Gratuity is a payment to an employee by their employer. Companies make this payment upon termination of employment. This payment is a kind of severance pay to help the employee. It helps them to move to a new job in the UAE. We calculate the amount of gratuity according to their salary and their length of service. The gratuity is helpful for employees who leave their job and try to search for another position. This money helps them until they don’t find another job.
The following is the formula for calculating gratuity in the UAE:
Gratuity = (Salary * Year of Service) / 3
Salary: The basic salary of the employee, excluding overtime pay, allowances, and bonuses.
Years of Services: The number of full years that the employee has worked for the company.
For instance, if an employee has a basic pay of AED 10, 000 and has worked for the employer for 5 years, their gratuity would be as:
Gratuity = (10,000 * 5) / 3 = 16,666.67 AED
Difference between resignation and termination
Resignation
Resignation is when an employee leaves their job voluntarily. It is a formal act of quitting one’s job. Employees resign for different reasons. These reasons can be to take another job, to go back to university, or to start their own business. They require to give their employer a notice period.
The length of the notice period depends on the position of the employee and the policies of the company. During the notice period, the company expects employees to continue working. And also complete their pending projects.
Termination
Termination is when an employer ends the employment of the employee. This termination can be voluntary or involuntary. Voluntary termination occurs when the employer and the employee agree to end the working relationship. Involuntary termination occurs when the employee terminates the employment without their consent.
There are a number of reasons why an employer might terminate the employment of the employee. These reasons can be:
Performance issues: If an employee is not meeting the performance standards of their job. This can be the major reason that employers terminate their employment.
Misconduct: If the employee does some misconduct such as fraud, theft, or harassment. Then the employee might terminate their employment.
Redundancy: If the employer is restructuring or downsizing then they may terminate the employee. This is also one of the most common reasons why they terminate people.
Layoff: if the employer is experiencing financial difficulties, then they may lay off employees.
When the firm terminates an employee, they don’t get any severance pay. However, there are a number of exceptions to this rule as well. For example, employees whom companies terminate for discriminatory reasons might get severance pay.
Differences between termination and resignation
The main difference between termination and resignation is clear. With the resignation, the employee decides to leave. Whereas with a determination that the employer makes the decision to end the employment of some employee.
| Feature | Resignation | Termination |
| Who initiates the decision | Employee | Employer |
| Notice period | Usually required | Not required |
| Severance pay | Maybe given | Not given |
| Reasons for leaving | Personally like to take another job | Misconduct performance Issues redundancy layoff |
Resignation and termination are two different things for an employment relationship to end. Resignation is when the employee decides to leave. They leave while the termination is when the employer decides to and the employment. There are many important differences between resignation terminations. These reasons are severance pay notice or reason for leaving. It is important for the employee to know about his termination or resignation for gratuity. They give gratuity payments according to circumstances such as resignation or termination. For termination the rules would be different and for resignation also. It is important for you to know whether you resigned or terminated.
How to Calculate Gratuity for limited contracts
Gratuity is a payment to the employee by their employer. They give it upon the termination of the employment. It is a form of severance pay to help the employee settle into the new job. You calculate the gratuity amount on the basis of the salary and the length of service of the employee.
However, the rules for gratuity calculation for limited contracts are different. For limited contracts, the amounts of casualty are calculated differently. Let’s discuss the rules of calculating graduality in UAE.
Identify the employee’s basic salary
The basic salary is the salary that the employee is paid on a regular basis excluding any bonuses, overtime pay, or allowances.
Calculate the number of years of service
The number of years of service is the total number of years that the employee has worked for the company.
Determine the applicable gratuity rate
The applicable gratuity rate depends on the number of years of service. For the first five years, the rate is 21 days’ salary per year. For more than five years of service, the rate is 30 days’ salary per year.
Calculate the gratuity amount
The gratuity amount is calculated by multiplying the applicable gratuity rate by the number of years of service and the basic salary of the employee.
Determine the maximum gratuity amount
The maximum gratuity amount is 2 years’ salary. If the calculated gradually amount is more than two year salary the gratuity amount is cut down to two years’ salary.
Here is an example of how to calculate the gratuity for a limited contract:
- Number of years: 3 years
- Employees’ basic salary: AED 10,000
- Applicable graduate rate: 21 days’ salary per year
- Gradually amount: 21 days salary x AED 10,000 = AED 6,300.
- Maximum gratuity amount: two years’ salary x AD 10,000 = AED 20,000
- In this example, the graduate amount is capped at AED 20,000. The employee will receive a gratuity of AD 20,000.
How to Calculate Gratuity for unlimited contracts
The rules for calculating gratuity for unlimited contracts are:
- Employees who have served less than one year are not given gratuity.
- Employees who have been terminated due to misconduct are not given any gratuity.
- Part-time employees are given gratuity on a pro-basis.
- The amount of gratuity is calculated by multiplying the basic salary by the number of years of service. The gratuity rate of 21 days’ salary per year is applied.
- The maximum gratuity amount is two years of the salary.
Example:
If the employee has a basic salary of AED 10,000. He has worked for an employer for 5 years under an unlimited contract. Their gratuity would be calculated as:
Number of years of service: 5 years
Gratuity rate: 21 days’ salary per year
Gratuity amount: 21 days salary x 5 years x AED 10, 000 = AED 105,000.
Maximum gratuity amount: 2 years’ salary x AED 10,000 = AED 20,000.
In this example, the gratuity amount is kept at AED 20,000. The employee will receive a gratuity of AED 20,0000.
Here are a few points to keep in mind when calculating gratuity for unlimited contracts in the UAE:
- The employee must have been paid their full pay and any other outstanding dues before they can be paid their gratuity.
- The employee may be given an additional gratuity if they are terminated due to redundancy or other reasons beyond their control.
- He may be given reduced gratuity if they’re terminated for misconduct.
Online Gratuity Calculator
Online gratuity calculators are a good way to calculate the amount of gratuity. This gratuity calculator in UAE can help to calculate the gratuity faster. These UAE gratuity calculators 2023 require you to enter your basic pay. Then, the number of years of service and the type of contract. The online gratuity calculator UAE will then calculate the amount of gratuity that you are entitled to.
There are many online calculators available online for you to use. When you choose an online calculator, it is crucial to choose an updated and reputable one. You should also make sure that the calculator uses the correct formula for calculating the gratuity in the UAE.
It is important to note that online UAE gratuity calculators are not legal advice. If you have any questions about your gratuity entitlement, you must consult with an employment lawyer.
Here are some tips for using an online gratuity calculator:
- Make your that you enter all of the needed information accurately.
- Double-check the results of the calculator to ensure that they make sense.
- If you have any questions about the results of the calculator, you must consult with an employment lawyer.
- H2 UAE Gratuity 2023 Formula
- The UAE gratuity formula for 2023 is as:
- Gratuity = (Basic Salary * Years of Service) / 3
Basic Salary: The employee’s basic salary, excluding bonuses, overtime pay, and allowances.
Years of Service: The number of full years that the employee has worked for the employer.
For example, if an employee has a basic salary of AED 10, 000 and has worked for an employer for 5 years, their gratuity would be calculated as:
Gratuity = (10,000 * 5) / 3 = 16,666.67 AED
Exceptional cases:
There are a few special cases to consider when calculating gratuity in the UAE:
- Employees who have served less than one year
- If the employees have served less than one year then they are not given any gratuity.
- Employees who have been terminated for misconduct
- If you have been terminated due to misconduct then you would not get any gratuity.
Part-time employees
There are a number of UAE gratuity calculators available for you to calculate your gratuity. It is the easiest way to calculate your gratuity. You can use the online gratuity calculator UAE to get an idea of your gratuity.
Contact Make it digital to know more about your gratuity and the end-of-service settlements. Our experts will guide you about your gratuity and end-of-service amounts. Feel free to get a free consultation from our experts.
FAQS
What is the new calculation of gratuity in UAE?
The new calculation of gratuity in the UAE was implemented in February 2023. The new calculation method is as follows:
For the first 5 years of service: 21 days’ salary per year.
For more than 5 years of service: 30 days’ salary per year.
The maximum amount of gratuity is two years’ salary an employee can receive.
What is the new gratuity law in UAE 2023?
The new gratuity law was implemented on February 2, 2023. This law was implemented under Federal Decree-Law No. 33 of 2021 Concerning the Regulation of Labor Relations. This law made a few changes to the law such as increased gratuity rates and gratuity for limited contracts. The formula for the new gratuity law is as follows:
- For the first 5 years of service: 21 days’ salary per year.
- For more than 5 years of service: 30 days’ salary per year.
What is the example of gratuity calculation formula in UAE?
Here is the formula for gratuity calculation in the UAE:
Gratuity = (Basic Salary * Years of Service) / 3
If an employee has a basic salary of AED 10,000 and has worked for an employer for 5 years. Then their gratuity would be calculated as follows:
Gratuity = (10,000 * 5) / 3 = 16,666.67 AED
How to calculate gratuity in Dubai 2023?
Here are a few steps for you to know:
Find your basic salary.
Count the number of years of your service.
Multiply your basic salary by the number of years of service.
Capped the gratuity amount to two years’ salary.
Here is the formula: Gratuity = (Basic Salary * Years of Service) / 3.
