The following blog is part 3 of the UAE Gratuity topic. You can find the links to other topics in UAE Gratuity:
Part 1 – Understanding basics of Gratuity(click on the link)
Part 2 – Type of Contract – Limited Contract (Resignation or Termination) (click on the link)
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 and types of contract when it is limited contract in part 2, we shall now move towards types of contract provisioned in the UAE labor law affecting gratuity payout and understand unlimited 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 two types of contracts and the separation method affect the gratuity payout as we explain further below.
Unlimited Contract
If the employer terminates the unlimited contract, calculation of gratuity 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, the gratuity paid is based on 21 days’ salary for each year of service.
- If the service period is more than five years, the gratuity paid is based on 21 days for the first five years and 30 days per year for each additional year.
Refer to following tabular breakdown on the number of days used to accrue the gratuity under this type of separation.
| Type of contract: Unlimited Contract | |
| Type of separation: Termination | |
| Period of service | Number of days |
| Less than one year | No gratuity |
| One to Less than 5 years | 21 days per year |
| Year 5 and above | 30 days per year |
Please see sample calculation of gratuity payment for termination.
| Termination under unlimited 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 | 630.00 | 2,182.00 |
| 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 |
If the employee terminates the unlimited contract, the calculation of gratuity 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 three years, the gratuity paid is based on 7 days’ salary (1/3 of 21 days)for each year served.
- If the service period is between 3-5 years, the gratuity paid is based on 14 days’ salary (2/3 of 21 days) for each year of service.
- If the service period is more than five years, the gratuity paid is based on 21 days’ salary for each additional year of service.
| Type of contract: Unlimited Contract | |
| Separation type:Resignation | |
| Period of service | Number of days used to calculate gratuity |
| Less than one year | No gratuity |
| One to less than 3 years | 7 days per year |
| Three to less than 5 years | 14 days per year |
| 5 years and above | Full accrual |
The following example describes the accrual under this scenario.
| Resignation under unlimited contract | ||||
| Service period | Less than 1 year | One to less than 3 years | Three to less than five years | Five years and above |
| Hire date | 14/08/2019 | 07/11/2017 | 10/02/2015 | 10/02/2014 |
| Basic Salary | 10,000.00 | 10,000.00 | 10,000.00 | 10,000.00 |
| Last working date | 31/01/2020 | 31/01/2020 | 31/01/2020 | 31/01/2020 |
| Number of days in service | 171 | 816.00 | 1,817.00 | 2,182.00 |
| Number of years in service | 0.47 | 2.24 | 4.98 | 5.98 |
| Gratuity Days | ||||
| For the first three years (7 days per year) | N/a | 15.65 | 21.00 | – |
| For year 3 to year 5 (14 days per year) | N/a | N/a | 27.69 | – |
| For the first five years (21 days per year) | N/a | N/a | 105.00 | |
| Five years and above (30 days per Year) | N/a | N/a | N/a | 29.34 |
| Total Gratuity Days | 15.65 | 48.69 | 134.34 | |
| Gratuity Amount | No gratuity is paid | 5,216.61 | 16,229.84 | 44,779.55 |
Check out part 1 and part 2 of UAE gratuity law of the following topics:
Part 1 – Understanding the basics of Gratuity (click the link)
Part 2 – Type of Contract – Limited 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.
contact us