How to Calculate Gratuity in UAE According to the New UAE Labour Law

how to calculate gratuity in UAE

The UAE has introduced a new labour law coming into effect on 2nd Feb 2022. According to the law, private-sector employees are subject to the old gratuity scheme until their contracts are renewed to limited within the coming year. So here we will understand how to calculate gratuity in UAE?

Article 68 categorically states that law enforcement allows employees one year to change employment contracts from unlimited to limited.

How to Calculate Gratuity in UAE?

Employees until then under unlimited contracts will have their end-of-service gratuity calculated per the scheme mentioned in the old Labour. The new law shall apply to their renewed limited contracts moving forward.

Mohamed Gamal Tawfik, a legal adviser at Kaden Boriss Legal Consulting, said the end of service gratuity for full-time employees in the private sector has not changed under the new labour law, except for those under unlimited contracts.

Like the old law, Article 51 of the new labour law stipulates that an employee who has completed one year or more of continuous service is entitled to end of

service gratuity of 21 calendar days’ basic pay for each year of the first five years of service; and 30 calendar days’ basic pay for each subsequent year of service, provided that the entire total remuneration does not exceed two years’ pay.

For employees under unlimited contracts, Article 137 of the old labor law says that those who choose to resign before the end of the contract will be entitled to a 2/3 reduction of gratuity if the period of their service is between one to three years; 1/3 reduction if the period of service is between three to five years; and no reduction if the period of service exceeds five years.

“The new labor law shall apply to all existing labor contracts entered into under the existing law. Therefore, the employer can calculate the gratuity in accordance with the old law, and subsequently follow the new provisions,” said Tawfik.

Abdulla Ziad Galadari, the senior partner at Galadari Advocates and Legal Consultants, noted that employees whose contracts are due for renewal after February 2 will have their contracts renewed to limited in accordance with the new law.

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How to Calculate Gratuity in UAE for Foreign Workers?

The new regulations under Decree-Law no. 47 of 2021, aligned the end of service benefits of full-time foreign employees working in the federal government to that of the private sector starting from February 2.

“Employers have been given a year to amend contracts as per the new unified regulations. Until the contracts are amended, employers can follow the old scheme for calculating the end of service benefits for foreign employees in the federal government.”, said Tawfik (Source)

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