End-of-Service Gratuity in the UAE: How to Calculate It and Account for It

Who is entitled

Under Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations, a full-time employee in the private sector who completes at least one year of continuous service is entitled to end-of-service gratuity. Part-time employees are entitled pro rata to their working hours. Days of unpaid absence are not counted as service. Employees in DIFC and ADGM follow their own schemes, and government employees follow pension rules instead.

Under the current law, resigning no longer reduces gratuity the way it did under the old Labour Law.

The formula

Partial years count in proportion once the first year is complete. The calculation uses the last basic wage — housing, transport and other allowances are excluded — and a daily wage of the monthly basic divided by 30.

A worked example

An employee leaves after 7 years with a last basic salary of AED 10,000 a month (daily wage AED 333.33):

• First 5 years: 5 × 21 = 105 days
• Next 2 years: 2 × 30 = 60 days
• Total: 165 days × AED 333.33 = AED 55,000

Run your own figures in our end-of-service gratuity calculator.

Paying it

• All dues, including gratuity, must be paid within 14 days of the contract ending.
• The employer may deduct amounts the employee owes it, such as loans or advances.
• Pay through the Wage Protection System and keep a signed final settlement.

The alternative savings scheme

Private-sector employers may opt into the voluntary alternative end-of-service savings scheme, paying monthly contributions into an approved fund instead of a lump sum at the end — currently 5.83% of basic wage for employees with under five years of service and 8.33% from five years. The money is invested on the employee's behalf and paid out when employment ends.

Accounting for gratuity (IAS 19)

Gratuity is a post-employment benefit. Under IAS 19 the company records an end-of-service provision for every employee and updates it at each reporting date, with the cost charged to profit or loss. Larger employers use an actuarial valuation; smaller ones often use the amount that would be payable if everyone left at the reporting date, where the difference is not material. Auditors routinely test this provision, and under Corporate Tax it is generally deductible when paid rather than when provided — check your tax computation.

Common mistakes

• Calculating on total salary instead of basic salary.
• Forgetting to deduct unpaid leave from the service period.
• Still applying the old reductions for resignation.
• No provision in the books, so the cost hits one month's profit when someone leaves.

How Business Future CPA helps

We calculate final settlements, run payroll, build IAS 19 end-of-service schedules for your financial statements and reconcile them for audit and Corporate Tax. See our payroll and business support and IFRS advisory services.