UAE employment law – What employers need to know about end of service gratuity payments

The UAE Labour Law No. 8 of 1980 (as amended) (the UAE Labour Law) is applicable to all employers in the UAE, except those based in the Dubai International Financial Centre and Abu Dhabi Global Market.

Under the UAE Labour Law, an expatriate employee who has completed at least one year of continuous service is entitled to an end of service gratuity payment on termination of employment. 

Here, we run through the key information employers need to know about end of service gratuity entitlements.

How are end of service gratuity payments calculated?

End of service gratuity is calculated by reference to an employee's final basic salary at the time of termination of their employment (excluding any applicable allowances, if applicable) as follows: 

• 21 calendar days basic pay for each year of service for the first five years, and 
• 30 calendar days’ basic pay for each year of service above five years. 

For incomplete years of employment, end of service gratuity is pro-rated. 

Reduction in end of service gratuity entitlement 

There is a sliding scale of entitlement to end of service gratuity depending on an employee's length of service when they resign:

Forfeiture of end of service gratuity entitlement 

An employee is not entitled to end of service gratuity if:

• the employment relationship terminates before the employee has completed one year of continuous service 
• the employee is summarily dismissed by the employer for gross misconduct for one of the reasons set out in Articles 88 and 120 of the UAE Labour Law
• the employee has opted to be part of a company pension scheme and is receiving a pension which is expressly stated to be an alternative to (and is more favourable than) the end of service gratuity entitlement 
• the employee is on a limited term contract with less than five years continuous service and resigns before the end of the limited term period 
• the employee is on an unlimited term contract and resigns without providing notice (Article 139 of the UAE Labour Law)
• the employee is a UAE or GCC national who receives a General Pension and Social Security Authority pension or equivalent from their home jurisdiction.

Paying end of service gratuity entitlements 

End of service gratuity is a statutory entitlement which employers must pay on termination of an employee’s employment. On termination, the employer must also cancel the departing employee’s UAE visa within 30 days of the termination date.

As part of the visa cancellation process, the employee is required to sign a visa cancellation form acknowledging that they have received all termination dues (including end of service gratuity entitlement) from their employer. Accordingly, employers must make end of service gratuity payments within 30 days of the employment termination date. This helps to ensure that the employee co-operates with the cancellation of their work permit, residence visa and any other official documents procured for them by the employer as part of their employment.

Here to help

To discuss any of the issues raised in this article in more detail, please reach out to a member of our Employment, Pensions & Mobility team.