UAE End-of-Service Gratuity 2026

• 05 August, 2026
• By Safvan, Managing Partner
• Accounting

Last reviewed 5 August 2026 by the Exiloz tax team against the UAE legislation in force on that date. Tax law moves — confirm any figure against tax.gov.ae before you act on it.

The termination cost you should already be carrying

End-of-service gratuity is a statutory termination benefit under the UAE Labour Law — Federal Decree-Law No. 33 of 2021 and its Executive Regulations. Broadly, an employee who completes one year of continuous service is owed 21 days' basic wage for each of the first five years and 30 days' basic wage for each year after that, calculated on the last basic wage and pro-rated for part-years. It is paid on basic salary only, not the gross package, and the total is generally capped at two years' pay. For your accounts, the important point is this: gratuity is a liability you should accrue every month as it builds, not a bill you scramble to fund on the day someone resigns. Confirm the current day-count and cap with MOHRE, since Labour Law details are periodically updated.

A Deira trading company we worked with had fifteen staff and had never booked a dirham of gratuity. When a warehouse supervisor with seven years' service resigned, the bill landed at over AED 60,000 — cash the owner simply did not have set aside. Nothing was wrong with the number. The problem was that it had been accruing silently for seven years and no one had recognised it. That is the whole story of gratuity in one anecdote: predictable, calculable, and painful only when ignored.

What gratuity actually is

Under Federal Decree-Law No. 33 of 2021, an employee who completes at least one year of continuous service is entitled to an end-of-service benefit when the employment ends. It is a right earned by service, not a discretionary bonus, and it is calculated on the employee's last basic wage at the point of leaving. Complete less than a full year and there is generally no entitlement.

The formula: 21 days, then 30

A worked AED example

Take an employee on a monthly basic wage of AED 12,000 who leaves after 8 full years. First convert the basic to a daily figure: AED 12,000 ÷ 30 = AED 400 a day. For the first five years the rate is 21 days a year, so 21 × AED 400 = AED 8,400 per year, across five years = AED 42,000. For years six to eight the rate rises to 30 days a year, so 30 × AED 400 = AED 12,000 per year, across three years = AED 36,000. Add them and the gratuity is AED 78,000. Then sanity-check the cap: two years' pay is far above AED 78,000 here, so the cap does not bite.

Basic wage, not gross — this is where numbers diverge

Gratuity is calculated on basic wage only. Housing, transport and other allowances are excluded, which is why an employee's gratuity is often much lower than they expect from their total package. If a salary of AED 20,000 is structured as AED 12,000 basic plus AED 8,000 allowances, the gratuity runs off the 12,000. In practice, the single most common dispute we see is an employee calculating on gross and an employer calculating on basic. Read the contract: the basic figure on the offer letter is the one that counts.

Pro-rating after the first year

Once the first full year is complete, part-years are paid pro-rata. So an employee leaving after 2.5 years on the same AED 400 daily basic earns 2.5 × 21 × AED 400 = AED 21,000. Days of unpaid absence are not counted as service. The one-year gate matters: someone who resigns at eleven months walks away with no gratuity at all, which is worth knowing before you time a move.

The old 'limited vs unlimited contract' distinction is gone

If you remember gratuity being slashed when you resigned from an 'unlimited' contract, that was the previous law. Federal Decree-Law No. 33 of 2021 moved every employee onto a fixed-term contract and removed the old limited/unlimited split, so the sliding-scale reductions on resignation no longer apply in the way they used to. An employee who completes a year and resigns is broadly entitled to gratuity on the same 21/30-day basis as one who is terminated. The exact treatment of specific exit routes still turns on the facts, so confirm any borderline case with MOHRE.

A simple calculator, in three inputs

You do not need a spreadsheet to sense-check a gratuity figure. A basic calculator takes three inputs — last monthly basic wage, total years (and months) of service, and confirmation that one full year is complete — then applies 21 days a year for the first five years and 30 days a year after that, off a daily rate of basic ÷ 30. Run your own headline number that way, then have it checked against the contract and the Labour Law before it is paid or booked. The arithmetic is simple; the disputes come from the wage basis and the service dates.

For accounting: accrue it monthly, don't fund it at exit

Under IAS 19, end-of-service benefits are an employee-benefit obligation that builds with service. That means the liability should sit on your balance sheet and grow every month, matched against the period the employee earns it — not recognised as a lump when they walk out. A rough monthly provision is one-twelfth of each employee's current annual entitlement; a formal actuarial valuation (projected unit credit, with discounting) is used where the workforce is large. Either way, the discipline is the same: book it as it accrues so the cash and the P&L are never blindsided.

How to handle gratuity as an employer

1. Record the wage split: capture each employee's basic wage separately from allowances — gratuity runs off basic only.
2. Track service dates: keep an accurate start date and count continuous service, excluding unpaid absence.
3. Accrue monthly: book a provision each month for the entitlement earned, so the liability grows with service.
4. Apply the formula at exit: 21 days a year for the first five years, 30 days after, on the last basic wage, pro-rated.
5. Check the cap: confirm the total does not exceed two years' pay before you settle.
6. Pay on time: settle the final entitlement promptly at the end of service to avoid a claim.

Common mistakes we see

The legal basis

Gratuity sits in Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations and its Executive Regulations (Cabinet Resolution No. 1 of 2022), administered by MOHRE. It applies to mainland private-sector employees; some free zones such as DIFC and ADGM run their own end-of-service regimes (DIFC uses the DEWS savings scheme), so check which rules govern your contracts. The calculation is payroll; the balance-sheet treatment is accounting. Our payroll and WPS team sets up the wage split and monthly accrual, and our management accountants make sure the provision is right at year-end. Re-verify the day-count and cap against MOHRE at the point of payment.

Frequently Asked Questions