UAE Gratuity – Type of Contract – Unlimited Contract

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)

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