2017, known as the UAE VAT Law, the basic salary does not include housing allowances, transport allowances, or any other benefits.
For employees working in the DIFC (Dubai International Financial Centre) or ADGM (Abu Dhabi Global Market), separate regulations apply.
Calculation Examples:
Example 1: An employee with a basic salary of AED 5,000, who has worked for six years, would receive gratuity of (21 days x 5,000 AED x 5 years) + (30 days x 5,000 AED x 1 year) = AED 157,500.
Example 2: An employee with a basic salary of AED 10,000, who has worked for three years, would receive gratuity of (21 days x 10,000 AED x 3 years) = AED 63,000.
Payment of Gratuity:
If an employer fails to pay the gratuity amount within the stipulated time, they may be liable for penalties and legal consequences.
It’s important for employees to keep copies of their employment contract, salary slips, and any other relevant documents as proof of their service and entitlement to gratuity
Salary Calculation for Gratuity:
The basic salary is the key factor in calculating gratuity.
Collective Labour Agreement:
Some companies may have a Collective Labour Agreement (CLA) in place, which is an agreement between the employer and employee representatives.
CLAs may outline specific terms related to gratuity calculations and other benefits, which may differ from the general guidelines mentioned in the UAE Labour Law.
Employers and employees should review their CLA, if applicable, to understand any deviations or additional provisions related to gratuity.
Conclusion:
Gratuity calculation in accordance with the UAE Labour Law is essential for maintaining a fair and transparent employment environment. Employers should understand their obligations and ensure accurate and timely gratuity payments to employees.By adhering to the guidelines set forth by the UAE Labour Law, employers and employees can ensure a smooth and lawful gratuity calculator uae process, fostering positive working relationships in the UAE.