How agreeing to a salary cut could reduce your UAE end-of-service payout by thousands.
Dubai: Leaving a job in the UAE can be a challenging process, particularly for employees who are not fully aware of their legal rights and entitlements in the private sector.
One of the key components of a final settlement is the end-of-service (EOS) gratuity. Eligible employees are entitled to this statutory payment when their employment ends. However, many workers are still unsure how gratuity is worked out, which factors can influence the final amount and what they can do if their employer delays or disputes payment.
Here is a guide to the key rules under the UAE Labour Law (Federal Decree-Law No. 33 of 2021).
How is gratuity calculated in the UAE?
“End-of-service gratuity for a full-time foreign employee is calculated on the employee’s last basic wage that they were entitled to receive, not the full gross salary,” Ahmed Odeh, managing partner at MIO & Partners, told Gulf News.
Odeh outlined the following calculation rules:
- Standard calculation: Employees receive 21 days of basic wage for each year of service during the first five years, followed by 30 days of basic wage for every additional year, provided they have completed at least one year of continuous service.
- Part-year service: Gratuity is calculated on a pro-rata basis for any additional period of service beyond a full year.
- Maximum entitlement: The total gratuity payment cannot exceed the equivalent of two years’ wage.
- Unused annual leave: Accrued but unused annual leave is not included in the gratuity calculation. It is a separate entitlement and must be settled independently.
General rules for gratuity in the UAE
| Length of service | Gratuity entitlement |
|---|---|
| Less than one year | No gratuity entitlement |
| One to five years | 21 days’ basic wage for each year of service |
| More than five years | 21 days’ basic wage for each of the first five years, followed by 30 days’ basic wage for every additional year |
| Maximum limit | Total gratuity cannot exceed two years’ wage |
Employees are also entitled to pro-rated gratuity for part of a year, while accrued but unused annual leave must be paid separately as part of the final settlement.
What happens if my employer reduces my salary?
Odeh explained that since gratuity is calculated using an employee’s last basic wage, a salary reduction shortly before leaving a job could substantially reduce the final payout.
“Employees should be cautious before signing a salary-reduction addendum close to the end of employment, because if the basic wage is validly reduced before termination, it may reduce the gratuity calculation. However, if the reduction was imposed or used as a device to defeat the employee’s statutory entitlements, the employee may have grounds to challenge it.”
“ This ‘last basic wage’ provision is particularly important. Employees should think carefully before agreeing to a salary-reduction addendum shortly before leaving a job. If the basic wage is legitimately reduced before employment ends, it could lower the gratuity amount they receive.”
Ahmed Odeh, Managing Partner, MIO & Partners
How long does an employer have to pay gratuity?
Under Article 29 of the UAE Labour Law, employers are required to settle all outstanding wages and end-of-service gratuity within 14 days of the employment contract’s end date.
What happens if gratuity payment is delayed?
“If the matter remains unresolved, the employee may file a labour complaint with the Ministry of Human Resources and Emiratisation (MOHRE). The ministry will generally attempt to resolve the dispute amicably before referring it to the competent court,” Odeh said.
He also pointed out that an employer cannot withhold gratuity simply because a disagreement has arisen, the employer is dissatisfied with the employee’s performance or the employee has resigned.
An employer cannot refuse to pay gratuity simply because a dispute exists, they are unhappy with an employee’s performance or the employee has resigned. Gratuity is a statutory end-of-service entitlement when the relevant legal conditions are satisfied.
Ahmed Odeh, Managing Partner, MIO & Partners
Can an employer deduct money from gratuity?
Odeh explained that employers may make deductions from end-of-service benefits for amounts legally owed by an employee or sums payable under a court judgment. However, any deduction must comply with the procedures and conditions set out in the law.
Examples of deductions that may be permitted include recovering outstanding loans or overpayments, penalties for disciplinary violations where due process has been followed, and compensation for damage caused by an employee.
Should I sign a final settlement document?
Odeh advised employees to obtain a written breakdown of their final settlement before signing any clearance form, waiver or document confirming that all dues have been received.
“In practice, employees should request a written final-settlement breakdown before signing any clearance, waiver, or ‘all dues received’ document. Employees should avoid signing a final settlement confirming that all dues have been received unless payment has actually been made, or unless the document clearly preserves their right to claim any shortfall,” he said.
Employees should always ask for a written breakdown of their final settlement before signing a clearance, waiver or document confirming receipt of all outstanding payments.
Ahmed Odeh, Managing Partner, MIO & Partners
