End-of-service gratuity is a mandatory lump-sum payment that every UAE employer must pay to employees who complete at least one year of continuous service. It is calculated on basic salary only, not total compensation, using a formula set out in Federal Decree Law No. 33 of 2021. Regardless of whether the employee resigns, is terminated, or reaches the end of their contract, the employer owes this payment.
As of May 2026, gratuity rules vary significantly depending on where your company is licensed. Mainland businesses follow the federal formula. DIFC companies use a funded savings scheme called DEWS. ADGM recently removed its two-year gratuity cap, meaning long-serving employees there can receive higher payouts than anywhere else in the country. This guide covers the formulas, jurisdiction differences, the new Alternative Savings Scheme, compliance deadlines, and the mistakes that cost employers the most.
If you already employ people in the UAE or plan to hire soon, understanding gratuity obligations before your first employee starts is far cheaper than dealing with a MOHRE complaint after they leave.
How Gratuity Is Calculated on the Mainland
Who Qualifies
Every employee who completes one or more years of continuous service qualifies for end-of-service gratuity. There are no exceptions based on nationality, job title, seniority, or reason for leaving. Even employees who are terminated for cause receive gratuity for their completed years of service, though the employer may offset proven damages through a separate legal claim.
If an employee is terminated during the probation period (maximum six months under federal law), no gratuity is owed. However, gratuity accrual begins from the first day of employment, not from the end of probation. So an employee who passes probation and later leaves after 14 months has accrued 14 months of gratuity entitlement, not 8.
Part-time workers receive proportional gratuity. The formula is: number of working hours in the part-time contract per year divided by the number of working hours in an equivalent full-time contract per year, multiplied by 100. That percentage is applied to the full-time gratuity amount.
The Formula
The gratuity formula under UAE employment law is straightforward:
- For the first five years of service: 21 calendar days of basic salary for each completed year.
- For each year after the fifth year: 30 calendar days of basic salary for each completed year.
- Daily rate: monthly basic salary divided by 30.
- Maximum cap: the total gratuity cannot exceed two years of total basic salary.
Gratuity is calculated on basic salary only. This excludes housing allowances, transport allowances, utility allowances, bonuses, commissions, and any other supplementary payments. This is why the salary structure you set for each employee directly affects your gratuity liability.
Three Worked Examples
Example 1: Short Tenure (3 Years, AED 10,000 Basic Salary)
Daily rate: AED 10,000 / 30 = AED 333.33
Years 1 to 3: 21 days x AED 333.33 x 3 years = AED 21,000
Total gratuity: AED 21,000
Cap check: two years of basic salary = AED 240,000. The gratuity is well below the cap.
Example 2: Mid Tenure (8 Years, AED 15,000 Basic Salary)
Daily rate: AED 15,000 / 30 = AED 500
Years 1 to 5: 21 days x AED 500 x 5 years = AED 52,500
Years 6 to 8: 30 days x AED 500 x 3 years = AED 45,000
Total gratuity: AED 97,500
Cap check: two years of basic salary = AED 360,000. Below the cap.
Example 3: Long Tenure Hitting the Cap (25 Years, AED 20,000 Basic Salary)
Daily rate: AED 20,000 / 30 = AED 666.67
Years 1 to 5: 21 days x AED 666.67 x 5 years = AED 70,000
Years 6 to 25: 30 days x AED 666.67 x 20 years = AED 400,000
Uncapped total: AED 470,000
Cap check: two years of basic salary = AED 480,000. The gratuity of AED 470,000 is below the cap, so the full amount is payable. For this employee to hit the cap, they would need approximately 26.3 years of service.
Mainland vs DIFC vs ADGM: Gratuity Rules Compared
The jurisdiction where your company is licensed determines which gratuity rules apply. These are three entirely separate legal frameworks.
| Feature | Mainland (Federal Law) | DIFC | ADGM |
|---|---|---|---|
| Calculation Method | Lump-sum formula (21/30 days) | Funded savings (DEWS) | Lump-sum formula (21/30 days) |
| Employer Contribution | Paid at end of service | 5.83% monthly (years 1-5), 8.33% (year 6+) | Paid at end of service |
| Two-Year Cap | Yes | Yes (on employer contributions) | No (removed April 2025) |
| Payment Deadline | 14 calendar days | 14 calendar days | 21 calendar days |
| Savings Scheme | Optional (Cabinet Resolution 96) | Mandatory (DEWS) | Optional (from April 2025) |
| Minimum Basic Salary | 60% guideline (MOHRE) | Set by DIFC Employment Law | 50% codified (Regulations 2024) |
| Dispute Forum | MOHRE then Labour Court | DIFC Courts | ADGM Courts |
| Key Regulation | Federal Decree Law 33/2021 | DIFC Employment Law No. 2/2019 | ADGM Employment Regulations 2024 |
DIFC: How DEWS Replaces Traditional Gratuity
Employer Contribution Rates
DIFC is the only jurisdiction in the UAE where traditional gratuity has been entirely replaced by a funded savings scheme. The DIFC Employee Workplace Savings plan, known as DEWS, requires employers to make monthly contributions based on each employee's basic salary:
- Years one through five: 5.83% of basic salary per month.
- From year six onward: 8.33% of basic salary per month.
These percentages mirror the mainland gratuity formula but are paid monthly into a regulated investment trust rather than as a lump sum at the end of service. UAE and GCC nationals are exempt from mandatory enrollment because they have existing social security schemes, but they can opt in voluntarily.
How DEWS Works in Practice
Employer contributions are deposited into an investment trust managed by approved providers. Employees choose from several risk profiles, including conservative, moderate, and growth funds. The annual management charge is 1.33% of funds under management for the default fund option, with no entry or exit fees, no switch charges, and no fixed annual fees.
Employees can also make voluntary additional contributions on top of the employer's mandatory payments. Over a 10-year tenure, DEWS typically results in 20% to 40% higher end-of-service payouts compared to traditional mainland gratuity, because the contributions generate investment returns throughout the employment period rather than sitting as an unfunded liability on the employer's books.
For a practical comparison: an employee earning AED 15,000 basic salary in DIFC for 8 years would receive employer contributions totaling approximately AED 93,600 (before investment returns), compared to AED 97,500 under the mainland formula. However, with average annual returns of 5% to 7%, the DEWS balance at the end of 8 years would likely exceed the mainland equivalent.
DIFC Payment Timeline
Employers must ensure all final DEWS contributions are made within 14 days of the employee's termination date. The employee then accesses their accumulated balance (employer contributions plus any voluntary contributions plus investment returns) directly from the DEWS qualifying scheme provider.
ADGM: Key Differences Under the 2024 Employment Regulations
What Changed in April 2025
The ADGM Employment Regulations 2024, which took effect on April 1, 2025, introduced several significant changes to gratuity rules:
1. Two-year cap removed. Unlike mainland and DIFC, ADGM no longer caps total gratuity at two years of basic salary. An employee with 30 years of service receives the full calculated amount, regardless of how large it is. This is the most employer-unfriendly change and requires careful financial provisioning.
2. Basic wage floor codified at 50%. ADGM now requires that an employee's basic wage must be at least 50% of their total wages. On the mainland, MOHRE uses 60% as a guideline but it is not codified in the federal law.
3. Payment deadline is 21 calendar days, not 14. ADGM employers have one additional week compared to mainland businesses.
4. Proportional gratuity for partial years is explicitly provided. If an employee leaves partway through a year, the gratuity is calculated proportionally for the partial period.
5. Repatriation flight required. Within 30 days of termination, the employer must provide a one-way repatriation flight to the employee's country of origin.
ADGM Savings Scheme
From April 2025, ADGM employers can opt into a pension or savings scheme as an alternative to traditional gratuity, similar to the mainland Alternative Savings Scheme but governed by ADGM's own regulations. Participation is voluntary for employers.
The Alternative End-of-Service Benefits Scheme
How the Federal Savings Scheme Works
Cabinet Resolution No. 96 of 2023 introduced the Alternative End-of-Service Benefits Scheme for mainland private-sector employers. Instead of accumulating an unfunded gratuity liability and paying a lump sum when employees leave, employers contribute monthly percentages of each employee's basic salary into regulated investment funds.
The contribution rates mirror the gratuity formula: 5.83% of basic salary for the first five years of service and 8.33% from year six onward. Employees can make voluntary additional contributions of up to 25% of their annual salary. The key difference from DIFC DEWS is that employer contributions can only be accessed at the end of service, while employee voluntary contributions can be withdrawn at any time during active employment.
As of early 2026, the scheme is voluntary. Fewer than 15% of mainland employers have formally enrolled. However, MoHRE conducted a public consultation that closed in February 2026, which strongly signals a mandatory rollout is approaching, likely phased by company size and sector. The scheme does not apply to DIFC or ADGM companies, which have their own frameworks.
Should Your Company Switch?
The scheme works best for companies with 20 or more employees and stable monthly cash flow. The advantages include smoother cash flow management (small monthly payments instead of unpredictable lump sums), potential as an employee retention tool, and potentially higher returns for employees through investment growth. The downsides are setup complexity, ongoing monthly administrative burden, and investment risk (though employees bear the investment risk on their voluntary contributions, employer contributions carry a minimum return guarantee).
If you have fewer than 10 employees and relatively low turnover, the traditional gratuity system is simpler to administer. If your workforce is growing and you want to avoid large cash flow shocks when senior employees leave, the savings scheme is worth evaluating now before enrollment becomes mandatory.
When Gratuity Can Be Reduced or Forfeited
Full Forfeiture Under Article 54
The only ground for complete gratuity forfeiture under UAE law is termination for gross misconduct: specifically, assault or actions that directly and materially affect the employer's business. Article 54 of Federal Decree Law No. 33 of 2021 sets a high bar for this.
The burden of proof falls entirely on the employer. According to Dubai Courts data, employers succeed in proving forfeiture grounds in only approximately 23% of disputed cases. If you are considering withholding gratuity on misconduct grounds, document everything thoroughly and consult a labor lawyer before making that decision. Even if forfeiture is upheld, the employer may still need to offset proven damages through a separate legal claim rather than simply withholding the gratuity.
Resignation and Gratuity
Under contracts signed after February 2, 2022, all contracts are fixed-term. An employee who resigns with proper notice receives full gratuity based on the standard formula. There is no reduction for resignation.
For employees still on pre-2022 unlimited contracts (which is increasingly rare as most have been renewed), the old sliding scale may still apply: one-third of gratuity for one to three years of service, two-thirds for three to five years, and full gratuity after five years. If your company has any employees who started before February 2022 and whose contracts have never been renewed, review those contracts to determine which rules apply.
Probation and Gratuity
No gratuity is owed for employees terminated during the probation period (maximum six months). However, the employer must still provide 14 days written notice for probation termination, and the employee retains all other accrued rights such as unpaid salary and unused leave.
Compliance Checklist for Employers
1. Verify that basic salary is at least 60% of total compensation for each employee. If basic salary falls below 50%, the employee has strong grounds to challenge the structure at the Labour Court, which could increase your gratuity liability retroactively.
2. Track gratuity accrual from each employee's first day of employment, not from the end of their probation period.
3. Set a calendar reminder for the 14-day payment deadline upon any termination (or 21 days if licensed in ADGM).
4. Decide whether to use traditional gratuity or the Alternative Savings Scheme. If you have 20 or more employees, evaluate the scheme now before it becomes mandatory.
5. If your company is licensed in DIFC, ensure monthly DEWS contributions are made on time every month. Late contributions can result in penalties from the DIFC Authority.
6. If your company is licensed in ADGM, note the 21-day payment window and that gratuity is uncapped. Provision accordingly for long-serving employees.
7. Document any gross misconduct thoroughly and contemporaneously. Forfeiture claims based on after-the-fact documentation are almost always rejected.
8. Keep payroll records for at least five years after each employee's departure, including basic salary history, employment dates, and gratuity calculations.
9. Include a gratuity provision in your annual financial planning. For growing companies, the gratuity liability on the balance sheet can become material. Calculate your total exposure across all employees at least once a year.
10. Review any pre-2022 contracts. If unlimited contracts still exist, assess whether the old sliding-scale gratuity rules apply and consider renewing them as fixed-term contracts to standardize obligations.
Common Mistakes Employers Make
Calculating Gratuity on Total Salary Instead of Basic Salary
This is the most expensive mistake. Gratuity is calculated on basic salary only. An employee earning AED 25,000 total with AED 15,000 basic is owed gratuity on AED 15,000, not AED 25,000. Miscalculating on total salary for an 8-year employee would overpay by approximately AED 39,000 in the example above. Conversely, underpaying because you used the wrong base figure exposes you to a MOHRE complaint and back-payment with penalties.
Missing the 14-Day Payment Deadline
Employers must pay all end-of-service amounts, including gratuity, within 14 calendar days of the employment end date (21 days in ADGM). Late payment is a distinct violation from underpayment, and both are separately actionable. Employees can file a MOHRE complaint through the UAE Government portal or by calling 800-60. Consequences include daily penalties, potential trade license suspension, and restrictions on hiring new employees.
Setting Basic Salary Below 50% to Reduce Liability
Some employers set basic salary at 30% to 40% of total compensation to minimize gratuity, overtime, and leave encashment costs. While not explicitly illegal on the mainland, MOHRE guidelines recommend at least 60%, and ADGM now requires a minimum of 50% by law. If an employee challenges a low basic salary structure at the Labour Court, the court may recalculate the split and retroactively increase the employer's gratuity liability for the entire employment period.
Not Provisioning for Gratuity in Financial Planning
Gratuity is an unfunded liability unless you join the Alternative Savings Scheme. When a senior employee with 10 or more years of service resigns, the lump-sum payment can be a significant cash flow shock. For an employee earning AED 20,000 basic salary with 12 years of service, the gratuity is AED 161,000. If three senior employees leave in the same quarter, the total exposure could exceed AED 400,000. Annual provisioning on your balance sheet prevents this from becoming a crisis.
Assuming Probation Termination Eliminates All Obligations
Terminating an employee during probation means no gratuity is owed, but the employer must still give 14 days written notice, pay any accrued but unused salary, and settle all outstanding amounts. Skipping the notice period without paying notice-period compensation is a separate violation.
Confusing DIFC DEWS With Mainland Gratuity
If your company is licensed in DIFC, you do not calculate gratuity using the 21-day and 30-day formula. Your obligation is to make monthly DEWS contributions. Applying the mainland formula to a DIFC employee, or vice versa, results in either overpayment or underpayment and potential legal exposure in the wrong jurisdiction's courts.