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Computation of End of Service Benefits in the United Arab Emirates (UAE)

Gratuity payment is a form of severance compensation that is owed to employees who have completed a specified period of service with their employer. In the United Arab Emirates (UAE), gratuity is computed on an annual basis, provided that the employee has completed at least one year of uninterrupted service with the same employer. This end-of-service gratuity is among the benefits that employees are entitled to upon fulfilling the terms of their employment contract.

End-of-service benefits for full-time employees in the UAE vary depending on whether the individual is a UAE citizen or an expatriate.

For UAE citizens employed in the private sector, end-of-service benefits are governed by the laws about pensions and social security within the UAE.

For expatriate employees, an end-of-service bonus, often referred to as gratuity, may be awarded as a lump sum payment in the event of resignation or termination of employment. The guidelines for end-of-service rewards for foreign workers in the private sector are outlined in Article 51 of the UAE Labour Law.

Here are the key provisions:

1. UAE Nationals: UAE citizens are entitled to end-of-service benefits by the regulations governing pensions and social security in the UAE.

2. Foreign Workers: Full-time foreign employees who have completed one year or more of continuous service are eligible for end-of-service benefits, which are calculated based on their basic wage. The calculation is as follows:
– 21 days of wages for each year of the first five years of service.
– 30 days of wages for each year beyond the initial five-year period.

3. Partial Service: Foreign workers who have completed less than a full year of continuous service are entitled to a proportionate benefit based on the duration of their employment, provided they have served for at least one year.

4. Exclusions: Absences from work without pay are not considered when calculating the length of service for end-of-service benefits.

In summary, gratuity payments are an essential aspect of employment benefits in the UAE, ensuring that both UAE citizens and expatriate workers are provided with financial compensation upon the completion of their employment contracts, subject to the specified conditions and calculations outlined in the UAE Labour Law.

Comprehending Gratuity Calculations

Employees with a continuous service record of at least one year become eligible for end-of-service benefits upon the termination of their employment. It’s important to note that periods of unpaid leave are not factored into the calculation of their service duration. The gratuity is determined as follows:

1. An individual who has worked for more than one year but less than five years is entitled to receive full gratuity, which is calculated as 21 days of salary for each year of service.

2. Employees with a service duration exceeding five years are entitled to a gratuity of 30 days’ pay for each additional year of employment.

3. Foreign workers are also eligible for benefits proportionate to the duration they have spent at work, provided they have completed a full year of continuous employment. Unpaid leave days are not considered when calculating their service period.

It’s worth noting that the calculation of end-of-service benefits is based on the employee’s last basic wage. For those who receive their wages on a monthly, weekly, or daily basis, this is applicable. For individuals earning income on a piecework basis, the average daily salary as outlined in this article’s provisions is used.

In line with the above information, the total end-of-service benefits for foreign employees should not exceed two years’ worth of pay. Furthermore, the employer may deduct any amounts owed under the law or a court judgment from the benefits paid out after the termination of employment, under the terms and guidelines specified in the implementing regulations of this document.

End-of-Service Benefits for Workers in Different Employment Arrangements

Cabinet Resolution No. 1 of 2022 outlines the implementation of Federal Decree-Law No. 33 of 2021, which regulates labor relations, especially concerning end-of-service benefits for foreign workers in non-full-time employment arrangements. This resolution aims to enhance the labor market’s efficiency and appeal while serving the interests of both employers and employees.

Article 30 of the executive rules, as mentioned in the resolution, details the calculation of end-of-service benefits for employees with part-time contracts or other non-full-time work arrangements. Here’s the breakdown according to Article 30:

For workers in part-time or job-sharing roles (not full-time), end-of-service benefits are calculated by determining the number of working hours specified in their employment contract per year. This number is then divided by the number of working hours in a full-time contract, and the result is multiplied by 100 to establish the percentage for calculating the end-of-service benefit. This percentage is then applied to the value of the end-of-service benefit due for a full-time employment contract.

It’s important to note that end-of-service benefits apply to temporary employment contracts only if their duration extends to one year.

Payment of Employee Benefits upon Contract Termination

Employers are obligated to settle employees’ salaries and other entitlements as defined by labor laws, relevant resolutions, employment contracts, or company bylaws within 14 days following the contract’s expiration date.

Labor Lawyers in the UAE

Managing labor and employment issues is a common challenge for businesses in the UAE due to the diverse workforce. Lawyers’ team of labor lawyers offers expert guidance and services to clients dealing with matters related to end-of-service gratuity benefits in Dubai. Our experienced attorneys specialize in employment laws and are ready to assist you.

Contact us today to schedule a consultation with one of our labor and employment lawyers in the UAE.

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