FTA APPROVED TAX AGENCY
VAT Returns deadline is 28th of every month. Excise Tax Returns deadline is 15th of every month ESR Notification Submission deadline, 6 months from the end of the financial year ESR Report Submission deadline, 12 months from the end of the financial year Click here to know the Foreign Exchange (FX) rates applicable for VAT from the UAE Central Bank website
+971 4 2699 329
corporate tax

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)

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.

Leave a Reply

Your email address will not be published.



Contact

balaram

Balaram Vuchidi

Managing Director
+971 50 9866 466
[email protected]
Anti Money Laundering Law   contact us
Enquire with Us