The following blog is part 2 of the UAE Gratuity topic. You can find the links to other topics in UAE Gratuity:
Part 1 – Understanding basics of Gratuity
Part 2 – Type of Contract – Limited Contract (Resignation or Termination)
Part 3 – Type of Contract – Unlimited Contract (Resignation or Termination)
Now when we have understood the basics of gratuity in UAE in the part 1 of UAE Gratuity topic, we shall now move towards types of contracts provisioned in the UAE labor law affecting gratuity payout and understand limited contract in detail:
The amount of gratuity payout is determined by various factors among them:
- Type of contract – Limited and Unlimited Contracts
- Type of separation – Resignation or Termination
The above two types of contracts affect the gratuity payout as we explain further below.
Limited Contract
Calculation of gratuity is as follows under limited contracts when the separation type is resignation.
- If the service period is less than one year, no gratuity is paid.
- If the service period is more than one year, but is less than five years, no gratuity is paid.
- If employee resigns at the end of contract period, fully accrued amount is paid.
- If the service period is more than five years, the gratuity pay is based on 21 days per year for the first five years and 30 days per year for each additional year. See below table breakdown of the number of days qualifying for each slab of service period.
Type of contract: Limited Contract | |
Separation type:Resignation | |
Period of service | Number of days used to calculate gratuity. |
Less than one year | No gratuity |
Resignation at end of contract period | Full Accrued amount |
One to Less than 5 years | No gratuity |
Year 5 and above | Full Accrued amount |
Please see below sample showing gratuity calculation for resignation under limited contract.
Resignation under Limited contract | ||||
Service period | Less than 1 year | Resignation at end of contract | One to Less than 5 years | 5 Years and Above |
Hire date | 14/08/2019 | 01/02/2018 | 12/05/2018 | 10/02/2014 |
Basic Salary | 10,000.00 | 10,000.00 | 10,000.00 | 10,000.00 |
Last working day | 31/01/2020 | 31/01/2020 | 31/01/2020 | 31/01/2020 |
Number of days in service | 171 | 730 | 630 | 2,182 |
Number of years in service | 0.47 | 2 | 1.73 | 5.98 |
One day Basic salary(= Basic salary/30) | 333.33 | 333.33 | 333.33 | 333.33 |
For the first five years (21 days per year) | – | 42 | – | 105 |
Five years and above (30 days per Year) | N/A | N/A | – | 29.34 |
Total Gratuity Days | 134.34 | |||
Gratuity Amount | No gratuity is paid | 14,000.00 | No gratuity is paid | 44,780.00 |
If the separation type is termination under the limited contract, then the calculation of payout accrued is as follows.
- If the service period is less than one year, no gratuity is paid.
- If the service period is more than one year but less than five years, accrual is at 21 days per year.
- If the service period is more than five years, accrual is at 21 days per year for the first five years and at 30 days per year for each additional year.
As shown below
Type of contract: Limited Contract | |
Separation type:Termination | |
Period of service | Number of days used to calculate gratuity. |
Less than one year | No gratuity |
One to Less than 5 years | 21 days per year. |
Year 5 and above | 30 days per year. |
The following sample calculates the accrual for a termination case under the limited contract.
Termination under Limited contract | |||
Service period | Less than 1 year | One to Less than 5 years | 5 Years and Above |
Hire date | 14/08/2019 | 12/05/2018 | 10/02/2014 |
Basic Salary | 10,000.00 | 10,000.00 | 10,000.00 |
Last working day | 31/01/2020 | 31/01/2020 | 31/01/2020 |
Number of days in service | 171 | 630 | 2,182 |
Number of years in service | 0.47 | 1.73 | 5.98 |
One day Basic salary(= Basic salary/30) | 333.33 | 333.33 | 333.33 |
For the first five years (21 days per year) | – | 36.25 | 105.00 |
Five years and above (30 days per Year) | N/A | N/A | 29.34 |
Total Gratuity Days | 36.25 | 134.34 | |
Gratuity Amount | No gratuity is paid | 12,083.33 | 44,780 |
Check out part 1 and part 3 of UAE gratuity law of the following topics:
Part 1 – Understanding the basics of Gratuity (click on the link)
Part 3 – Type of Contract – Unlimited Contract (Resignation or Termination) (click on the link)
Spectrum Auditing is an expert firm in providing genuine advice on all the established laws that govern the business in UAE. Our passion and heart lie in serving the clients and we aim at utmost client’s satisfaction. We are registered Auditors under the Ministry of Economy UAE and also registered Tax Agent from Federal Tax Agency UAE, Dubai providing dedicated Audit, Accounting, Tax services and various Business Advisory Services complying regulatory requirements.
Reach us to have a frills free life in your journey in Dubai, UAE. We at Spectrum will assist you in taking care of all the legal procedures involved in process. Call us today for any kind of business assistance at +971 4 2699329 or email us at [email protected] to get all your queries addressed. Spectrum is your partner in your success.